Dime Community Bancshares, Inc.

Hey, and thank you for standing by. Welcome to the DIME Community Bank Shares Inc. Q2 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in today's press release and the company's filings with the U.S. Securities and Exchange Commission. to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release I would now like to hand the conference over to your first speaker today, Stuart LeBeau, President and CEO. Please go ahead.

Good morning. Thank you, Stephen, and thank you all for joining us this morning for our quarterly earnings call. With me this morning is Avi Reddy, our CFO. In my prepared remarks, I will touch upon key highlights for the second quarter of 2025. Avi will then provide some details on the quarter and thoughts on the remainder of the year. Our core earnings power has increased significantly over the past year. Core pre-tax, pre-provision income was $49 million in the second quarter of 2025, compared to $28 million a year ago. This translated into a core ROA of 85 basis points for the second quarter. Core deposits were up $1.2 billion on a year-over-year basis. The deposit teams hired since 2023 have grown their deposit portfolios to approximately $2.2 billion. This has allowed us to continue to pay down our broker deposits to a fairly minimal level. We have made significant progress in creating a core deposit funded balance sheet with ample liquidity to take advantage of lending opportunities as they arise. Our cost of total deposits was 2.09% in the second quarter. By maintaining a strong focus on cost of funds management, our NIM has now increased for the fifth consecutive quarter and is approaching the 3% mark. We continue to have several catalysts to continue to grow our NIM over the medium to long term, including a significant back book repricing opportunity. Avi will get back to get into that in more details in his remarks. On the loan front, we continue to execute on our stated plan of growing business loans and managing our career ratio lower. Business loans grew over $110 million in the second quarter and over $370 million, or 15%, on a year-over-year basis. We are starting to see the benefit of the new hires we've made over the past couple of years. Loan origination, including new lines of credit, increased to $450 million for the quarter. The weighted average rate on a new origination was approximately 7%. Our loan pipelines continue to be strong and currently stand at $1.2 billion compared to approximately $1.1 billion at quarter end in March and $750 million when we reported earnings in January. The weighted average rate on the pipeline is approximately 6.85%. On our recruiting efforts, disruption in the local market remains very high, and in the second quarter, we executed on a commercial lending diversification strategy. After hiring Tom Geisel in the first quarter, we identified several verticals that are complementary to our existing businesses and made a number of senior hires. Once they settle in, we expect these verticals to contribute to our growth in the fourth quarter and beyond. While hiring does cause an increase in near-term operating expenses, we expect all these verticals to meaningfully contribute to the execution of our strategic goals. In addition to the new lending verticals, we made progress on getting regulatory approvals to open a new location in Lakewood, New Jersey. Additionally, we expect to open a new branch in Manhattan in the fourth quarter. In conclusion, the momentum in our business is extremely strong, and we continue to execute on our business plan of growing business loans and core deposits. We have clearly differentiated our franchise from our local competitors as it relates to our growth trajectory and the ability to attract talented bankers. We have an outstanding deposit franchise, a strong liquidity position, and a robust capital base. It is important to note that our full earnings power, which is underpinned by a 30% non-interest-bearing deposit base, is not yet shining through, as the asset side of the balance sheet has not yet repriced. Ongoing NIM improvement is supported by loan repricing opportunities and coupled with organic growth across deposits and business loans. That will aid in unlocking the inherent earnings of the dime. I'm looking forward to the remainder of 2025 and want to again thank all our dedicated employees for their efforts in positioning Dime as the best business bank in New York. With that, I will turn the call over to Avi.

Thank you, Stu. Core EPS was $0.64 per share. This represents increases of 12% on a link quarter basis and 49% on a year-over-year basis. The reported NIM increased to 298. We had around three basis points of prepayment fees in the second quarter NIM. Excluding prepayment fees and purchase accounting, the second quarter NIM would have been 295. As a reminder, the first quarter NIM excluding prepayment fees and purchase accounting was 291. Non-broker deposits were up approximately 210 million at June 30th versus the prior quarter. As we continue to see strong inflows across our branch network and across the private and commercial bank, we proactively reduced a higher cost municipal relationship by approximately $125 million in the second quarter. Said differently, had we not proactively reduced this municipal relationship, we would have grown non-broker deposits by approximately $335 million in the second quarter. Core cash operating expenses excluding intangible amortization and severance expense was $59.9 million. The linked quarter increase in expenses was primarily due to the hiring of production staff. Non-interest income of $11.6 million reflected increased loan swap income. We had a $9.2 million credit loss provision for the quarter and the allowance to loans increased to 86 basis points. Capital levels continue to grow and our common equity tier one ratio increased to 11.25 and our total capital ratio grew to 15.8%. Having best in class capital ratios versus our local peer group is a competitive advantage and will allow us to take advantage of opportunities as they arise and speaks to our strength and ability to service our growing customer base. Next, I'll provide some thoughts on guidance for the remainder of 2025. As I mentioned previously, excluding prepayment fees, the NIM for the second quarter would have been 295. We would use this as a starting point for modeling purposes going forward as we don't expect the prepayment fees to repeat in that size in the upcoming quarters. In the near term, we expect a gradual upward bias in the NIM for the third quarter with more pronounced expansion in the fourth quarter as the asset repricing story will start to unfold with more vigor towards the end of the year. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, in the second half of 2025 and the full year of 2026, we have approximately $1.95 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of approximately 4.1% that either reprice or mature in that timeframe. Assuming a 225 basis point spread on those loans over the forward five-year treasury, we could see a 30 basis points increase in NIM from the repricing of these loans. As we look into the back book for 2027, we have another 1.7 billion of loans at a weighted average rate of 425 that will lead to continued NIM expansion in 2027. Moving to the short end of the curve, should the Federal Reserve cut rates, we expect our previous trend of approximately five basis points of NIM expansion for every 25 basis point rate cut to repeat, assuming the behavior and deposits and loans hold for each subsequent rate cut and competition remains rational. In summary, assuming the market consensus forward curve plays out, we have a path to a structurally higher NIM and enhanced earnings power over time. As we approach a 3% margin, the next marker in front of us is 325, and after that, 350. It's important to note that while the destination to us is clear, the near to medium-term NIM is going to be a function of business loan growth. We believe we have the people and verticals in place to drive strong medium to long-term business loan growth. Along the journey, if there's a quarter of subdued growth and less remixing, it does not change the ending NIM destination in our mind. With respect to balance sheet growth, we expect low single-digit growth for the remainder of the year with the planned attrition in transactional CRE and multifamily masked by growth in our business loan portfolio. As we've typically done, we will only provide guidance for 2026 once we get into the new year. Next, I'll turn to expenses. As outlined in the press release, we have organically built out several new lending verticals. As a result, we are updating our core cash non-interest expense guidance, which excludes intangible amortization to approximately $61.5 million for the third quarter of 2025. This updated guidance is based on our existing employee base at the time of the earnings release. For the third quarter, we anticipate swap fee income to be approximately half a million dollars and total non-interest income to be in the $10.5 million area. Finally, on the tax rate, we expect the effective tax rate to be between 27% and 27.5% for the third quarter. With that, I'll turn the call back to the operator, and we'll be happy to take your questions.