Dime Community Bancshares, Inc.

Good day and thank you for standing by. Welcome to the DIME Community Bank Shares, Inc. Third Quarter Earnings Conference Call. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in today's press release and the company's filings with the US Securities and Exchange Commission to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release. 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Stuart LeBeau, President and CEO. Please go ahead.

Thank you, Diane, and thank you all for joining us this morning for our quarterly earnings call. With me today, as usual, is Avi Reddy, our CFO, and also Tom Geisel, who we hired earlier this year to continue growing our commercial bank. In my prepared remarks, I will touch upon key highlights for the third quarter of 2025. Avi will then provide some details on the quarter and thoughts for the remainder of 2025. Our core earnings power continues a significant upward trajectory. Core pre-tax, pre-provision income was $54.4 million for the third quarter of 2025, compared to $49.4 million in the second quarter of 2025 and $29.8 million a year ago. We had an increase in loan loss provision in the third quarter, primarily tied to charge-offs on loans in the owner-occupied and non-owner-occupied real estate segments. While MPAs were up Slightly on a linked quarter basis, they are up off a very small base and represent only 50 basis points of total assets, which compares favorably to commercial bank peers. On a linked quarter basis, we did see a decline in criticized loans in the third quarter of approximately $30 million and also saw a 33% decline in 30 to 89 days past due. Core deposits were up $1 billion on a year-over-year basis. The deposit teams hired since 2023 have grown their deposit portfolios to approximately $2.6 billion. We have a core deposit-funded balance sheet with ample liquidity to take advantage of lending opportunities as they arise. Our cost of total deposits was $209 in the third quarter, which was untrained versus the second quarter. By maintaining a strong focus on cost of funds, our NIM has now increased for the sixth consecutive quarter and has surpassed 3% more. Following the Fed rate cut in September, we were able to meaningfully lower deposit costs while maintaining loan yields. As mentioned in the press release, since the Fed rate cut, the spread between loan and deposits has increased approximately 10 basis points, and this will continue to drive NIM expansion in the fourth quarter. Outside of rate cuts, we continue to have several additional catalysts to continue to grow our NIM over the medium to long term, including a significant back book loan repricing opportunity. Avi will get into more details on the margin in his prepared remarks. On a loan front, we continue to execute our stated plan of growing business loans and managing our CRE concentration ratio, which is now 401. Business loans grew over $160 million in the third quarter compared to $110 million of business loan growth in the second. On a year-over-year basis, business loan growth was in excess of $400 million. Loan originations, including new lines of credit, increased to $535 million. The weighted average rate on new originations and lines was approximately 6.95%. Our loan pipelines continue to be strong and currently stand at 1.2 billion. The weighted average rate on the pipeline is between 650 and 675. Next, I will touch on our recruiting efforts. Disruption in our local marketplace remains very high, and we continue to execute on our goals of building out our CNI businesses. As outlined in the press release, we hired a number of talented bankers in the third quarter, Once they settle in, we expect them to meaningfully contribute to our business loan growth. In addition, we recently opened a branch location in Manhattan. The grand opening was actually yesterday. And we are on track to open our New Jersey location in Lakewood in the first quarter of 2026. Additionally, we have identified a new location on the North Shore of Long Island that we expect to open in early 2026. In conclusion, the momentum in our business continues to be very strong, and we are executing 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, our ability to attract talented bankers. We have an outstanding deposit franchise, a strong liquidity position, and a robust capital basis. We expect more meaningful NIM expansion in the fourth quarter and significant opportunities in 2026 based on loan pricing opportunities, organic growth across deposits and loans. I am looking forward to closing out the year strong. I want to again thank all our dedicated employees for their efforts in positioning DIME as the best commercial bank in New York. With that, I will turn the call over to Avi.

Thank you, Stu. Core EPS for the third quarter was 61 cents per share. This represents 110% year-over-year increase. Core pre-tax, pre-provision net revenue of $54 million represents approximately 1.5% of average assets. The reported third quarter NIM increased to $301. We had around two basis points of prepayment fees in the third quarter NIM. Excluding prepayment fees and purchase accounting, the third quarter NIM would have been $298. As a reminder, the second quarter NIM excluding prepayment fees and purchase accounting was 295. Total deposits were up approximately 320 million at September 30th versus the prior quarter. We continue to see strong inflows across our branch network and across the private and commercial bank. Core cash operating expenses excluding intangible amortization was 61.9 million which was marginally above our prior guidance for the third quarter of 61.5 million. The variance versus the prior guidance was due to the additional hires we made in the third quarter. Non-interest income of 12.2 million was inclusive of a 1.5 million positive benefit tied to a fraud recovery that dates back to Legacy Bridge. We had a 13.3 million credit loss provision for the quarter and the allowance to loans increased to 88 basis points. As Stu mentioned, criticized loans were down approximately 30 million linked quarter and loans 30 to 89 days past due were down approximately 33% on a linked quarter basis. We continued to grow and our common equity tier one ratio grew to over 11 and a half percent and our total capital ratio grew to over 16%. Having best in class capital ratios versus our local tier 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 the fourth quarter. As I mentioned previously, excluding prepayment fees and purchase accounting, the NIM for the third quarter would have been 298. We would use this as a starting point for modeling purposes going forward. Stu mentioned we expect more substantial NIM expansion in the fourth quarter as we have been successful in reducing deposit costs and maintaining our loan yields, which has been helped by the pace of new originations. The spread between loans and deposits is approximately 10 basis points higher currently than what it was at September 15th. While we have a larger cash position than we did in prior quarters that will eat into some of the NIM benefit from the spread differential between loans and deposits, we do expect more pronounced NIM expansion in the fourth quarter compared to the second and third quarters. In addition, we expect the asset repricing story that we've been talking about for a while to unfold with more vigor in 2026 and 2027. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, in the full year 2026, we have approximately 1.35 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 4% that either reprice or mature in that timeframe. Assuming a 250 basis point spread on those loans over the forward five-year treasury, we could see a 20 basis point increase in NIM by the end of 2026 from the repricing of these loans alone. 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. In summary, assuming the market consensus forward curve plays out, we continue to have a path to a structurally higher NIM and enhanced earnings power over time. Now that we've crossed 3% on the margin, the next marker in front of us is 325 and after that 350. With respect to the balance sheet, we expect a relatively flat balance sheet for the remainder of this year as planned attrition in transactional CREE and multifamily masks the 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 you're aware, we've added a significant amount of talented individuals to the organization and we continue to have opportunities to selectively add more. We expect fourth quarter core cash operating expenses to be around 63 million. We don't expect any more wholesale additions of production staff until bonuses are paid in the first quarter, so we can treat the new fourth quarter expense run rate of 63 million as a good placeholder for now. Turning to non-interest income, for the fourth quarter, we did not expect a repeat of the fraud recovery item that we saw this quarter, meaning the run rate for non-interest income would be around 10 to 10.5 million. Factors that will determine the eventual outcome will be swap-free income, which can be hard to predict, as well as SBA fees, which are being impacted by the government shutdown. As has been our typical practice, we won't be providing guidance on 2026 until we report earnings in January. Suffice to say, we are very positive on the NIM trajectory as we exit 2025. Our efficiency ratio continues to improve, and we expect to continue driving that down with NIM improvement. With that, I'll turn the call back to Diane, and we'll be happy to take your questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, we ask that you limit your questions to one question and one follow-up and recue if you have additional questions. Please stand by while we compile the Q&A roster. And our first question comes from Steve Moss of Raymond James. Your line is open.

Good morning, guys. Hi, Steve. Hey, Sue, Avi. Maybe just starting off on credit here, just curious with regard to the NPA formations and the charge-offs, you know, were the charge-offs related to this quarter's new non-performing loans? And then, you know, was it weighted more towards, you know, owner-occupied CRE or non-owner-occupied CRE? And maybe if any of it was multifamily related to

Yeah, so none of it was multifamily related, Steve. It was owner-occupied and non-owner-occupied. The split was around 20% owner-occupied, around 80% non-owner-occupied over there. You know, like Stu said, you know, criticized were down around $30 billion linked quarter. The 30 to 89-day bucket got better. And we're pretty confident that, you know, we should see some resolution of legacy NPAs in the fourth quarter, probably amounting to around $15 to $17 million that we have a good line of sight into. So I wouldn't characterize the formation as anything out of the ordinary course of business. We're operating at 50 basis points of NPAs. We probably could be range bound around that between now and the end of the year. And we're seeing a very strong credit overall on the multifamily side.

Okay. Appreciate that. And then maybe on the multifamily payoffs this quarter, those accelerated here. It kind of sounds like you're going to expect that similar pace into the fourth quarter. Is that kind of, you know, maybe how you guys are thinking about 2026 is you guys just have greater repricings and we're going to see just a continued step up in the multifamily paydowns?

I think you're going to see continued paydowns in the multifamily. I think this quarter was a bit outsized, and we knew that we had some big prepayments or payoffs coming in. But, you know, I wouldn't expect it to be at this level of prepayment going forward, more normalized. But, you know, we are seeing maturities, you know, When we do have maturities, there is a relatively high percentage that is refinancing out.

Okay, great. I'll step back in the queue here. Appreciate all the color. Thank you.

Thank you. Our next question comes from Matthew Bruce of Stevens Inc. Your line is open.

Hey, thank you, and good morning. Hi, Matt.

Obviously, I wanted to follow up on the credit question just for just for a moment, you know, on charges specifically, Avi, I think in the past, you've discussed, you know, hey, look, we're building out a business bank, there's going to be some, you know, more normalized call it charge offs than historical, you know, diamond grades, especially in the higher rate environment. Could you just reframe for us what you define as normalized? And, you know, I'm trying to, you know, kind of triangulate your comments. Is there a pathway back to normalized over the next couple of quarters?

Yeah, no problem. I'd appreciate the questions. I think at the start of the year, you know, our guidance for charge-offs was, you know, around 20 to 30 basis points. That's what we said, you know, before we started building out the specialty verticals, really. That was my comments back in January, right? So you look at on a year-to-date basis right now, we're basically at 31 basis points. So we're basically within the range of what we have. The new businesses that we're building out, you know, fund finance, for example, we expect zero losses in those new businesses, right? So I don't think the new businesses per se are going to add to the level of future charge-offs because we're making good loans and we're being very conservative in what we do. What it may change, though, is the reserving methodology because, you know, For C&I loans, we are reserving somewhere between 125 and 150. So if you think about the model going forward, you know, we do expect the reserve to build and us to be in that 90 to 1% area. And, you know, that could, you know, gradually build over time. It'll be a function of what we're putting on. But in terms of charge-offs, I mean, we're in probably the late cycles of, you know, a high-rate environment. And, you know, it's our goal with, you know, increased earnings power to – you know, exit some criticized assets, see on there. So, you know, that's probably, you know, a couple more quarters of that probably, you know, that we see. But, you know, I would expect, you know, as we get into, you know, 26, you know, to get to a, you know, more of a historical dime level if that's what you're asking on the charge-off level. But I think on the provision level, it's going to be a function of the new business, right? And we're reserving at a higher level for the new business.

Great, thank you. And then going back to the multifamily reduction, I am curious, within that, was there any, you know, selection bias? You know, stuff that's rolling off the book, was it, you know, more market weight multifamily versus rent regulated? And I would love just to hear what the market appetite is for those products, you know, refiing away. Is it, you know, nondiscriminate and both are being refied away? Or are you seeing, you know, more so the market rate stuff get refied away than rent regulated?

Yes, I think we're setting our new rates, you know, slightly above market, Matt. You know, I think at a reprice, you know, some of the customers are staying with us. But at maturities, we're not seeing any delineation between free market and, you know, historical rates. rent-regulated items just because the LTVs are so low and, you know, we've been pretty conservative in the underwriting. So I think there's a difference at the reprice. If something is repricing and still has five years left, you probably would see more of the rent-regulated stuff staying on with the books. But at maturity, we're seeing the same, you know, 80% to 90% of the loans are basically going away at this point. And there's really no delineation between that at this point in time at least.

Okay, and then two others for me, just, you know, one, we may be in the process of getting some, you know, short order successive rate cuts, feels like, you know, two by the end of the year, and then maybe one earlier next year. So, call it, you know, three or four, another three or four 25-bip cuts. Can you give us some idea for expectations on deposit betas as a lot has changed on your end than previous cycles?

Yes, I'll start with this cut, Matt. So, you know, I think you asked the question last quarter. I mean, rate cuts obviously help us, and gradual rate cuts help us more than probably, you know, big rate cuts, because that's sometimes hard to cut depositors by, you know, the full amount. So we kept the deposit cost at 209 this quarter, consistent with the last quarter, but we continue to grow deposits, right? So we're bringing on new deposits in the low twos. You know, Right now, our cost of deposits is in the low 190s. Prior to this rate cut, it was 209. And so we were pretty much able to pass the full 100% on. I mean, we do have 30% DDA, so that is what it is. So I'd say for this 25 basis points, we're very happy with where we ended up. So we started at 209, we're at 190 right now. So we were able to cut, and that's on total deposits, we were able to cut by 19 basis points. So I think for anything going forward for the next two, we'd expect something similar, but it's going to depend on the competition. And look, the luxury that we have is We have a lot of new deposits coming in from our branch network, from our municipal deposit bankers, from our private banking teams, and from some of the commercial lending teams that we've built on. So we can be more aggressive with the existing deposit base that we have, and I don't think that's a luxury that a lot of other peers in our geography have. While I think the models would say, you know, 50%, 60% beta, I mean, we're trying to pass everything on going forward on the way down. And if you remember, you know, when rates were at zero, our cost of deposits was seven basis points back then, right? We're not getting back there, but we did pay up on the way up. And there was, you know, industry events with Signature and some of the other stuff that happened where you know, there was a bit of retention going on. But I think on the way down, our goal is to benefit from that. And, you know, again, the NIM guidance that we gave going forward, I mean, that's absent any rate cuts, right? I mean, so for every rate cut, we should have, you know, five basis points plus or minus over there. And that's kind of, you know, primarily from cutting the deposit side of the business.

Great. I appreciate all that. And then just, you know, my last one. You know, there's been, you know, some larger banks that have identified Long Island as a market, you know, folks want to be in. And I know in prior calls we've asked you about M&A as a buyer, and I'm curious your thoughts there. But I'm also curious to what extent you've thought about, you know, all strategic alternatives, including a potential sale if bids were to come in and some of these larger banks were to make a more pronounced effort into Long Island. That's all I have.

Yeah, well. Yeah, thanks, Matt. Look, we're focused on organic growth. We've just brought on all these talented bankers and these teams on the loan side. We had already done that on the deposit side. We think we're really well positioned to deploy the excess liquidity that we have over the next six months to a year with all these teams coming on board. Our pipeline is very strong with very good yields. I mean, I'm excited about the fact that, you know, we're going to start to see NIMS in the, you know, mid to high threes, you know, in a relatively, you know, mid to long term, which is going to benefit, you know, the bottom line and our shareholder value. So really focus on that. As far as, you know, the other, look, everyone knows me. I've been around a long time. I'm always interested in maximizing shareholder value. But for now, we're really focused on organic growth.

Appreciate it. Thank you.

Thank you. And our next question comes from Mark Fitzgibbon of Piper Sandler. Your line is open.

Hey, guys. Good morning.

Hey, Mom. Good morning.

I was wondering, with the capital ratios building nicely and it sounds like no balance sheet growth in the fourth quarter, what are your thoughts on stock repurchases?

Yep. Yeah, Mark, so we've started having those conversations in earnest at this point. I think last couple of quarters we said, you know, early 2026 we'll revisit it. I mean, the common equity tier one is over 11 and a half, total capital is over 16. I mean, the one thing we were trying to do is to get the Cree concentration ratio down to, you know, the low 400s, and we are there, right, at this point in time. You know, I will say when you look at the peer groups, Mark, you know, and more nationally, you know, because, I mean, we've really broken out of the local peer group here. Our business model is completely different from a lot of the other banks here. And you look at, you know, TCE ratios, or you look at common equity TO1 ratios, it's gone up industry-wide. And so I don't think we're an outlier when you compare us to the rest of the industry. We obviously have a lot more capital than historical dime used to run the balance sheet. So I think the first and best use of capital obviously is, you know, putting into work on all of the existing lending teams that we have, a lot of the new teams that Tom has hired, and putting that to work. I mean, you'll see in the press release a number of new verticals that we've brought on board. And each one of them should be a half a billion dollar business for us over two to three years, right? So we'd like to deploy that. At the same time, you know, the Cree runoff, the multifamily runoff is going to stop, you know, at some point relatively soon. And we'll be back, you know, in that market in a bigger way. So I think we're trying to balance a lot of those items, Mark. From a corporate finance perspective, obviously, we see the stock is very undervalued, especially as you start projecting out NIMS in 26 and 27. So from that perspective, you know, we do want to be back in the market for that. If you remember after the merger, we returned around $100 million of capital to shareholders, so we have been aggressive on that. But I think the limiting factor was the CRE ratio more from an optics perspective, and I think, you know, As we get below 400, that'll go away, and it'll probably help us be back in the market. So hopefully that provides you a bit of perspective on the different dynamics there.

It does. Thank you. And also, I was curious, Avi, you mentioned there was a fraud recovery in the quarter. I guess I'm curious how much was that, and was that in the other income line?

Yes, yes. So that was in other income markets. If you remember, it was probably dating back to 2018 or 2019. Legacy Bridge had a fraud with a bus company. It was around an $8 million non-interest expense that they had, more of an operational item. So, you know, we've been going through the legal process, and we were able to recover a million and a half this quarter, and that's in the other, other non-interest income lane.

Okay, great. And then I guess just sort of a bigger picture, and maybe not even necessarily legal, relating to dime, but just industry-wide. You know, Stu, you and I have been through a few credit cycles. I guess I'm curious where you feel like we are and, you know, what inning are we in? You know, how does this cycle play out? Does it get markedly worse? Does it sort of just muddle along? Have we seen the worst of it? I guess I'm curious of high-level thoughts. And again, not specific to dime per se.

Yeah, no, I think we're, you know, kind of in the later innings at this point. I think we're going to muddle along a little bit going forward. Look, you know, the issues of 2023, you know, and the two years thereafter kind of exacerbated some of the situations with the higher rate environment. So I think overall the industry has done very well. And I think we're at the point now where you've got a lower rate environment coming. And I think generally, at least locally, the economy remains relatively strong. So I think that the industry has kind of worked through the process and managed the credit issues very well. I think as some of the Issues come up with improved earnings. There might be a little bit more aggressive approach to resolving items, but I think generally I think the industry has done well, and I don't see us entering a significant stress environment in terms of credit. Thank you.

Thank you. I'm shown no further questions at this time. I'd like to turn it back to Stuart Lebeau for closing remarks.

Thank you, Operator and Diane, and thank you all for our dedicated employees and our shareholders for their continued support. We look forward to speaking to you in early 2026 after our fourth quarter.

This concludes today's conference call. Thank you for participating, and you may now disconnect.