Dime Community Bancshares, Inc.

Good day, and welcome to the Dom Community Bank Shares, Inc. Q4 Earnings Call. At this time, all participants are in listening mode. After the speaker's prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbors 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 violence 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 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 reconciliations to GAAP, please refer to today's earnings release. At this time, I would like to turn the call over to Stuart Lubow, President and CEO. You may begin.

Good morning. Thank you, Michelle, and thank you all for joining us this morning for a quarterly earnings call. With me this morning, as usual, are Avi Reddy, our Chief Operating Officer and CFO, and also Tom Geisel, our Chief Commercial Officer. Today, I will touch upon the progress we made in 2025 as we executed on all aspects of our strategic plan. I will then touch upon some bank-wide goals for 2026. Tom will talk about the progress we made in building out our commercial banking platform and industry verticals. Avi will then provide some details on the fourth quarter and guidance for 2026. Our core earnings power continues its upward trajectory. Core EPS was 79 cents for the fourth quarter, representing an 88% increase versus the prior year. The growth in EPS was driven by record total revenues of 124 million for the fourth quarter. The NIM was up 10 basis points, and average earning assets were up over $650 million on a linked quarter basis. All our growth has been organic, built by our existing bankers and new hires. As you know, we do not have any purchase county in our numbers that tends to inflate results at banks that have engaged in M&A. Core deposits were up $1.2 billion on a year-over-year basis. Deposit growth has been strong across all our channels. In addition, we have been successful in continuing to drive down our cost of funds and growing our non-interest-bearing DDA to 31% of deposits. As such, we have a core funded balance sheet with a significant liquidity position, which will allow us to take advantage of lending opportunities as they arise. Speaking of loans, we continue to execute on our stated plan of growing business loans and managing our credit concentration ratio, which is now below 400%. Business loans grew over $175 million on a link quarter basis and over $500 million on a year-over-year basis. We were very happy to be able to bring Tom Geisel in in the first quarter of 2025 and have already made great progress in terms of billing out various industry verticals that Tom will talk about more in his remarks. Our loan pipeline continues to be strong and is more than $1.3 billion with a weighted average rate between six and a quarter and six and a half. As we mentioned on last quarter's call, MPAs moved down nicely in the fourth quarter and now represent only 34 basis points of total assets. Wealth and family credit continues to be very strong with zero MPAs. Our capital levels are best in class with a total capital ratio of more than 16%. Disruption in our marketplace remains very high. As you saw, there was another merger transaction where an out-of-state bank bought a local thrift at year end. We were not involved in this transaction in any way. We remained focused on our organic growth strategy and hiring teams. The environment for organic growth continues to be very strong with an extremely target rich environment, and the execution of our strategy is now showing up in our quarterly results. Our Manhattan branch is up and running, and we expect the same for our Lakewood and Locust Valley locations toward the end of the first year. As we look forward to 2026, the momentum in our business continues to be strong, and we are focused on the following. As we have discussed previously, and as Avi will mention in his remarks, we have a significant amount of repricing assets in the next two years, which provides a tailwind for revenue growth. As the loan repricing story plays out, Dyn's inherent earnings power will be displayed. In 2025, we put in place the building blocks to create a more diversified balance sheet and loan portfolio. I expect to see significant growth in both in 2026. As we grow revenues faster than our expenses, we expect to operate at a sub-50% efficiency ratio. Being efficient has always been a hallmark of Diamond, and we expect a return to the sub-50% level in 2026. Lastly, we continue to attract talented bankers who can help us grow core deposits and grow business zones. In conclusion, DIME has clearly differentiated our franchise from our local competitors as it relates to our organic growth. We have an outstanding deposit franchise, strong liquidity, and robust capital, which bodes well for the future, driven by significant loan repricing opportunities over the next two years. I want to end by thanking all our dedicated employees for their efforts in 2025 and in positioning Diamond as the best commercial bank in the New York metro area. With that, I will turn it over to Caller Tom.

Thank you, Stu, and good morning. In my prepared remarks, I will provide some background and color on our commercial banking initiatives. As many of you know, I was part of the leadership team at Sterling that helped transform that balance sheet from $5 billion to $25 billion diversified commercial bank balance sheet. When I began speaking with Dime in the second half of 2024, it was apparent that Dime had a number of strengths that were attractive in recruiting talented bankers. First, an entrepreneurial and growth mindset, which is valued by commercial bankers. Second, the best deposit franchise in Metro New York, both from a cost perspective as well as a growth profile, which can be utilized for funding. Third, The back office was staffed with strong managers who had experience managing larger and more diversified commercial portfolios. And finally, Dime had developed a reputation in the marketplace as a company where talent wanted to work. It was perceived and is perceived as a winner. Even before I started, we outlined a strategy as to which industries and geographies we wanted to strengthen, build out, and focus on. Our goal was to create a platform that had all the industry expertise of a $50 to $100 billion bank, but that operated nimbly like a $15 billion bank with access to senior management and quick decision making. Of note, right around the time I joined, we added a new chief credit officer, Rob Rowe, who was previously the chief credit officer at Sterling. Since I came on board in February, we have added the following capabilities. Fund finance, which is exclusively focused on capital call lines. Lender finance, our focus is on lending to institutions that are focused on business credit. We do not intend to be active on the consumer credit side. Mid-corporate, our focus is on companies that are larger than a typical middle market company. Sponsor finance, our focus is on non-cyclical industries with good risk-adjusted returns supporting sponsors and family offices. Syndications. We added a team to focus on syndicating self-originated loans, allowing us to service larger clients while staying within our established risk tolerances. And lastly, geographic expansion. DIME has always had a dominant presence on Long Island, and we are focused on expanding that to Manhattan and New Jersey. For example, In the fourth quarter, we hired a well-known banker to cover middle market relationships in New Jersey. All of our commercial bankers and industry specialists are focused on direct relationship lending with the occasional club deal to manage our exposure. We're not building a business based on SNICs or participations as many small to medium-sized banks often do. The bankers that we have hired have added significant industry knowledge, and a high level of expertise to Dimes offerings. As we look to 2026, each of these new commercial banking teams will contribute to loan growth and operating leverage. We also have our eyes on one or two industries where we already have a presence, but where we could add some additional depth. With that overview, I'll turn it over to Avi for his prepared remarks.

Thank you, Tom. Core APS for the fourth quarter was 79 cents per share. This represents an 88% year-over-year increase. Core EPS excludes the impact of severance, which was approximately 2.4 million on a pre-tax basis, and a couple of discrete tax items, which were 2.7 million. These items have been described in the gap to non-gap reconciliation tables in our earnings release. Core pre-tax pre-provision net revenue of 61.5 million for the fourth quarter of 2025 represents approximately 163 basis points of average assets. The reported fourth quarter NIM increased to 311. We had approximately two basis points of benefit from prepayment fees. Excluding prepayment fees, the fourth quarter NIM would have been 309. As a reminder, the third quarter NIM excluding prepayment fees was 298. Total deposits were up approximately 800 million versus the prior quarter. We saw strong inflows across all of our major channels. Deposit growth for the fourth quarter included approximately 100 million of seasonal tax receiver municipal deposits that typically arrive in the month of December and leave in mid-January, and approximately 225 million of deposits from a municipality tied to a bond offering that we expect to leave the bank at the end of February. Excluding these items and typical seasonality in our branch network on the east end of Long Island, Co-deposit growth for the fourth quarter would have been closer to $400 million. Similarly, the overall balance sheet size and cash position was elevated at quarter end by approximately 400 million due to the previously mentioned municipal deposits and seasonality. Our cost of total deposits was 185 in the fourth quarter, down 24 basis points versus the prior quarter. By maintaining a strong focus on cost of funds management, our NIM has now increased for a seventh consecutive quarter and has surpassed the 3% mark. We continue to have catalysts for growing our NIM over the medium to long term, including a significant back book loan repricing opportunity that I will talk about later. Core cash operating expenses excluding intangible amortization of $62.3 million for the fourth quarter was below our guidance of approximately $63 million. Non-interest income of 11.5 million was above our fourth quarter guidance of approximately 10 to 10.5 million. The loan loss provision declined to 10.9 million and the allowance to loans increased to 91 basis points, which is within our stated range of operating between 90 basis points and 1%. Capital levels continue to grow and our common equity tier one ratio grew to 11.66%. Having best in class capital ratios with our local peer groups 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 guidance for 2026. As I mentioned previously, excluding prepayment fees, the NIM for the fourth quarter would have been 309. We would use this as a starting point for modeling processes going forward. We expect modest NIM expansion in the first half of the year and more substantial NIM expansion in the back half of the year as the pace of the back book loan repricing picks up. We believe our large cash position is a competitive advantage that will allow us to take advantage of lending opportunities as they arise and will help us create a sustainable NIM that is not subject to cyclical moves based on the trajectory of short-term rates. Given our current cash position, every future 25 basis point reduction or increase in short-term interest rates will not have more than a two to three basis point impact on our NIM. Our NIM expansion in future quarters will be driven more by the back book loan repricing as well as core deposit growth and business loan growth. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, for the full year 2026, we have approximately 1.4 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 the quarterly NIM by the end of 2026 from the repricing of these loans. As we look into the backlog 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. Assuming a 250 basis point spread on those loans over the forward five-year treasury, we could see another 20 to 25 basis point increase in the quarterly NIM by the end of 2027. 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. Now that our NIM is at the 310 level, 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 first half of 2026. The first quarter of the year is typically seasonally slow, and there's always a rush to get loans closed by year end. In addition, we expect to continue to reduce our CREE concentration ratio lower to the mid-350% area, driven by a reduction in transactional multifamily and transactional CREE. This will offset the strong growth we are seeing on the business loan side. We expect to reach an inflection point on Cree balances probably in the third quarter of the year. And once we reach this inflection point, the overall balance sheet should start growing again at a mid-single-digit growth rate. If we put that all together, our point-to-point total loan growth estimate for 2026 is in the low single digits with flattish balances in the first half of the year and growth in the second half of the year. For 2027, we are internally modeling mid-to-high single-digit end-of-period loan growth as business loans continue to grow and our industry verticals hit test ride. Next, I'll turn to expenses. We expect for cash operating expenses excluding intangible amortization for 2026 to be between $255 million and $267 million. This includes the full year impact of our de novo locations in Manhattan, Lakewood, and Locust Valley, and all the private and commercial banking teams that we hired throughout 2025. With respect to the provision for loan losses, we expect the next couple of quarters to be in the 10 to 11 million area as we move towards the midpoint of our allowance range of between 90 basis points and 1%, and as we continue to aggressively work down NPAs and classified assets. For the second half of the year, we expect provisioning levels to trend down into the single digits and just cover charge-offs. Turning to non-interest income, we expect full year 2026 to be between 45 and 46 million. Factors that will determine the individual quarters will be the timing of swap fee income, which can be hard to predict, as well as SBA fees and title revenue. Finally, we expect a tax rate for the full year of 2026 of approximately 28%. With that, I'll turn the call back to Michelle, and we'll be happy to take your questions.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. And our first question comes from Mark Fitzgibbon with Piper Sandler. Your line is open.

Hey, guys. Good morning and nice quarter.

Hi, Mark. Thanks.

Maybe the first question is for Tom. Tom, could you share with us, you know, what industry is accounted for the nice sequential quarter growth in the business loan balances this quarter, just to give us a sense where that growth is coming from?

Yeah, you know, all of those verticals are pretty much new, so we started out at a base of zero, right? So I think Stu mentioned we grew business loans about $500 million year over year. About 400 of that came from these specialty groups. That includes health care, lender finance, fund finance, sponsor, and not-for-profit. The business that has probably most of the momentum in 2025 was healthcare. I think you know that Dime entered into healthcare probably about two years ago, and that portfolio was built over time. So I would say probably out of the 500 million, about 400 million was the new specialized industries, and probably 50% of that was healthcare.

Okay. Okay. And then secondly, I was curious, how much business do you have today roughly, and I won't hold you to the exact numbers, but roughly in New Jersey, you know, loans and deposits, sort of the, you know, the $10 billion in loans and call it $12 billion in deposits, how much of that is sort of Jersey domiciled?

Yeah, Mark, so it's probably around, you know, somewhere between 8% to 10% of our portfolio is northern New Jersey. A lot of clients that we followed over there. I'd say on the deposit side, it's less substantial than that. I mean, we're probably running at a 15% to 20% deposit to loan ratio for New Jersey. But in terms of overall loans, I'd say somewhere between 8% and 10%. But that's something that's been consistent at the bank for the last four or five years since Stu got to the bank. As you know, Stu ran a couple of banks in New Jersey, and a lot of relationships have followed since he got to Dime back in 2017.

Okay. The last question I had, SBA loan sale gains were strong this quarter. I would have expected maybe they'd be a bit less given the government shutdown in 4Q. I guess I'm curious, are you sort of fully caught back up on the pipeline for these loans, or maybe any thoughts you have on what 1Q activity levels might look like?

Yeah, I'd say the latter, Mark. We're probably caught up at this point. We were very close to recognizing some of these gains in Q3, and then once the government opened up, we kind of did that. So it's kind of hard to predict that line. I think that one in the swap fee line, you know, it's just up and down, basically. So I wouldn't expect the first quarter to be as large as Q4. Q4 was probably two quarters into one, basically, is how I'd characterize it.

Great. Thank you. Thank you.

Our next question comes from Steve Moss with Raymond James. Your line is open.

Hi, good morning. Maybe just on the deposit growth here, you know, next quarter for deposit growth, and I hear you all be in terms of some of the municipal deposits. Just curious, you know, how you guys are, you know, what the deposit pipeline kind of looks like and kind of where are you pricing those deposits these days?

Yeah, so I'd say in terms of pricing, nothing's really changed there, Steve, where we've got a lot of influx of new deposits coming into the bank. So I'd say to get a new customer in the door, you've probably got to offer high twos to low threes on a money market, but it's probably coming with 20%, 30% DDA. So the all-in cost is probably in the low twos of stuff coming into the bank. The actual cost of deposits or the spot rate on deposits at the end of the year was 168, so that's lower than our overall cost of deposits and that should help with the NIM going forward. I'd say just if you look back at our history, We just wanted to point out the seasonality just because we have a municipal business, we have an East End business, and then this quarter we had the one, you know, transactional municipal deposit that did come in. And so the point of that guidance was more along the lines of don't use our average earning assets for Q4 as a proxy for Q1 and grow it off of that base. You probably have to take out $300 to $400 million. But, you know, over the course of the year, and if you look at year-over-year growth, we had $1 billion of core deposit growth. last year, and I think Stu would attest to this as well, that our teams haven't really matured yet, and we continue to see the pace of account opening pick up, basically.

Yeah, I mean, just to give you a little color, I mean, those teams that we brought on have crossed the at year end crossed the $3 billion mark and opened up over, you know, in total over 15,000 accounts. And we're still seeing monthly and quarterly growth in all our teams. So, you know, we're still very bullish on deposit growth. You know, we just had a, you know, very outside fourth quarter, very happy with it. You know, all the channels from both the, you know, the commercial group, the private banking group, our retail bank, and our municipal group were all up. So, you know, we're excited about that and, as I said, very bullish. But, you know, the teams have really proven to be quite an asset, and we're still seeing quite a bit of new account opening. So, you know, we're expecting, you know, through this year, continued growth in that market.

Okay, great. Really appreciate all that color there. On, you know, my other question here, just on the 100% rent regulated piece, I know that was about 500 million at the end of third quarter, just, and it came down pretty helpfully, at a pretty good pace in the third quarter. Just kind of wondering where that is now, and if you have any color around, like, the scheduled maturities over the next year or two for that book?

Yeah, so Steve, we didn't have a lot of maturities in that book in Q4, so it was, you know, relatively stable, you know, you know, linked quarter basis. It's kind of hard to go, you know, quarter over quarter for some of these items. The way we really look at it is the pre-2019 book and the post-2019 book, just because the stuff that was originated pre-2019 was prior to the rent regulated rule changes. And, you know, as you know, and so we look at that book, that book's around 350 million at year end 2025. That book used to be 450 million a year ago. and that book was $500 million two years ago, right? So that's the path that we had our eyes the most on. That book is fully reset at this point. You know, I think in terms of maturities and repricings in the entire multifamily book that's rent regulated, so both the 100% rent regulated and the majority rent regulated book, maturities and repricings are around $250 million for 2026. That's probably split $150 million and $100 million between the 100% and the 50% to 99% buckets. So look, we're not seeing any issues there. As loans come up for maturity, they're paying off. As loans come up for repricing, I'd say a bigger proportion of them are staying with us and paying market rates, basically. But I think you'll continue to see you know, attrition in that book. The one thing we've always pointed out is it's a very granular book. We don't have any big loans in that portfolio, you know, as opposed to the free market portfolio where you could see a few, you know, 10s and 15s in terms of size, in terms of credits. In terms of the rent-regulated book, it's very granular. So it's just going to take time for that to continue to wind down. But, you know, we're pretty comfortable with what we have right now.

Okay, great. I appreciate all the color there and I'll step back in the queue. Thank you very much.

Thank you. Our next question comes from David Conrad with KBW. Your line is open.

Yeah, thanks. Good morning. Just a follow-up question on the deposits. I know you have a lot of the municipality and seasonality this quarter, but non-inter-sparing deposits were the almost 31% mix. Where do you think 2026 you know, what will look like in terms of the mix of deposits in terms of non-inter-sparing deposits?

Yeah, look, Dave, you know, if you go back in time, you know, this company had a non-inter-sparing deposit base somewhere between 35% and 40% when we completed our merger. Obviously, you know, some of that was tied to PPP, and then we came all the way back down to 25%, right? So I'd say the starting point really should be, you know, in 2023, once you saw deposits leave the system, we were at 25%. We've built that up to 30% to 31% right now. I think we'd like to continue growing that over time. What we've really tried to do with the deposit base is focus on the low-cost deposits. And so I think what we really try to manage to is getting the overall cost of deposits down. And right now, like I said, it's 168 plus or minus is the spot cost over there. But we're not really bringing on new relationships to the bank unless they bring us their full operating accounts and have 20% to 30% EDA, right? So I think at a minimum, you know, seeing a floor of around 30% is probably, you know, reasonable, and we'd like to have that, you know, ratio eke up slowly over time.

Yeah, and, you know, you should note that, you know, again, getting back to the team's you know, that $3 billion balance that they have, 38% of that balance is DDA. So, I mean, they really, you know, they really focused on the DDA side. And obviously, while, you know, quarter end was slightly higher due to some of the municipal deposits, those were not DDA deposits. Those were, you know, money market and whatnot. So, You know, I think there's a good chance that we're going to see 31% move up nicely during the year, and really that's what we've been focusing on with our new team hires as well.

Great. Thank you.

Thank you. As a reminder, to ask a question, please press star 1-1. And our next question comes from Matthew Breeze with Stevens, Inc. Your line is open.

Hey, good morning. I wanted to focus first maybe on just the cash and then securities. Avi, I heard you in your opening comments, but could you give us just some better idea of what the timeline and strategy is for deploying that cash? And what level do you think is kind of the normalized level, quote, unquote?

Yeah, so there's no specific timeline, Matt, in terms of us rushing out to buy securities. We probably bought around $150 million in the fourth quarter. We're looking at rates consistently. I think we like having the flexibility on the balance sheet, like I said at the start. What it really does is it creates a neutral balance sheet that's not tied to short-term rates. Over time, as we you know, make more business loans, have more floating rate assets, you know, that automatically will take care of the ALM profile of the bank. But in the near term, it just helps us having cash in that we don't have to go out and hedge the balance sheet in different ways. So I don't see that cash balance coming down significantly in the near term, absent, you know, some of the seasonalities that I talked about in Q4. I think if you read between the lines on the loan growth, we said loan growth is probably flat for the first half of the year and then starts growing in the second half of the year. So in terms of use of cash, in terms of loans, starting the second half of the year, there will be a use of cash for loans. But in the first half of the year, it's going to be in cash and we're going to look at the market for securities and whether there's an opportunity to add some We will, but we're not running out to put $500 million to work or $750 million to work overnight in something. We're building the balance sheet more for the longer term, and we're pretty happy with the liquidity position and our loan-to-deposit ratio. I mean, it's in the mid-80s at this point, which is very consistent with what a national bank operates at. Obviously, the banks in our local peer group are, you know, much more overland and, you know, somewhere between 90% and 100%. But, you know, I think we're comparing ourselves really to a national bank, and we like the fact that we have this excess liquidity at this moment.

Okay. I appreciate that. And then you had mentioned in there adding floating rate loans. Could you just give me update us on where? sorry, where floating rate loans stand today as a percentage of total loans. These are loans priced off of SOFR or SPRINE and the expectation for a year from now.

Sure. So, look, I think in terms of the new business and, you know, Tom's verticals, you know, a majority of that is floating rates. So, if you think about, you know, the fund finance business, you know, that's a floating rates, you know, portfolio. When we're doing healthcare loans, those are priced off of SOFR. So, anything coming on the books is likely more floating rates than fixed rates, right? Right now, floating rates are probably somewhere between 35% and 40% of the balance sheet. Fixed is probably around 25% and adjustable is probably the difference over there.

Got it. Okay. And then could you just comment, you know, prepayment activity in 2025 was a big headwind for commercial real estate multifamily growth, you know, what did you see in the fourth quarter? And do you feel like, you know, there's some light at the end of that tunnel? Should we see or expect prepayment activity to start to decline?

Look, I think it really depends, and it's loan by loan, and it's whether we want to be, you know, in the market or not in the market for that type of asset, right? And I think our guidance was we're focused on getting the CRE ratio to the mid-350s by – you know, maybe exiting some transactional multifamily and transactional tree that doesn't have deposits, right? Third quarter, we probably saw payoff rates in the 20 to 25% area. In the fourth quarter, it was probably 15%, right? If you look over the cycle, it's somewhere between 15 to 20%. So, you know, I think rates, you know, short-term rates probably have to drop a little bit more for there to be a big payoff wave over there. Right now, it's kind of working in our favor because, you know, our goal is to get you know, our CRE ratio down to the mid 350s. That being said, for relationship CRE that has deposits, we're very competitive with our rates and we're able to retain them and their core customers at the bank. So I would delineate it between transactional and relationship CRE. And on the relationship CRE side, I think we are seeing pretty strong retention.

Great. Appreciate it. Just last one for me. The muni deposit outflows you talked about, what categories deposits will that impact? That's all I had. Thanks.

Yep, so the $225 million that I talked about and Stu mentioned, that's an interest-bearing deposit. It's probably in the 3% area, plus or minus, so that's interest-bearing. Some of the tax receiver money that comes in, that's in the DDA piece, so that's probably, call it $60 to $70 million over there. So it's a split of categories, more of it in the interest-bearing side than on the non-interest-bearing side.

Thank you.

Yep. Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Stuart Lubow for closing remarks.

Thank you, Michelle. And thank you to all our dedicated employees and our shareholders for their continued support. We look forward to speaking with you at the end of the first quarter.

Thank you for your participation. You may now disconnect. Everyone, have a great day. Thanks, Michelle.