Dime Community Bancshares, Inc.

Good day and thank you for standing by. Welcome to the Dime Community Bank Shares. first quarter earnings call. At this time, our participants are in listen-only mode. After the speaker's presentation, we'll open up for questions. To ask a question during the session, you'll need to press star 11 on your telephone. You'll 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 call 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 a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For more information about these non-GAAP financial measures and for reconciliation to GAAP, please refer to today's earnings release. I would now like to hand it over to our first speaker, Stu LeBeau, President and CEO. Please go ahead.

Good morning. Thank you, Victor, and thank you all for joining us this morning for our quarterly earnings call. With me today, as usual, are Avi Reddy, our Chief Operating Officer and CFO, and also Tom Geisel, our Chief Commercial Officer. In my prepared remarks, I will touch upon the progress we are making as we continue to execute on all aspects of our strategic plan. Avi will then provide financial details for the first quarter. EPS for the first quarter was up 67% versus the prior year. The growth in EPS was driven by record total core revenues of $124 million. All of our revenue growth has been organic, built by our existing bankers and new hires. The NIM was up 10 basis points quarter over quarter as we were able to lower our cost of deposits. Year over year, our core deposit growth was $1 billion. On a loan front, we continue to execute on our stated plan of growing business loans and managing the CREE ratio lower. Year over year, growth in business loans were approximately $575 million, which represents a 21% increase. Our loan pipeline continues to be strong and is in excess of $1.5 billion, with a weighted average rate of between 6.25% and 6.5%. As you know, disruption in our local marketplace remains very high. and the environment for our organic growth strategy continues to be very attractive. As outlined in the press release, we had a very strong start to the year from a recruiting standpoint. In addition to fully building out our Lakewood branch with a strong group of bankers, we added management depth to our branch network, and we also hired two very strong deposit teams who had a strong track record at the former signature bank. We are confident that these hires will be accretive to earnings in 2027. The teams we hired to date, as you know, have grown deposits to nearly $3 billion with $1.2 billion of DDA and a cost of funds of 1.6%. The new deposit teams have hit the ground running and will benefit from the path and platform that has been created over the past few years. and we are excited for their growth in the months and years ahead. Finally, we will be adding a new equipment and franchise finance vertical starting May 1st. This new vertical strengthens our core commercial bank offerings and enhances our competitive position. When the opportunity arose to hire this high-quality team of bankers, we capitalized on it. Keith Smith, who will lead this vertical for us, previously worked with Tom Geisel at Sterling. and successfully built and scaled that vertical at Sterling to more than $1 billion. In conclusion, Dime is the bank of choice for talented bankers in our footprint, and we continue to be the primary beneficiary of the disruption in our marketplace. Earlier in this year, we announced plans to rebrand Dime as Dime Commercial Bank. This marks the culmination and a logical next step in Dime's evolution. Over 70% of our deposit base is from commercial and municipal customers, and approximately 60% of our loan portfolio is from the business of commercial real estate. It has been a remarkable transformation over the past 10 years, away from the legacy thrift and multifamily heritage, and we believe that Dyna Commercial Bank brand truly represents the bank that we have grown into. In conclusion, Dyna's Dime has differentiated our franchise from our local competitors as it relates to our organic growth trajectory. We continue to focus on diversifying our balance sheet, driving our efficiency ratio lower, and attracting talented bankers. We are positioned very favorably with significant loan repricing over the next two years, and our organic growth prospects are strong. I want to end by thanking all our dedicated employees for their efforts in positioning DIME as the best commercial bank in the New York metro area. With that, I will turn it over to call to Avi to provide some color on the first quarter.

Thank you, Stu. EPS for the first quarter was 75 cents per share, representing 10% linked quarter growth and 67% year-over-year growth. Core pre-tax, pre-provision net revenue of $60.5 million represented 162 basis points of average assets. By maintaining a strong focus on cost of funds management, our NIM has now increased for eight consecutive quarters. The NIM expansion versus the prior quarter was driven by a reduction in deposit costs to 170. 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. The reported first quarter NIM increased to 321. Given the day count convention in the first quarter with February only having 28 days, the first quarter NIM is always seasonally elevated. Excluding the impact of the day count and the benefits from purchase accounting, the run rate NIM for the first quarter would have been closer to 314. As we mentioned on the fourth quarter earnings call, the fourth quarter balance sheet, cash position, and deposits were all elevated by approximately 400 million due to seasonality and municipal deposits. As expected, we saw some normalization in the balance sheet size over the first two months of the quarter. Average earning assets for the first quarter was approximately 14.2 billion, and average earning assets for the month of March was approximately 14 billion, which would serve as a good base for modeling purposes going forward. Core cash operating expenses, excluding intangible amortization, was 63 million, which was generally in line with our expectations. The loan loss provision was approximately 12 million, and the allowance to loans increased to 95 basis points, which is at the midpoint of our 90 basis points to 1% operating range. At the end of the first quarter, we transferred four loans totaling $38 million into health for sale status. This shows up on the March 31st balance sheet in the loans health for sale category with a non-accrual designation. We successfully sold these loans earlier this week, generating $36 million in total proceeds. As a result, in the second quarter, we expect to have a modest $2 million negative impact in the gain-on-sale line item on the income statement. Criticized loans remain relatively flat on a linked quarter basis, and capital levels continue to grow. Our tangible equity ratio crossed 9%, a common equity Tier 1 ratio grew to 11.87%, and our total capital ratio is in excess of 16%. Having best-in-class capital ratios versus our local peer group is a competitive advantage. Maintaining strong capital ratios provides us the flexibility to execute on our business plan and provides us a cushion to continue growing client relationships regardless of the overall economic environment and any external shocks. Next, I'll provide some thoughts on the remainder of 2026. As I mentioned previously, excluding the day count convention for the first quarter and purchase accounting, the run rate NIM for the first quarter would have been closer to 314. We would use this as a starting point for modeling purposes going forward. In addition, and as I mentioned earlier, average earning assets for the month of March was approximately $14 billion. We expect modest NIM expansion in the second quarter and more pronounced NIM expansion in the back half of the year and in 2027 as the pace of the back book loan repricing picks up. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, for the remainder of 2026, we have approximately 1.3 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 410 that either reprice or mature in that timeframe. As we look into the back book for 2027, we have another 1.7 billion of loans at a weighted average rate of 430. Assuming a 225 to 250 basis point spread to treasuries on these repricing and maturing loans over the next seven quarters, we could see another 40 to 45 basis point increase in the quarterly NIM by the end of 2027 when starting from the base NIM of 314. While it's hard to predict the NIM in individual quarters and the path may not be in a straight line on equal increments, we are focused on the ultimate destination by the fourth quarter of 2027 which we expect to be over 350, assuming the consensus forward curve plays out and competition remains rational. Given our current cash position, any future 25 basis point reduction or increase in short-term interest rates will likely not have more than a 1 to 2 basis point impact on our NIM. Our NIM expansion in future quarters will be entirely driven by the back-book loan repricing, as well as co-deposit growth and business loan growth. 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. We expect to continue to reduce our CREE concentration ratio lower to 350% sometime between the second and third quarter of this year, primarily driven by reduction in transactional multifamily and transactional investor CREE. At that point, we expect to reach an inflection point on investor CRE balances, with multifamily continuing a downward trend until we get to around 25% of total loans for multifamily. We believe operating with a CRE ratio that is 350% or lower will set us apart from all of the other local banks, which are operating between 375% and 450%. and we will be rewarded in the medium to longer term with a higher valuation as well as more optionality to take advantage of opportunities regardless of the economic or regulatory environment. Next, I'll turn to expenses. On our prior call, we had provided annual guidance for core cash operating expenses excluding intangible amortization for 2026 of between $255 million and $257 million. This was based on the employee base we had in January. Given the significant hires we announced since that time, including the acquisition of two strong deposit teams from Signature and the build-out of a full equipment and franchise finance vertical, we are increasing the expense guidance for core cash operating expenses, excluding intangible amortization for the full year, to approximately $260 million. Like Stu said in his prepared remarks, we expect the hires to be accretive to EPS starting in 2027. Finally, we expect the tax rate for the remaining quarters of 2026 to be 28.5%. With that, I'll turn the call back to Victor, and we'll be happy to take your questions.