Dime Community Bancshares, Inc.

Good day, everyone, and thank you for standing by. Welcome to DIME Commercial Bancshares' second quarter 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, you will need to press star 1-1 on your telephone. You will then hear a message. Advice in your hand is raised. To withdraw your question, please press star 1-1 again. Thank you for joining us today. Such statements are subject to risk, uncertainties, and other factors that may cause actual results to differ materially from those contained in 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 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. Now it's my pleasure to hand the conference over to Stuart Lubow, President and CEO. Please proceed.

Thank you, Carmen, and good morning. And thank you all for joining us this morning for our second quarter earnings call. With me today, as usual, are Avi Reddy, our Chief Operating Officer and CFO, and Tom Geisel, our Chief Commercial Officer. In my prepared remarks, I will touch upon the progress we've made in the second quarter. Avi will then provide financial details for the second quarter. Dime has differentiated our franchise from our local competitors as it relates to our organic growth trajectory, our ability to attract talented bankers, the quality of our deposit base, the progress we made in diversifying our balance sheet, and our improving NIM and profitability. Revenues for the second quarter were $126 million, which was a record for Dime. Core EPS was up 23% versus prior year, NIM was up seven basis points versus the linked quarter as we were able to lower cost of deposits and improve our yield on loans. On the loan front, we continued to execute on our stated plan of growing business loans. Year-over-year, growth in business loans was approximately $743 million, which represents a 26% year-over-year increase. Our loan pipeline continues to be very strong and is approximately $1.4 billion with an weighted average rate of approximately 6.25%. We were pleased to drive our core efficiency ratio below 50% in the second quarter. As you are aware, we have been very active on the hiring front over the past three years. And it's nice to see these investments paying for themselves and contributing to the improved profitability. To give you a sense of the scale of our transformation and hiring, we have added over 15 deposit teams in our private banking area, six new lending verticals, and three new branch locations. Doing all this in a very short span of time and driving the efficiency ratio below 50% is especially noteworthy. We continue to believe that the hires that we have made have a long runway in front of them. The disruption in our local marketplace remains very high, and the environment for our organic growth strategy as it relates to acquiring clients and bankers continues to be very attractive. A common theme in our discussions with shareholders over the past year has been, when will DIME resume its share repurchase program? Given the significant long-term value We are pleased to announce that we expect to begin repurchasing our shares in the third quarter. Avi will provide some color on our capital targets in his prepared remarks. In June, we completed our rebrand to Dime Commercial Bank. This marked the culmination and 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 business and commercial real estate. It has been a remarkable transformation over the past 10 years, away from the legacy multifamily thrift model, and we believe that our new brand truly represents the institution we have grown into. In conclusion, we are positioned very favorably for organic growth and expect to benefit from a significant loan repricing opportunity over the next 18 months. I want to end by thanking all our dedicated employees for their efforts and positioning Dime as the best commercial bank in Metro New York. With that, I will turn the call over to Avi to provide some color on the second quarter.

Thank you, Stu. Core EPS for the second quarter was 79 cents per share. Core pre-tax, pre-provision net revenue of $64 million represented 173 basis points of average assets. By maintaining a strong focus on cost of funds management and the growth of our business loan portfolio, our NIM has now increased for nine consecutive quarters. The reported second quarter NIM increased to 328. Excluding the impact of day count and the benefits from purchase accounting and prepayment fees, the run rate NIM for the second quarter would have been closer to 322 compared to a 314 run rate NIM for the prior quarter. Average earning assets for the second quarter was approximately 14.1 billion. Core cash operating expenses, excluding intangible amortization, was approximately 64 million, which was in line with our expectations. The loan loss provision was approximately 14 million, and the allowance to loans increased to 98 basis points. The loan loss provision in the quarter was primarily to cover charge-offs on investor CREE loans, specific reserves on the multifamily portfolio and growth in the business loan portfolio. Criticized loans remained relatively flat and NPAs were down 28% on a linked quarter basis. A tangible equity ratio crossed 9%, a common equity tier one ratio grew to 12% and our total capital ratio is 16.3%. As Stu mentioned, we're pleased to announce that we expect to resume share repurchases in the third quarter. Our stated position has been that when the CREE ratio was lowered to the mid-350 level, the buyback would be back on the table. In the near to medium term, we expect to operate with a CET1 ratio between 11.25% and 11.5%, which gives us room for both organic growth as well as buybacks. Next, I'll provide some thoughts on the remainder of 2026. As I mentioned previously, excluding the day count convention, purchase accounting, and prepayment fees, the run rate NIM for the second quarter would have been closer to 322 compared to 314 for the first quarter. We would use the 322 NIM as a starting point for modeling purposes going forward. We expect modest NIM expansion in the third quarter and more pronounced NIM expansion in the fourth quarter and in 2027. To give you a sense of the back book repricing opportunity in our adjustable and fixed rate loan portfolios of the next 18 months, we have approximately $2.5 billion of adjustable and fixed rate loans at a weighted average rate of $4.25 that either reprice or mature on that time frame. 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 $3.50. This assumes a consensus forward curve plays out and competition remains rational. 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, and assuming competition remains rational, any future 25 basis point increase in short-term rates will likely not have more than a one to two basis point impact on our NIM. In addition to the 1.9 billion of cash on the balance sheet, we have approximately 3.8 billion of floating rate loans and 350 million of hedges that will reprice if rates increase. And we believe this should offset any deposit cost increases from the seven and a half billion of non-maturity interest-bearing deposits on the balance sheet. We are pleased to reduce our CRE ratio to approximately 350% at the end of the second quarter. We believe operating with a CRE ratio that is 350 or lower will set us apart from the other local banks, which are operating between 375 and 450%, and DIME will be rewarded in the medium to longer term with a higher valuation. We expect to reach an inflection point on investor Cree balances in the second half of this year, with multifamily continuing a downward trend till we get to around 25% of total loans for multifamily. As it relates to business loans, we believe we have the infrastructure and talent in place to grow that portfolio between $200 to $250 million per quarter. Next, I'll turn to expenses. We expect core cash operating expenses, excluding intangible amortization, for the remainder of the year to be between $130 and $131 million. Finally, we expect the tax rate for the remaining quarters of 2026 to be approximately 28.5%. With that, I'll turn the call back to Carmen, and we'll be happy to take your questions.

Thank you so much, and as a reminder, to ask a question, press star 1-1 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. One moment for our first question. It comes from Peter Winter with DA Davidson. Please proceed.

Thanks. Good morning. I was wondering, can you provide an update on the multifamily portfolio and maybe some color on the increase in the multifamily non-performing loans this quarter?

Yeah, sure. So we had around $26, $27 million, Peter, that was close to the 90-day fast due bucket at the end of the quarter. We took a $6 million specific provision on those loans. We're working with the The operators on that, we think there's a long-term strategy to create value for us on that. So that was, you know, the increase over there. But actually, NPLs were actually down because we disposed of $38 million that were for sale in the prior quarter, right? So if you look at the aggregate of health investment, health of sales, multifamily NPLs were actually down. In terms of the overall portfolio, we have $3.1 billion of multifamily. There's around $1 billion of majority rent-regulated and 100% rent-regulated in that portfolio. The path that we've always said we're keeping a watch on is the pre-2019 bucket, because that was originated prior to the rule changes in New York City. That portfolio is actually down to around $300 million right now. It was probably around $400 million this time last year. So very granular portfolio. We're comfortable with what we have over there. We built some specific reserves this quarter. We feel like we have the earnings power over time to deal with any issues that crop up in that portfolio.

Got it. Thank you. And then just on the ACL ratio, it increased to 99 basis points. I think last quarter you talked about a range of 90 to 100 basis points. So just how are you thinking about the ACL ratio going forward?

Yeah, I don't think we're thinking about it any differently. So we said the range would be between 90 basis points and 1%. We're at 98 basis points, so we're within the range.

Okay. Just one more question. Just maybe could you give an update on the loan outlook in the second half of the year, do you think? I saw on a period end it was up a little bit. Just how are you thinking about it in the second half of the year?

Sure, Peter. Hi, it's Tom. Let me walk you through kind of how we think about the loan portfolio. I know Avi talked a little bit about this during his comments, but we look at it in kind of three different segments. First, business loans. Stu mentioned that year over year we're up 26%, so we're getting some pretty significant growth there. We saw $125 million in net growth in Q1 and $275 million in net growth in Q2. The new teams that we hired have been at the bank barely a year or so. They're just starting to hit their stride, and typically it takes a new team 12 to 15 months to really get in a good cadence. I think we announced last quarter that we brought an equipment finance team and a franchise vertical. We put them in place. They haven't really started contributing yet, so we should see them contributing to the back half of the year. So if you think about business loans, we think we're on a real positive trend to do 200 to 250 million of quarterly growth there. Then we take a look at the second segment, which is Investor Cree. So we're back in the market doing relationship Investor Cree and construction. We have about a $2.75 billion investment Cree book that probably, as Avi said, reaches an inflection point at some point in the second half of the year. And then from there grows about $125 to $150 million on an annualized basis. I'm thinking about it at about a 5% growth rate. and then multifamily, the third segment. Avi talked a little bit about that, trying to get that down to about 25% of total loans. And again, we've been proactively trying to work that down to 25%. I think we're somewhere around 28% right now. So we'll continue to do real strong relationship You know, multifamily, but we'll stay away from the things rent regulated or majority rent regulated. So as we look at the book through the balance of the year, we're looking at, you know, low to mid single-digit growth moving forward as we get towards the end of the year.

That's great. Thanks, Tom. Appreciate it.

Thank you. Our next question is from Steve Moss with Raymond James. Please proceed.

Good morning. Hey, Steve, how are you?

Hey, Steve, doing well. Maybe just on the deposit dynamics here, you know, saw good not just growing deposit growth for the quarter. Just kind of curious about how you guys are feeling about the cadence and maybe just any color about the underlying dynamics in the quarter, if there's some impact with tax payments or things of that nature.

Yeah, so, you know, the first quarter and the first month or six weeks of the second quarter are always slow, and, you know, tax payments, et cetera, always play into that. We have seen, you know, then we did see a significant pickup in growth on the deposit side. You know, we hired two new teams in April. They're just starting to hit... and many more. A real upside on the growth side of the deposit with DDA over 31% at this point and cost of funds about 164. We're very pleased on the deposit side and we've been able to really hold our own in terms of actually reducing our cost of funds last quarter and holding steady even with a higher rate environment. So, you know, we're very comfortable where we are. We think there's a lot more upside with the existing teams and, of course, with some of the new teams who had some significant, you know, books at their former homes. So, you know, we're pretty bullish on that.

Okay, that's helpful color there. And then just in terms of the loan pipeline here, I don't think I heard a loan, you know, loan origination number or the rate on the pipeline. Just kind of curious where loans are going on the books these days.

Six and a quarter. I'm sorry? Six and a quarter percent is the weighted average rate on the pipeline. Okay.

And then on capital here with repurchases and the 11.25, 11.5 target, is that like something you guys are going to seek to achieve in the second half? And just manage with that over, I think it was the medium term, just kind of as we think about the strength of the buyback in the short term here.

Yeah, I think we're leaving ourselves some flexibility there, Steve. I mean, it's going to be a function of, you know, organic growth, you know, where the stock price is. I mean, we're committed to, you know, getting the share count down, and we're committed to, you know, operating the bank between $11.25 and $11.50. Like I said, you know, it's something we talked about for a long period of time, you know, in terms of when the right time to restart it was. To us, the biggest marker was getting the CRE ratio, you know, very close to $3.50, so we're there, right? I would say over the near to medium term, that's two quarters out, three quarters out. We should be there between 1125 and 1150. But it's going to be part of the ongoing capital management plan of the bank, basically. And as we generate more earnings... As we hit 2027 and as the NIM repricing takes more hold at that point in time, there's going to be more earnings than to either distribute or grow the balance sheet as well. So I wouldn't view this as a one-time buyback. This is going to be part and parcel of organic growth dividends and buyback as the bank used to do prior to wanting to reduce the CRE ratio.

Okay. Appreciate that color there, Avi. And then just on expenses here, that guide looks a little bit less than what I was thinking. Just kind of curious, you know, are you guys just focused on containing expenses around this level? I know we obviously had some hires this past quarter, or maybe these are just some inefficiencies you guys are realizing at the current time.

Yep, sure. So typically the guide, you know, at the start of the year doesn't include the hires. Then the guide, you know, the Q1 earnings includes all the hires, right? And so I think, you know, when I gave the guide in April, it was around $260 million plus or minus. I think now we're probably closer to 258 to 259 plus or minus and you know so 130 to 131 Steve I mean this quarter we were at 64 million of core cash and obviously excluding the intangible amortization from the number so you know 130 to 131 is 65 to 65 and a half I would I will say as part of the team build-outs on the commercial banking side when pretty much all the verticals that we want to be in at this point in time. So there's probably some backfilling over time, but there's not a substantial build-out at least the next three or six months of adding a completely new vertical and all the costs that go with that. So if you marry that up with Just ongoing efficiency improvements that, you know, we focus on, you know, every day at the bank, you know, renegotiating contracts, things like that, you know, it's there. I think, you know, I think as Stu said in his prepared remarks, we were pleased to get that number down to, you know, 49.9. And the reason why, you know, expense to assets has grown in the last two, three years is Thank you for joining us.

I know you guys have had great efficiency ratio gains over the last couple of years, even with expense growth of what's called in the high single digits. You know, maybe as we look out a little further, is it possible that that expense growth starts to moderate towards the mid-single digits as we think about next year?

Absolutely. Well, that's absent hiring any, you know, new teams or building any new verticals, right? But I think yes. I mean, the franchise we have, the people we have, you know, Again, everybody's been at the bank less than three years at this point, all the hires that we have. So they have a long runway. So we'd like to have that accrue to the bottom line at this point. I mean, there'll still be some team pickups here and individuals here and there, but not the substantial amount of new people. I think Stu said it on his remarks. I mean, we've added 16 teams, six new verticals, three new branches. I mean, that's over 20% of the bank in terms of headcount, right? So that will slow and I think using a moderate 3% to 4% growth rate on expenses for next year as you model 2027 would be very reasonable.

Awesome. Appreciate all that, Claude, there. Thank you very much, guys.

Thanks, Steve. Thank you. Our next question comes from Tyler Cacciatore with Stephens. Please proceed.

Hey, good morning. This is Tyler. I'm from Ed Brees.

Hey, Tyler.

Hi, Tyler. Just the first one for me, and sorry if I missed it, but do you have the spot cost of deposits at quarter end? And then I'm just curious on how you feel about your ability to maybe maintain or lower deposit costs from here.

Yeah, it's pretty similar to the average cost, Tyler. It's probably, you know, 167 to 168 plus or minus. I mean, I think, you know, Stu said it in his remarks. We've grown deposits, but at the same time, we've been focused on the cost of funds. The new teams that we have, the existing teams are very focused on DDA, right? I mean, that being said, if rates stay at where they are or if they go up, you're going to see A little bit of a deposit creep, and not just with us, but with a lot of other banks here. But I wouldn't put that more than the one to two basis points in either direction. So we've got some visibility into the third quarter, but the longer rates stay at this level, you're going to have some customers come in and ask for higher rates. But I think with the new deposits coming in and the mix that we have, we feel pretty good at the overall deposit costs.

Great, thank you. And then just staying on the NIM, I hear you on the repricing benefits through 2027, and I know 2028 is still a ways out, but given the industry saw such a meaningful step in loan yields back in 23, should we expect some of the repricing benefits to begin tapering off as we get into late 2027 or early 2028?

No, so the dynamic at DIME was because we had, you know, and Bridge, you know, because we did so much of PPP back in the 21-22 timeframe, the volume of loans that are repricing over the next 18 months is significant, right? So it's not just the rate. I mean, the rates are on 425 on that stuff. It's more the volume of what we originated in that 21-22 timeframe. We didn't originate that much in 23, so you're going to see less of a benefit in 28 potentially, but those loans are also at a rate below our current rate. So there'll be some pickup, but I think the big part of the pickup is between now and Q4 of 2027.

Great. Thank you. That'll be it for me.

Thank you. Our next question is from Manuel Navas with Piper Sandler. Please proceed.

Hi, this is Grant Zurlin on for Manuel.

Hey, good morning.

How are you doing? Doing well. I was just wondering if you could provide some color into what competition looks like on loan and deposit pricing.

Thank you very much.

because of the makeup of our deposit base with 31% DDA and really being business focused, we don't have a lot of consumer, we don't have CDs, we've never been in that market, we're able to really manage That's why our cost of funds is where it is. And with the continued growth, bringing on new customers and new business relationships, including DDA, we're pretty comfortable that we can maintain our cost of funds within the range that we specified. But certainly, there is some competition out there, but Just given the makeup of our deposit base and the fact that we're not highly relying on consumer deposits, we're somewhat isolated from swings on the deposit side. On the loan side, I'll let Tom speak to that a little bit.

Listen, there is definitely competition out there. The interesting thing, when you take a look at our year-over-year growth and our quarter-over-quarter growth, it's been very diversified, which is exactly what we strive for. So I would say probably 40% of our growth has come from our traditional C&I businesses. So every day, the relationship-focused business, and I think to Stu's point about focusing on DDA, That's where we're getting the operating accounts of everybody that we're involved with. And then from there, I think the growth has been equal across our specialty finance groups like our healthcare, our lender finance, our fund finance, and our sponsor groups. Competition is tough out there. There's no doubt about it. People are doing some crazy things, but we're just going to stick to our knitting. We know what we do well and try to keep the growth as diversified as we can across the board. But right now, CNI is leading the way year over year, as well as quarter over quarter, Q1 to Q2.

Thank you. Appreciate it. And then switching over to NIMH, I hear you with the ultimate goal for 2027. Is there any insight into what NIMH could exit the year at?

No, we don't provide near-term guidance on the NIMH. So, you know, we've always said, you know, where we're going to be, you know, at the end of the year, but we've historically not provided, you know, Thank you, Carmen. And thank you all.

Thank you to all our dedicated employees and our shareholders for their continued support and we look forward to speaking with you after the third quarter.

This concludes our conference for today. Thank you for participating and you may now disconnect.