Dime Commercial Bancshares, Inc.

Good day, and thank you for standing by. Welcome to the Dime Commercial Bancshares, Inc. Third Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. As of 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. 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 risk, uncertainties, and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in today's press release and the company's filings with the U.S. Securities and Exchange Commission, to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with the U.S. GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release. I would now like to hand the conference over to your speaker today, Stuart Lubow, President and CEO. Please go ahead.

Good morning. Thank you, Shannon, and thank you all for joining us this morning for our third quarter earnings call. With me today 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 made in the third quarter. In addition, I will provide a summary of our acquisition of Empire State Bank. Avi will then provide financial details for the third quarter and the financial impact of the Empire transactions. Suffice to say, Dimes' organic growth trajectory is very strong, and we have clearly differentiated our franchise from our local competitors as it relates to our ability to grow low-cost and best-in-class deposits, diversify our loan portfolio away from its historical CRE focus, attract talented bankers, and at the same time improve NIM and grow net interest income and overall profitability. Revenue news for the third quarter were $135 million, which once again was a record for dime. EPS was up 53% versus prior year. The NIM was up seven basis points versus the linked quarter as we were able to maintain our cost of deposits while improving our yield on loans. On the loan front, we are executing well and our growth plans are in place. Year over year, Growth in business loans was approximately $929 million, which represents 30% year-over-year increase. Our loan pipeline continues to be very strong and is approximately $1.4 billion, with a weighted average rate of approximately 6.5%. We were pleased to report a return of assets of 1.10% for the third quarter and a core efficiency ratio of below 48%. As you know, we have been very active on the hiring front over the past three years, and it's gratifying to see these investments contributing to improved profitability. We continue to believe that the hires we have made over the last few years have a long runway in front of them as we execute our clearly articulated growth plan. 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 and many more. In this regard, we are pleased to announce our entry into the affordable housing space with the launch of a dedicated group that will be led by Mike Camoya. Finally, as it relates to profitability, our significant loan repricing opportunity over the next five quarters will continue to serve as a catalyst for continued revenue growth in the quarters ahead. During the quarter, we reduced our CRE ratio to to 338% while repurchasing approximately 1% of our shares outstanding. We continue to see significant long-term value in our shares underpinned by continued NIM expansion and interest income growth. Avi will provide some color on capital in his prepared remarks. This morning, we announced that we signed a definitive agreement to acquire Empire State Bank. We are very pleased to welcome CEO Phil Guarneri and his team to DIME. By way of background, Empire is a $600 million asset-sized commercial bank with a very granular, low-cost deposit base that is headquartered in Staten Island. DIMAS had our eye on having a greater ground-level branch presence in Staten Island for a long time, and we believe Empire is a very low-risk transaction for our shareholders, given their granular deposit base and low-risk LTV loan portfolio. The transaction expands DIMAS Presidents to all five boroughs of New York City and we believe Empire's granular deposit base will have real value in a higher rate environment. Empire represented a unique opportunity for DIME and a transaction economics and strategic rationale makes sense for both sets of shareholders. With that said, I will end by saying our focus remains on strong organic growth as seen by our 1.1 billion year-over-year growth in core deposits. Our significant cash position, which stood at over $2 billion at quarter end, positions us very favorably for organic growth, and we expect to benefit from meaningful loan repricing over the next five quarters. I want to end by thanking all our dedicated employees for their efforts and in positioning Dime as the best commercial bank in Metro New York. With that, I will turn the call over to Avi.

Thank you, Stu. Core EPS for the third quarter was $0.91 per share. Core pre-tax pre-provision net revenue of $70 million represented 186 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 10 consecutive quarters. The reported third quarter NIM increased to $335. Excluding the benefits from purchase accounting and prepayment fees, The run rate NIM for the third quarter would have been closer to 332 compared to a 322 run rate for the prior quarter. Average earning assets for the third quarter was approximately $14.36 billion. Core cash operating expenses of approximately $64.3 million was in line with our expectations. The loan loss provision was in line with the prior quarter at $13.8 million, and the allowance to loans increased to 99 basis points. The loan loss provision in the quarter was primarily to cover specific reserves on CNI loans, growth in the business loan portfolio, and charge-offs on multifamily loans. While NPAs were up, substandard loans were down 7% on a linked quarter basis, and in addition, 30 to 89 days past due loans also declined on a linked quarter basis. As Stu mentioned, we reduced our Cree concentration ratio to 338%, while at the same time repurchasing approximately 1% of our shares outstanding. We believe that robust growth in our CNI businesses and operating with a Cree ratio that is lower than 350% will set us apart from the other local banks, which are operating between $375 to $450, and time will be rewarded in the medium to longer term with a higher valuation. Our strong capital position allowed us to structure the Empire transaction with a $30 million cash component, which represents a little more than 50% of the consideration mix for the transaction. The transaction's return metrics for DIME are very strong, with an internal rate of return well in excess of 20%, which is above our cost of capital. The transaction is expected to be approximately 3.5% accretive to earnings on a run rate basis once all synergies have been realized. We expect the impact on our capital ratios from the Empire deal to be approximately 35 basis points, factoring in the full impact of one-time deal costs and the interest rate marks in an elevated rate scenario. Finally, our pro forma capital levels provide us room for both organic growth as well as continued buybacks. Turning next to forward guidance. As usual, while we will not provide any specific guidance on 2027 until our January earnings call, I will provide some thoughts on the remainder of 2026. As I mentioned previously, excluding purchase accounting and prepayment fees, the run rate NIM for the third quarter would have been closer to 332. We would use this 332 NIM as a starting point for modeling purposes going forward. We expect continued NIM expansion in the fourth quarter, driven primarily by loan repricing and secondarily from the recent Federal Reserve rate increase. With respect to rate hikes, we expect the September rate hike to benefit NIM by a couple of basis points, and any future rate hikes will likely be neutral to NIM as they will be a lagging effect on deposit costs. We have repeatedly said our large cash position is a competitive advantage that will allow us to take advantage of lending opportunities as they arise and it will help us create a sustainable NIM that's not subject to cyclical moves based on the trajectory of short-term rates. 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. On our prior earnings call, we discussed a run rate quarterly NIM of over 350 by the end of 2027. Based on our strong performance this quarter and our current pipelines, we believe there's a clearer line of sight to a NIM on our existing balance sheet of over 360 by the end of 2027. Next, I'll turn to expenses. We expect core cash operating expenses, excluding intangible amortization, for the final quarter of the year to be around 66 million. Finally, we expect the tax rate for the final quarter of 2026 to be 28.5%. With that, I'll turn the call back to Shannon, and we'll be happy to take your questions.