Dime Community Bancshares, Inc. Q3 FY2025 earnings call

• Core earnings power continued its upward trajectory with core pretax pre-provision income increasing.
• Loan loss provision increased due to charge-offs in owner-occupied and nonowner-occupied real estate segments; NPAs were up slightly but from a small base.
• Core deposits grew $1 billion Y/Y, with deposit teams hired since 2023 growing portfolios to ~$2.6 billion.
• NIM surpassed 3% for the sixth consecutive quarter, benefiting from Fed rate cut and back book loan repricing opportunities.
• Loan growth continued with business loans up, pipelines at $1.2 billion, and recruiting efforts including hiring bankers and opening new branches.

Core pretax pre-provision income for the third quarter of 2025 was $54.4 million, up from $49.4 million in Q2 2025 and $29.8 million a year ago. Core deposits were up $1 billion year-over-year, with total deposits at September 30 up approximately $320 million from the prior quarter. The NIM increased to 3.01% in the third quarter, having increased for the sixth consecutive quarter. Business loans grew over $160 million in the third quarter compared to $110 million in Q2, with originations including new lines of credit at $535 million. Core deposits represent a significant portion of the balance sheet, with a cost of total deposits at 2.09% in Q3.

• Expect NIM expansion in Q4 due to Fed rate cut and back book loan repricing.
• Balance sheet expected to be flat in 2025 as attrition in transactional CRE and multifamily masks business loan growth.
• Q4 core cash operating expenses expected ~$63 million.
• Noninterest income run rate in Q4 expected to be ~$10M-$10.5M, excluding the fraud recovery item from Q3.
• Guidance for 2026 to be provided in 2026.

• Charge-offs related to building out business banks, with reserving methodology changes for C&I loans.
• Uncertainty in noninterest income from swap fees and SBA impacts.
• Impact of market conditions on CRE and multifamily loans, which may affect balance sheet growth.

Q: Maybe just starting off on credit here. Just curious with regard to the NPA formations and the charge-offs. Were the charge-offs related to this quarter's new nonperforming loans? And then was it weighted more towards owner-occupied CRE or nonowner-occupied CRE? And maybe if any of it was multifamily related?

A: Yes. So none of it was multifamily related, Steve. It was owner-occupied and nonowner-occupied. The split was around 20% owner-occupied, around 80% nonowner occupied over there. Like Stu said, criticized were down around $30 million linked quarter and loans 30 to 89 days past due were down approximately 33% on a linked-quarter basis.

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

A: Yes. No problem, Matt. I appreciate the question. So I think at the start of the year, our guidance for charge-offs was around 20 to 30 basis points. That's what we said before we start 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, fund finance, for example, we expect 0 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 for C&I loans, we are reserving somewhere between 125 and 150. So if you think about the model going forward, we do expect the reserve to build and us to be in that 90% to 1% area, and that could gradually build over time. It will 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 a high rate environment. And it's our goal with increased earnings power to exit some criticized assets here and there. So that's probably a couple more quarters of that probably that we see. But I would expect as we get into '26 to get to 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.

Q: 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?

A: Yes, Mark, so we've started having those conversations in earnest at this point. I think last couple of quarters, we said early 2026, we will revisit it. I mean the common equity Tier 1 is over 11.5%. Total capital is over 16%. I will say when you look at the peer groups, Mark, and more nationally 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 TCE ratios or you look at common equity Tier 1 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 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've seen in the press release a number of new verticals that we've brought on board. And each one of them should be a $0.5 billion business for us over 2 to 3 years, right? So we'd like to deploy that. At the same time, the CRE runoff, the multifamily runoff is going to stop at some point relatively soon, and we'll be back 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, 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 as we get below $400 million, that will go away, and it will probably help us be back in the market. So hopefully, that provides you a bit of perspective on the different dynamics there.