Dime Community Bancshares, Inc. Q3 FY2025 earnings call

• Core earnings power on upward trajectory; core pretax pre-provision income up. • Increase in loan loss provision tied to charge-offs in real estate segments. • Core deposits up, deposit teams hired since 2023 grew portfolio to ~$2.6 billion. • NIM increased for sixth consecutive quarter, surpassed 3%, expected more expansion in Q4. • Business loans growing, loan pipelines strong at $1.2 billion. • Hired talented bankers, opened Manhattan branch, on track to open NJ and Long Island locations. • Core EPS up y-o-y, noninterest income included fraud recovery benefit. • Expect more NIM expansion in Q4, significant opportunities in 2026 from loan repricing. • Core cash operating expenses ~$61.9 million in Q3, slightly above prior guidance due to additional hires. • Noninterest income run rate expected to be ~$10-10.5 million in Q4 excluding fraud recovery.

Core pretax pre-provision income was $54.4 million in Q3 2025, up from $49.4 million in Q2 2025 and $29.8 million a year ago. Core deposits were up $1 billion y-o-y, with a cost of total deposits at 2.09% in Q3. NIM surpassed 3% for the sixth consecutive quarter. Business loans grew over $160 million in Q3. Core EPS was $0.61 per share, up 110% y-o-y. Total deposits up ~$320 million from prior quarter. Credit loss provision was $13.3 million, allowance to loans at 88 basis points. Criticized loans down ~$30 million q-o-q, 30-89 days past due down ~33% q-o-q. Common equity Tier 1 ratio over 11.5%, total capital ratio over 16%.

• Expect relatively flat balance sheet for remainder of 2025. • Will provide 2026 guidance in new year. • Q4 core cash operating expenses expected around $63 million. • Noninterest income run rate in Q4 ~$10-10.5 million excluding fraud recovery. • NIM expected to expand further in Q4, with significant repricing opportunities in 2026 and 2027 from back book loans.

• Charge-offs on loans in owner-occupied and nonowner-occupied real estate segments could impact financials. • Uncertainty in noninterest income from factors like swap fee income and SBA fees affected by government shutdown. • Deposit beta and rate cut impacts on NIM and deposit costs. • Competition in the market could affect growth and margins.

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 billion linked quarter. The 30- to 89-day bucket got better. And we're pretty confident that we should see some resolution of legacy NPAs in the fourth quarter, probably amounting to around $15 million to $17 million that we have a good line of sight into. So I wouldn't characterize the formation as anything out of the ordinary course of business. We're operating at 50 basis points of NPAs. We probably could be range bound around that between now and the end of the year. And we're seeing a very strong credit overall on the multifamily side.

Q: Matthew Breese of Stephens Inc. 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: Matthew Breese of Stephens Inc. asked about multifamily reduction, within that, was there any selection bias? -- stuff that's rolling off the book, was it more market rate multifamily versus rent regulated? And I would love just to hear what the market appetite is for those products refined away. Is it nondiscriminate and both are being refined away? Or are you seeing more of the market rate stuff get refined away than rent regulated?

A: Yes. So I think we're setting our new rates slightly above market, Matt. I think at a reprice, some of the customers are staying with us. But at maturities, we're not seeing any delineation between free market and historical rent-regulated items just because the LTVs are so low, and we've been pretty conservative in the underwriting. So I think there's a difference at the reprice. If something is repricing and still has 5 years left, you probably would see more of the rent-regulated stuff staying on with the books. But at maturity, we're seeing the same 80% to 90% of the loans are basically going away at this point. And there's really no delineation between that at this point in time, at least.

Q: Matthew Breese of Stephens Inc. asked about expectations on deposit betas as a lot has changed on year-end than previous cycles.

A: Yes. I'll start with this cut, Matt. So I think you asked the question last quarter, I mean, rate cuts obviously help us and gradual rate cuts help us more than probably big rate cuts because that's sometimes it's hard to cut depositors by the full amount. So we kept the deposit cost at 2.09% this quarter, consistent with the last quarter, but we continue to grow deposits, right? So we're bringing on new deposits in the low 2s. Right now, our cost of deposits is in the low 190s. Prior to this rate cut, it was 2.09%. And so we were pretty much able to pass the full 100% on. I mean we do have 30% DDA. So that is what it is. So I'd say for this 25 basis points, we're very happy with where we ended up. So we started at 2.09%. We're at 1.90% right now. So我们 were able to cut and that's on total deposits. We're able to cut by 19 basis points. So I think for anything going forward for the next 2, we'd expect something similar, but it's going to depend on the competition. And look, the luxury that we have is we have a lot of new deposits coming in with -- from our branch network, from our municipal deposit bankers, from our private banking teams and from some of the commercial lending teams that we've built on. So we can be more aggressive with the existing deposit base that we have. And I don't think that's a luxury that a lot of other peers in our geography have. So while我 think the models would say 50%, 60% beta, I mean, we're trying to pass everything on going forward on the way down. And if you remember, when rates were at 0, our cost of deposits was 7 basis points back then, right? We're not getting back there, but we did pay up on the way up, and there was industry events with Signature and some of the other stuff that happened where there was a bit of retention going on. But I think on the way down, our goal is to benefit from that. And again, the NIM guidance that we gave going forward, I mean, that's absent any rate cuts, right? I mean -- so for every rate cut, we should have 5 basis points plus or minus over there, and that's kind of primarily from cutting the deposit side of the business.

Q: Matthew Breese of Stephens Inc. asked about thoughts on M&A as a buyer and strategic alternatives including potential sale if bids were to come in.

A: Yes. Thanks, Matt. Look, we're focused on organic growth. We have -- we've just brought on all these talented bankers and these teams on the loan side. We had already done that on the deposit side. We think we're really well positioned to deploy the excess liquidity that we have over the next 6 months to a year with all these teams coming on board. Our pipeline is very strong with very good yields. So I'm excited about the fact that we're going to start to see NIMs in the mid- to high 3s in a relatively mid- to long term, which is going to benefit the bottom line and our shareholder value. So really focused on that. As far as the other, look, everyone knows我. I've been around a long time. I'm always interested in maximizing shareholder value. But for now, we're really focused on organic growth.

Q: Mark Fitzgibbon of Piper Sandler asked about 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 mean the one thing we were trying to do is to get the CRE concentration ratio down to the low 400s, and we are there, right, at this点 in time. 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其他 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我 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市场 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市场. So hopefully, that provides you a bit of perspective on the different dynamics there.

Q: Mark Fitzgibbon of Piper Sandler asked about the fraud recovery in the quarter.

A: Yes, yes. So that was在 other income, Mark. If you remember, this probably dating back to 2018 or 2019, Legacy Bridge had a fraud with a bus company. It was around an $8 million noninterest expense hit that they had more of an operational item. So we've been going through the legal process, and we were able to recover $1.5 million this quarter, and that's在 the other -- other noninterest income line.

Q: Mark Fitzgibbon of Piper Sandler asked about where we are in the credit cycle.

A: Yes. No, I think we're kind of in the later innings at this point. I think我们're going to muddle along a little bit going forward. Look, we -- the issues of 2023 and the 2 years thereafter kind of exacerbated some of the situations with the higher rate environment. So I think overall, the industry has done very well. And I think we're at the point now where you got a lower rate environment coming. And I think generally, at least locally, the economy remains relatively strong. So I think that the industry has kind of worked through the process and managed the credit issues very well. I think as some of the issues come up with improved earnings, there might be a little bit more aggressive approach to resolving items. But I think generally, I think the industry has done well. And I don't see us entering a significant stress environment in terms of credit.