DCOM Q3 2026 earnings call transcript, October 20, 2026

Good day and thank you for standing by. Welcome to the Dime Commercial Bank Shares Inc. third quarter earnings conference call. At this time, all participants are on a listen-only mode. After 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 LeBeau, 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 transaction. Suffice to say, Dime's 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 link 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 at our growth rate. 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 are pleased to report a return of assets of 1.10% for the third quarter and

the 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 the 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 continues to be very attractive. 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 lowering pricing opportunity over the next five corridors will continue to serve as a catalyst for... ...continued revenue growth in the quarters ahead. During the quarter, we reduced our Cree ratio 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 Gornari 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. DIME has had our eye on having a greater ground-level branch president 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 DIME's presence 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 the 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 pricing 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-provisioned 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 C&I 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 CRI concentration ratio to 338%, while at the same time repurchasing approximately 1% of our shares outstanding. We believe that robust growth in our C&I businesses and operating with a CRI ratio that is lower than 350% will set us apart from the other local banks, which are operating between 375 to 450, and dime 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, from 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 NIMH for the third quarter would have been closer to 332. We would use the 332 NIMH as a starting point for modeling purposes going forward. We expect continued NIMH expansion in the fourth quarter, driven primarily by loan repricing and secondarily from the recent Federal Reserve grade program. increase. With respect to rate hikes, we expect the September rate hike to benefit NIMH by a couple of basis points, and any future rate hikes will likely be neutral to NIMH as there 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 NIMH that's not subject to cyclical moves based on the trajectory of short-term rates.

While it's hard to predict the NIMH 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 NIMH 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 NIMH 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 and a half percent. With that, I'll turn the call back to Shannon and we'll be happy to take your question.

Thank you. As a reminder to ask a question, please press star one one.

Your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steve Moss with Raymond James. Your line is now open. Good morning. A nice quarter. Hey, Steve. How are you? Hey, Steve. Doing well. Maybe just starting here on.

portfolio as well. So you should see, you know, the repricing benefit as well as, you know, continued growth in the overall loan portfolio at a low to mid-single-digit growth rate that we talked about last time around. Yeah, I mean, you know, in the previous quarters, you've been seeing about $150 to $175 million of commercial real estate move out. So you have to assume that that will continue most likely. And, you know, it's been about $150 million a quarter of multifamily has been prepaying or paying off and refinancing out. So we're still seeing those same metrics, although in a higher rate environment, it might slow down a little bit. Okay, that's helpful. That was going to be my next question. And then maybe just on the core deposit growth.

It was, you know, really strong this quarter. Just kind of curious, you know, how you're thinking about the cadence here on growth and, you know, any color you can give there. Yep. I mean, Steve, typically the third and fourth quarters of the year are our best quarters, just given, you know, seasonality, you know, the East End, you know, some of our, you know, private bankers in terms of the type of business mix that they have. So I would say. There's nothing in the numbers in Q3 that we expect to go away in Q4, so it's a good starting point. And then, you know, we've started the quarter, you know, reasonably here. So I would say it's kind of hard to predict in individual quarters where we go. Q1, generally, we do see some outflows, but I think, you know, Q4 should steadily build off of Q3. Okay. I appreciate all the call here, and I'll step back in the queue, guys. Thank you very much.

Thank you. Our next question comes from the line of Manuel Navis with Piper Sandler. Your line is now open. Hey, good morning. I hear you on the low single digits, mid-single digits growth pace. It was really strong this quarter. Can you talk a little bit about the mix this quarter, how it accelerated a bit, and I guess the pace should maybe slow a little bit in the fourth quarter, but can you just talk about

Great. And that... 500 million multifamily decline, that gets you towards that 25% longer term target. No shift there, in essence, on the mix projected going forward. Yeah, I mean, it's probably a little bit less than 25. I mean, right now, we're at 27%. So, you know, I would use 500 million off of the current numbers, basically. I appreciate that. And is there any other... Kali, you could add on kind of the deposit growth, which was so strong, kind of what areas that came from most. I know you talked a little bit about the private banker business mix, and you talked a little bit about the trajectory over the course of the year, but just what businesses led it most and where there might be some competition. Yeah, I mean, where we're really growing deposits is just business deposits, right? So, if you look at our base... Right now, it's probably 70% to 75% of the base is business deposits, and consumer deposits are 25%. The consumer piece, this time last year, was 30%. This time, two years back, was probably 35%. So, we're actually seeing small declines on the consumer side because we're not the highest rate payers out there for consumer deposits, which really means business deposits are growing at an even faster pace, right? So, we did hire three teams earlier this year. In April, they're doing really well in line with our projections. So, it takes a little bit of time for teams to get going, but they were a good contributor to third quarter growth. Our municipal business did really well in the third quarter. Our branches did well. So, I would say, look, we think we've got the best footprint in our area. We've got the best bankers. We've got the best branch network. We've hired the best private bankers. So, it's really the people that we have.

And Stu said, we're able to do this with, you know, growing DDA, right? So, we're bringing in core operating accounts. I mean, we've opened, you know, over the course of this year, we've opened over 6,000 accounts, basically. So, a lot of what's coming in now is, you know, the work that was done over the last three to six months. And we continue to see that accounting opening process not stop. So, I think, you know, this quarter was, you know, especially strong in the third quarter, but, you know, fourth quarter. You know, we'll have to see where we end up at. I will say we have been able to manage the cost of funds really well, and we're not really seeing a creep up in that yet. Yeah, that does bode well. And my last question is, you've added now Staten Island with the transaction today. You've grew an affordable business vertical. What is remaining for where you'd like to add density? Perhaps another team by next April. What is it you're looking at next like to have in terms of a new lending vertical or a new geographic area you'd like to invest in? Look, I think we've kind of accomplished what we were set out to do in terms of verticals and business lines. You know, we've been opportunistic. When an opportunity arises and talented people become available, we've taken the opportunity to bring them on board, and we've been successful at it. The same thing with private banking teams. There are probably still a few out there that we'd be interested in.

But I think overall, strategically, I think it's really now... You know, we need to operate on all cylinders and get things cranky. And I think we're really about there. You know, a lot of these teams have been on for quite a while, and their pipelines are growing. And that's why you're seeing, you know, the results in terms of loan originations and closing. So, you know, strategically, I think we're really in a spot where we really got to execute and grow the business. And I think we have the horses and the manpower to do that now. So, I mean, I don't see any significant moves away from that. We will be opportunistic if an opportunity arises in terms of teams or verticals. Yeah, I think, you know, one thing to think about is when we bring a new team on, it takes them anywhere from a year to 18 months to really get their footing. And you can tell by the loan growth results, many of those teams are just starting to get there now. So it's nice to see that the investment that we put into the business a year or so ago is starting to come to fruition. And we would just want to keep pushing that for now and focusing on the organic side. Yeah, Manuel, I just round it out by saying we're very focused on getting our profitability to a level by the back half of 27, where you're talking about, you know, an ROA in excess of 130 at that point. And so you saw this quarter with, you know, the efficiency ratios, you know, sub 48% at this point, we've updated our NIM guidance where, you know, we think NIM guidance is going to be over 360 at that point. So we've made all the investments, you know, anything, you know, going forward is probably, you know, marginal and, you know, and pays for itself pretty quick. But as Stu said, right now, it's about execution and driving the profitability to reflect the value.

in our deposit base, which is still not still not in terms of the overall profitability, because there's so much repricing assets that we have over the next, you know, five quarters. I really appreciate the commentary. Thank you. Thank you. Our next question comes from the line of David Conrad with KBW. Your line is now open. Great. Thanks. Good morning. Just want to talk about credit for a little bit.

building. Building out the infrastructure to support the private bank. We've opened, you know, two new branches. We've gone into New Jersey. You know, we've, you know, added, you know, a lot of teams underneath TOM. So I think all of that's done. So, so going forward, you know, our goal is to get, you know, that 48% down to, you know, 45% and then lower than 45% down the road. So I think, you know, expenses are what they are. You know, I think with, you know, additional scale with the Empire deal, which we not talked about, you know, that should help the efficiency ratio as well, given, you know, given the fact that, you know, a lot of the back office, you know, we're able to support with what we have right here. So we should see that, you know, continuing to trend down over time, you know, mainly driven by revenue growth. Great. Thank you. Appreciate it. Thank you. As a reminder to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of Matthew Breeze with Stevens. Your line is now open. Hey, good morning.

The last issue that a lot of banks had was there's a lot of migration out of DDA into interest bearing. We just don't see that happening this time around, right? So I think for the second rate hike, if there's one in October or December, you'll see a bigger pickup than the first hike. But on the first hike here, we ended the quarter with the cost of deposit 168. We're sitting here today at 172 plus or minus. And yeah, there'll be a little bit more creep after 172, but not substantial. I do think on the second and third, it'll probably pick up a little bit off of that, which is why, if you go back to my guidance on the NIM, we said the first rate hike was probably a couple basis points accretive to NIM. And then once you get to the second one, we're probably more neutral on NIM at that point. Yeah, that makes sense. And then the other, you know, tying, also tying to the NIM outlook, you guys are sitting on a lot of cash, things up to 14% of total assets. Can you help me out? With kind of the deployment strategy there and timeframe for deployment and within that ROA target you have and the 360 NIM guide, you know, what does the cash as a percentage of assets look like? Yeah, so I think we like the cash position because it keeps us neutral to, you know, short-term rates at this point. In the third quarter, we did not buy any securities. So I think we'd like to have a little bit more visibility into where rates, you know.

end up at before, you know, jumping in and buying securities. So I think that 360 NIM really doesn't assume, you know, much deployment of the cash position. It's just, you know, off the two billion odd of, you know, maturing and repricing loans, if you assume, you know, let's call it a billion seven, a billion eight of that, you know, you can reprice up 200, 225 basis points. That itself should get us, you know, 25 basis points, 20, 25 basis points of NIM, you know. off of that. I think that the cash deployment, that's something over and above that. But if you come back to our loan growth, you know, assumptions, we've said, you know, low to mid single digit growth on the loan side, and we're growing deposits, you know, faster than a low to mid single digit growth. So that would really mean there's more cash on the balance sheet, right? So long story short, it doesn't doesn't really capture that. I think that's upside in the NIM. And another way to look at it is if we did deploy it, the 360 is more like, you know, 380, 394 percent if we ran with the loan to deposit ratio closer to 90 to 95. Okay. Do you think cash could build from here? I didn't really anticipate that, but it sounds like you might be leading me there. No, look, if you look at it this quarter, the loan to deposit ratio went down, even though we grew loans because we grew deposits faster, right? So it is. It's a possibility, but, you know, we'll deal with it as it comes.

Yeah. Once we get to a point, Matt, where we're comfortable with our Cree ratio and, you know, we're back in the Cree business today on a selective basis, you know, you'll see larger loan growth and then the deployment of the cash. But at this point, you're still seeing net runoff on the commercial real estate side, both on the multifamily. And obviously on the, you know, straight commercial real estate. Once that kind of levels out, at that point, and we expect that toward, you know, mid to late 27, you'll start to see, you know, more significant loan growth and deployment of more cash. Okay. Last one for me, Avi, just on the deal. There's a few numbers I was hoping you could help. Maybe, maybe forecasted cost saves, but the percentage you're using for CDI and then the credit interest rate marks. Oh, and one. Yeah. So that's, sorry. Yeah, sure. So, so the deal side is pretty small, right? You know, 4% of our, of our asset base. So, you know, I think, I think overall we, you know, we expect to run this, you know, at a ROA, we know. in excess of 2% at the bank, you know, fully factoring cost savings over there. You know, the rate mark and credit mark, you know, you probably end up, you know, somewhere close to, you know, somewhere between 4% and 5% plus or minus, including the rate and credit mark. Obviously, you know, rates are elevated. So it depends on what point in time you do it. We kind of assumed, you know, the worst case where, you know, the five year was at, was at, you know, 5%. So I think to include that's probably, you know, somewhere between.

Four and a half and 5% rate and credit put together on it. You know, in terms of the CDI assumption, I would just use 3%, you know, on the core deposits on that. And then, you know, deal costs, you know, they probably should be in the, you know, 12 to $13 million area, plus or minus on a pre-tax basis.

I'll leave it there. Thank you for taking all my questions. Appreciate it. Okay. Thanks, Matt. Thank you. And I'm currently showing no further questions at this time. I now like to turn the call back over to Stuart LeBeau for closing remarks.

This concludes today's conference. Thank you for your participation. You may now disconnect.