Earnings Call Transcript - DCOM Q1 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the Dime Community Bancshares First Quarter Earnings Call. Please be advised that today's call 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 risks, 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 a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For more information about these non-GAAP financial measures and for reconciliation to GAAP, please refer to today's earnings release. I would now like to hand it over to our first speaker, Stu Lubow, President and CEO. Please go ahead.

Stuart Lubow, President and CEO

Good morning. Thank you, Victor, and thank you all for joining us this morning for our quarterly earnings call. With me today, as usual, are Avi Reddy, our Chief Operating Officer and CFO; and also Tom Geisel, our Chief Commercial Officer. In my prepared remarks, I will touch upon the progress we are making as we continue to execute on all aspects of our strategic plan. Avi will then provide financial details for the first quarter. EPS for the first quarter was up 67% versus the prior year. The growth in EPS was driven by record total core revenues of $124 million. All of our revenue growth has been organic, built by our existing bankers and new hires. NIM was up 10 basis points quarter-over-quarter as we were able to lower our cost of deposits. Year-over-year, our core deposit growth was $1 billion. On the loan front, we continue to execute on our stated plan of growing business loans and managing the CRE ratio lower. Year-over-year, growth in business loans were approximately $575 million, which represents a 21% increase. Our loan pipeline continues to be strong and is in excess of $1.5 billion with a weighted average rate of between 6.25% and 6.5%. As you know, disruption in our local marketplace remains very high, and the environment for our organic growth strategy continues to be very attractive. As outlined in the press release, we had a very strong start to the year from a recruiting standpoint. In addition to fully building out our Lakewood branch with a strong group of bankers, we added management depth to our branch network, and we also hired two very strong deposit teams who had a strong track record at the former Signature Bank. We are confident that these hires will be accretive to earnings in 2027. The teams we hired to date, as you know, have grown deposits to nearly $3 billion with $1.2 billion of DDA and a cost of funds of 1.6%. The new deposit teams have hit the ground running and will benefit from the path and platform that has been created over the past few years, and we are excited for their growth in the months and years ahead. Finally, we will be adding a new equipment and franchise finance vertical starting May 1. This new vertical strengthens our core commercial bank offerings and enhances our competitive position. When the opportunity arose to hire this high-quality team of bankers, we capitalized on it. Keith Smith, who will lead this vertical for us, previously worked with Tom Geisel externally and successfully built and scaled that vertical externally to more than $1 billion. In conclusion, Dime is the bank of choice for talented bankers in our footprint, and we've continued to be the primary beneficiary of the disruption in our marketplace. Earlier in this year, we announced plans to rebrand Dime as Dime Commercial Bank. This marks the culmination and a 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 from the business and commercial real estate. It's been a remarkable transformation over the past 10 years away from the legacy thrift and multifamily heritage, and we believe that the Dime Commercial Bank brand truly represents the bank that we have grown into. In conclusion, Dime has differentiated our franchise from our local competitors as it relates to our organic growth trajectory. We continue to focus on diversifying our balance sheet, driving our efficiency ratio lower and attracting talented bankers. We are positioned very favorably with significant loan repricing over the next two years, and our organic growth prospects are strong. I want to end by thanking all our dedicated employees for their efforts in positioning Dime as the best commercial bank in the New York Metro area. With that, I will turn over the call to Avi to provide some color on the first quarter.

Avinash Reddy, Chief Operating Officer and CFO

Thank you, Stu. EPS for the first quarter was $0.75 per share, representing 10% linked quarter growth and 67% year-over-year growth. Core pretax pre-provision net revenue of $60.5 million represented 162 basis points of average assets. By maintaining a strong focus on cost of funds management, our NIM has now increased for eight consecutive quarters. The NIM expansion versus the prior quarter was driven by a reduction in deposit costs to 1.70%. We continue to have catalysts for growing our NIM over the medium to long term, including a significant back book loan repricing opportunity that I will talk about later. The reported first quarter NIM increased to 3.21%. Given the day count convention in the first quarter with February only having 28 days, the first quarter NIM is always seasonally elevated. Excluding the impact of the day count and the benefits from purchase accounting, the run rate NIM for the first quarter would have been closer to 3.14%. As we mentioned on the fourth quarter earnings call, the fourth quarter balance sheet cash position and deposits were all elevated by approximately $400 million due to seasonality and municipal deposits. As expected, we saw some normalization in the balance sheet size over the first two months of the quarter. Average earning assets for the first quarter were approximately $14.2 billion and average earning assets for the month of March were approximately $14 billion, which should serve as a good base for modeling purposes going forward. Core cash operating expenses, excluding intangible amortization, were $63 million, which was generally in line with our expectations. The loan loss provision was approximately $12 million and the allowance to loans increased to 95 basis points, which is at the midpoint of our 90 basis points to 1% operating range. At the end of the first quarter, we transferred four loans totaling $38 million into held-for-sale status. This shows up on the March 31 balance sheet in the loans held-for-sale category with a nonaccrual designation. We successfully sold these loans earlier this week, generating $36 million in total proceeds. As a result, in the second quarter, we expect to have a modest $2 million negative impact in the gain on sale line item on the income statement. Criticized loans remained relatively flat on a linked-quarter basis and capital levels continue to grow. Our tangible equity ratio crossed 9%. Our common equity Tier 1 ratio grew to 11.87%, and our total capital ratio is in excess of 16%. Having best-in-class capital ratios versus our local peer group is a competitive advantage. Maintaining strong capital ratios provides us the flexibility to execute on our business plan and provides us a cushion to continue growing client relationships regardless of the overall economic environment and any external shocks. Next, I'll provide some thoughts on the remainder of 2026. As I mentioned previously, excluding the day count convention for the first quarter and purchase accounting, the run rate NIM for the first quarter would have been closer to 3.14%. We would use this as a starting point for modeling purposes going forward. In addition, and as I mentioned earlier, average earning assets for the month of March were approximately $14 billion. We expect modest NIM expansion in the second quarter and more pronounced NIM expansion in the back half of the year and in 2027 as the pace of the back book loan repricing picks up. To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, for the remainder of 2026, we have approximately $1.3 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 4.10% that either reprice or mature in that time frame. As we look into the back book for 2027, we have another $1.7 billion of loans at a weighted average rate of 4.30%. Assuming a 225 to 250 basis point spread to treasuries on these repricing and maturing loans over the next seven quarters, we could see another 40 to 45 basis point increase in the quarterly NIM by the end of 2027 when starting from the base NIM of 3.14%. While it's hard to predict the NIM in individual quarters and the path may not be a straight line, we are focused on the ultimate destination by the fourth quarter of 2027, which we expect to be over 3.50% assuming the consensus forward curve plays out and competition remains rational. Given our current cash position, any future 25 basis point reduction or increase in short-term interest rates will likely not have more than a 1 to 2 basis point impact on our NIM. Our NIM expansion in future quarters will be entirely driven by the back book loan repricing as well as core deposit growth and business loan growth. 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. We expect to continue to reduce our CRE concentration ratio lower to 350% sometime between the second and third quarter of this year, primarily driven by a reduction in transactional multifamily and transactional investor CRE. At that point, we expect to reach an inflection point on investor CRE balances with multifamily continuing a downward trend until we get to around 25% of total loans for multifamily. We believe operating with a CRE ratio that is 350% or lower will set us apart from all of the other local banks, which are operating between 375% and 450%, and we will be rewarded in the medium to longer term with a higher valuation as well as more optionality to take advantage of opportunities regardless of the economic or regulatory environment. Next, I'll turn to expenses. On our prior call, we had provided annual guidance for core cash operating expenses, excluding intangible amortization for 2026 of between $255 million and $257 million. This was based on the employee base we had in January. Given the significant hires we announced since that time, including the acquisition of two strong deposit teams from Signature and the build-out of a full equipment and franchise finance vertical, we are increasing the expense guidance for core cash operating expenses, excluding intangible amortization for the full year to approximately $260 million. Like Stu said in his prepared remarks, we expect the hires to be accretive to EPS starting in 2027. Finally, we expect the tax rate for the remaining quarters of 2026 to be 28.5%. With that, I'll turn the call back to Victor, and we'll be happy to take your questions.

Operator, Operator

Our first question will come from the line of David Konrad from KBW.

David Konrad, Analyst, KBW

Quick question on the $38 million loan that was sold in April. It looks like there's maybe a $2 million loss for next quarter. But was that in the nonperforming nonaccrual bucket at year-end? In other words, I'm trying to get a feel for the flow. Nonaccruals went from $52 million to $57 million. Was the $38 million in the $52 million and was the bucket refilled? Or just kind of talk about the flows into the nonperforming bucket.

Avinash Reddy, Chief Operating Officer and CFO

No, David, it wasn't. We made a decision to sell the loans toward the end of the first quarter, so that was new at March 31. As I noted in the prepared remarks, it's off the books now. We received the cash last week. We said this a couple of quarters back: we have the pre-provision earnings power and the capital to offload relationships and credits where we don't think they meet our long-term objectives. We made the decision and moved on from the credit, and we're comfortable being behind it at this point.

David Konrad, Analyst, KBW

Great. Okay. And then I guess just on loan growth overall, really good commercial loan growth, which is kind of offset by the intentional wind down of some of the real estate assets. In your guidance, do you expect total growth to start to occur in the back half of the year? When do we see an inflection that we'll see the loan portfolio start to increase?

Stuart Lubow, President and CEO

Yes. For example, this quarter we had $170 million of multifamily payoffs and $90 million of investor CRE payoffs. As we get to that 350% total CRE ratio, you'll start to see us maintain our overall CRE balances—not necessarily multifamily, but CRE overall—and continued growth in the other business loan verticals. So yes, our view is that in the back six months of this year you'll start to see nice growth in the loan portfolio.

Avinash Reddy, Chief Operating Officer and CFO

Yes, David, I would add that we're thinking about the loan portfolio in three segments. On the business loan front, we're seeing roughly $150 million of net loan growth, including payoffs. Many of the teams that Tom has hired haven't been at the bank a full year—they've been here six to nine months—so they're just starting to hit their stride; it typically takes 12 to 15 months to get into a good cadence. That will help. The equipment finance and franchise vertical we're bringing on board starts in May, so they'll probably be online by the third quarter. Add that up and we're probably trending toward around $200 million, or a bit more, in business loan growth. The next part of the balance sheet is the investor CRE side, and we're back in the market there for relationship deals and construction relationships. Once we get to 350%, with a $2.7 billion to $2.8 billion investor CRE portfolio, that likely grows at about $200 million on an annual basis using a 5% to 6% growth rate. So you have an $800 million business loan growth run rate, $200 million of investor CRE relationship run rate (including payoffs and refinancings), and then intentionally we're taking multifamily down to around 25% of total loans—relationship multifamily only, not transactional. The residential portfolio is probably going to grow $50 million to $100 million. Put that together and it should be mid-single-digit growth starting in the third quarter of this year.

Operator, Operator

Our next question will come from the line of Steve Moss from Raymond James.

Stephen Moss, Analyst, Raymond James

Maybe just starting on the Signature deposit team here, the team that you hired. Just curious if you could give us any color around the size of the teams and what their historical book was.

Stuart Lubow, President and CEO

I'll start by saying these were significant teams we've been talking to for three years. These were two teams we particularly wanted as we moved forward. Avi can give you more detail on what we expect.

Avinash Reddy, Chief Operating Officer and CFO

Steve, collectively, including the Lakewood build-out, the hires manage well north of $1 billion of deposits currently, even after the outflows in 2023 and 2024. Our expectation is that in the medium to longer term this is a $1 billion opportunity for us. We have proof of concept: the teams we hired early on are over $3 billion at this point. What we like most about the team we hired is their cost of funds is actually lower than the bank's overall cost of funds; it's around 160 basis points given the high proportion of DDAs. These teams have a similar profile with a very high percentage of DDA. It will take time—2023 and 2024 were unique environments—but this will be slow and steady relationship-by-relationship. These were teams we wanted back in 2023, and it finally came to fruition now, so we're very happy with that.

Stephen Moss, Analyst, Raymond James

Okay. Interesting. I appreciate that color. And then just on the equipment finance side, curious what type of equipment finance loans you are seeking to make with the new setup.

Thomas Geisel, Chief Commercial Officer

This group will focus on middle market to large-ticket equipment finance deals. We're looking at companies with middle market credit quality—single B through investment grade. The focus is really on critical machinery and equipment for manufacturing and warehouses. As with all our businesses, we'll focus on relationship-driven companies. This is a credit-focused business: you evaluate the machinery and equipment, but it's primarily credit driven. That will enable us to lend into most industries. We'll look at material handling, commercial specialty vehicles, medical, waste management, and similar areas.

Stephen Moss, Analyst, Raymond James

Appreciate that color, Tom. One more: going back to the held-for-sale bucket, is this a one-off? Or do you think you'll use the sale of select loans—multifamily credits, perhaps over the next 12 to 24 months—to accelerate dispositions?

Avinash Reddy, Chief Operating Officer and CFO

Case by case, Steve. We've been good at resolving credits expeditiously. It depends on the market for each credit. This particular instance was a fairly low-yielding relationship—the yield was around 3.25% to 3.30%—so removing it is accretive to NIM going forward. It wasn't in the Q1 NIM numbers, but removing $40 million at a low yield helps NIM. Given our pre-provision earnings power of roughly 160 basis points, it helps us resolve credits more quickly. We have not done bulk sales at this bank; we maximize value relationship by relationship. So expect one-offs and working through items as they come up.

Operator, Operator

Our next question will come from the line of Manuel Navas from Piper Sandler.

Manuel Navas, Analyst, Piper Sandler

I appreciate the NIM trajectory, much of it based on back book repricing. But with these teams that should bring deposits, what's the opportunity for continued deposit declines versus improvement in the funding base from core deposit generation?

Avinash Reddy, Chief Operating Officer and CFO

If the Fed stays steady and does not cut rates, it will be challenging for any bank to continue to lower deposit costs; there may be a little bit of creep of a basis point or two each quarter as some customers ask for higher rates. That said, the existing $3 billion of deposits we have have a cost of funds of about 150 basis points, which is lower than our overall cost of funds. The new teams will be slow and steady in growing deposits, but they provide another avenue to grow deposits over time. The existing teams are still opening accounts. We view this as a medium- to longer-term play that will make the deposit franchise more valuable. These groups tend to be DDA-heavy, which should aid overall cost of funds. If the Fed cuts rates later this year by 25 basis points, that would further help reduce deposit costs.

Stuart Lubow, President and CEO

These teams had roughly 50% of their deposits in DDA, so we're excited about the opportunity for those deposits to move to us and become part of our core deposit franchise over time.

Thomas Geisel, Chief Commercial Officer

Also, the commercial business is relationship focused, so that business will continue to bring in deposits. We have a great private bank franchise bringing in strong core deposits, and the commercial teams will continue to support deposit growth.

Manuel Navas, Analyst, Piper Sandler

That's great commentary. Can you speak to the continued M&A opportunity for talent and further loan and deposit growth? You added a lot this quarter; how do you view the pipeline for talent and how are you taking advantage of M&A disruption in your footprint?

Avinash Reddy, Chief Operating Officer and CFO

Manuel, our near-term focus is to integrate the teams we've on-boarded and work well with them. We've onboarded a handful of teams and many of these relationships were multi-year conversations—the timing of moves isn't always in our control. On the commercial banking side, with the build-out of equipment and franchise finance, we're pretty much in every industry we want to be in, so future hiring will add depth to existing verticals rather than new verticals. When we brought Tom on a year ago, we identified five or six areas to focus on, and we are now operating in all of them. Expect incremental depth in existing verticals rather than substantial new vertical expansion.

Stuart Lubow, President and CEO

When you talk about M&A disruption, we see opportunities to take advantage of client relationships that might be displaced by competitors undergoing change. The verticals we brought on are still fledgling—many have been with us less than a year—and they're just beginning to build pipeline and close loans, so there's real opportunity in the latter part of this year and into 2027 for stronger origination on the business banking front.

Thomas Geisel, Chief Commercial Officer

Dime has positioned itself well in the market. People see the growth mindset, the deposit franchise and the strength of our back office; it's a place people want to work. We shifted to a proactive posture over the last couple of years and have been successful. Now we are receiving inbound interest and can be selective in adding talent that matches the skill sets we need to enhance our current teams. We'll do some additive hiring over the next year.

Operator, Operator

I'm not showing any further questions in the queue at this time. I would now like to turn it back over to Stu for any closing remarks.

Stuart Lubow, President and CEO

Thank you, Victor, and thank you all. Thank you to all our dedicated employees and our shareholders for their continued support, and we look forward to speaking to you after the second quarter.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.