Dime Commercial Bancshares, Inc. Q2 2026 Earnings Call

Good day everyone, thank you for standing by. Welcome to Dime Commercial Bancshares second quarter earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star one one on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star one one 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 risks, uncertainties, and other factors that may cause actual results to differ materially from those contained in 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 substitute for the 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. It's my pleasure to hand the conference over to Stuart Lubow, President and CEO. Please proceed. Thank you, Carmen, good morning.

Thank you all for joining us this morning for our second quarter earnings call. With me today, as usual, are Avi Reddy, our Chief Operating Officer and CFO, Tom Geisel, our Chief Commercial Officer. In my prepared remarks, I will touch upon the progress we've made in the second quarter. Avi will provide financial details for the second quarter. Dime has differentiated our franchise from our local competitors as it relates to our organic growth trajectory, our ability to attract talented bankers, the quality of our deposit base, the progress we made in diversifying our balance sheet, and our improving NIM and profitability. Revenues for the second quarter were $126 million, which was a record for Dime. Core EPS was up 23% versus prior year.

NIM was up 7 basis points versus the linked quarter, as we were able to lower cost of deposits and improve our yield on loans. On the loan front, we continued to execute on our stated plan of growing business loans. Year-over-year, growth in business loans was approximately $743 million, which represents a 26% 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 6.25%. We were pleased to drive our core efficiency ratio below 50% in the second quarter. As you are aware, we have been very active on the hiring front over the past 3 years. It's nice to see these investments paying for themselves and contributing to the improved profitability.

To give you a sense of the scale of our transformation on hiring, we have added over 15 deposit teams in our private banking area, six new lending verticals, and three new branch locations. Doing all this in a very short span of time and driving the efficiency ratio below 50% is especially noteworthy. We continue to believe that the hires that we have made have a long runway in front of them. 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. A common theme in our discussions with shareholders over the past year has been when will Dime resume its share repurchase program?

Given the significant long-term value we see in our shares, we are pleased to announce that we expect to begin repurchasing our shares in the third quarter. Avi will provide some color on our capital targets in his prepared remarks. In June, we completed our rebrand to Dime Commercial Bank. This marked the culmination and 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 business and commercial real estate. It has been a remarkable transformation over the past 10 years away from the legacy multifamily thrift model, and we believe that our new brand truly represents the institution we have grown into. In conclusion, we are positioned very favorably for organic growth and expect to benefit from a significant loan repricing opportunity over the next 18 months.

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 to provide some color on the second quarter.

Thank you, Stu. Core EPS for the second quarter was $0.79 per share. Core pre-tax, pre-provision net revenue of $64 million represented 173 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 nine consecutive quarters. The reported second quarter NIM increased to 328. Excluding the impact of day count and the benefits from purchase accounting and prepayment fees, the run rate NIM for the second quarter would have been closer to 322 compared to a 314 run rate NIM for the prior quarter. Average earning assets for the second quarter was approximately $14.1 billion. Core cash operating expenses, excluding intangible amortization, was approximately $64 million, which was in line with our expectations.

The loan loss provision was approximately $14 million, and the allowance to loans increased to 98 basis points. The loan loss provision in the quarter was primarily to cover charge-offs on investor CRE loans, specific reserves on the multifamily portfolio, and growth in the business loan portfolio. Criticized loans remained relatively flat and NPAs were down 28% on a linked-quarter basis. Our tangible equity ratio crossed 9%, our common equity Tier 1 ratio grew to 12%, and our total capital ratio was 16.3%. As Stu mentioned, we are pleased to announce that we expect to resume share repurchases in the third quarter. Our stated position has been that when the CRE ratio was lowered to the mid-350 level, the buyback would be back on the table.

In the near to medium term, we expect to operate with a CET1 ratio between 11.25%-11.5%, which gives us room for both organic growth as well as buybacks. I will provide some thoughts on the remainder of 2026. As I mentioned previously, excluding the day count convention, purchase accounting, and prepayment fees, the run rate NIM for the second quarter would have been closer to 322 compared to 314 for the first quarter. We would use the 322 NIM as a starting point for modeling purposes going forward. We expect modest NIM expansion in the third quarter and more pronounced NIM expansion in the fourth quarter and in 2027.

To give you a sense of the backbook repricing opportunity in our adjustable and fixed-rate loan portfolios over the next 18 months, we have approximately $2.5 billion of adjustable and fixed-rate loans at a weighted average rate of 425 that either reprice or mature in that time frame. While it is 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, which we expect to be over 350. This assumes the consensus forward curve plays out and competition remains rational. 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.

Given our current cash position and assuming competition remains rational, any future 25-basis-point increase in short-term rates will likely not have more than a one-to two-basis-point impact on our NIM. In addition to the $1.9 billion of cash on the balance sheet, we have approximately $3.8 billion of floating rate loans and $350 million of hedges that will reprice if rates increase. We believe this should offset any deposit cost increases from the $7.5 billion of non-maturity interest-bearing deposits on the balance sheet. We are pleased to reduce our CRE ratio to approximately 350% at the end of the second quarter. We believe operating with a CRE ratio that is 350 or lower will set us apart from the other local banks, which are operating between 375%-450%, and Dime will be rewarded in the medium to longer term with a higher valuation.

We expect to reach an inflection point on investor CRE balances in the second half of this year, with multifamily continuing a downward trend till we get to around 25% of total loans for multifamily. As it relates to business loans, we believe we have the infrastructure and talent in place to grow that portfolio between $200 million-$250 million per quarter. I'll turn to expenses. We expect core cash operating expenses, excluding intangible amortization, for the remainder of the year to be between $130 million and $131 million. Finally, we expect the tax rate for the remaining quarters of 2026 to be approximately 28.5%. I'll turn the call back to Carmen, and we'll be happy to take your questions.

Thank you so much. As a reminder, to ask a question, press star one one on your telephone and wait for your name to be announced. To remove yourself, press star one one again. One moment for our first question. It comes from Peter Winter with D.A. Davidson. Please proceed. Thanks. Good morning.

I was wondering, can you provide an update on the multifamily portfolio and maybe some color on the increase in the multifamily non-performing loans this quarter?

Sure. We had around $26 million, $27 million, Peter, that was close to the 90-day past due bucket at the end of the quarter. We took a $6 million specific provision on those loans. We're working with the operators on that. We think there's a long-term strategy to create value for us on that. That was the increase over there. Actually, NPAs were actually down because we disposed of $38 million that were for sale in the prior quarter, right? If you look at the aggregate of held for investment and held for sale, multifamily NPLs were actually down. In terms of the overall portfolio, we have $3.1 billion of multifamily. There's around $1 billion of majority rent-regulated, 100% rent-regulated in that portfolio.

The part that we've always said we're keeping a watch on is the pre-2019 bucket because that was originated prior to the rule changes in New York City. That portfolio is actually down to around $300 million right now. It was probably around $400 million this time last year. Very granular portfolio. We're comfortable with what we have over there. We built some specific reserves this quarter and we feel like we have the earnings power over time to deal with any issues that crop up in that portfolio.

Got it. Thank you. Just on the ACL ratio, it increased to 99 basis points. I think last quarter you talked about a range of 90 to 100 basis points. Just how are you thinking about the ACL ratio going forward?

I don't think we're thinking about it any differently. We said the range would be between 90 basis points and 1%. We're at 98 basis points, so we're within the range.

One more question. Maybe could you give an update on the loan outlook in the second half of the year? I saw on a period end, it was up a little bit. How are you thinking about it in the second half of the year?

Sure, Peter. Hi, it's Tom. Let me walk you through kind of how we think about the loan portfolio. I know Avi talked a little bit about this during his comments, but we look at it in kind of three different segments. First, business loans. Stu mentioned that year-over-year, we're up 26%, so we're getting some pretty significant growth there. We saw $125 million in net growth in Q1 and $275 million in net growth in Q2. The new teams that we hired have been at the bank barely a year, so they're just starting to hit their stride. Typically, it takes a new team 12-15 months to really get in a good cadence. I think we announced last quarter that we brought an equipment finance team and a franchise vertical. We put them in place.

They haven't really started contributing yet, so we should see them contribute to the back half of the year. If you think about business loans, we think we're on a real positive trend to do $200 million-$250 million of quarterly growth there. We take a look at the second segment, which is investor CRE. We're back in the market doing relationship investor CRE and construction. We have about a $2.75 billion investment CRE book that probably, as Avi said, reaches an inflection point at some point in the second half of the year. From there, grows about $125 million-$150 million on an annualized basis. I'm thinking about it at a 5% growth rate. Multifamily, the third segment. Avi talked a little bit about that, trying to get that down to about 25% of total loans.

Again, we've been proactively trying to work that down to 25%. I think we're somewhere around 28% right now. We'll continue to do real strong relationship multifamily, but we'll stay away from the things rent regulated or majority rent regulated. As we look at the book through the balance of the year, we're looking at low to mid-single digit growth moving forward as we get towards the end of the year.

That's great. Thanks, Tom. Appreciate it.

Thank you. Our next question is from Steve Moss with Raymond James. Please proceed. Good morning. Hey, Steve.

How are you? Hey, Steve.

Doing well. Maybe just on the deposit dynamics here, saw good non-interest-bearing deposit growth for the quarter. Just kind of curious about how you guys are feeling about the cadence and maybe just any color about the underlying dynamics in the quarter if there was some impact with tax payments or things of that nature.

Yeah. The first quarter and the first month or six weeks of the second quarter are always slow and tax payments, et cetera, always play into that. We did see a significant pickup in growth on the deposit side. We hired two new teams in April. They're just starting to hit the ground. They have opened thousands of accounts at this point, and we're starting to see some real traction from them. The remaining existing private bankers are still opening accounts and bringing in new business and transitioning some of their old customers over to us. We still think there's a real upside on the growth side on the deposit with DDA over 31% at this point and cost of funds about 164.

We're very pleased on the deposit side, and we've been able to really hold our own in terms of actually reducing our cost of funds last quarter and holding steady even with a higher rate environment. We're very comfortable where we are. We think there's a lot more upside with the existing teams and of course, with some of the new teams who had some significant books at their former homes. We're pretty bullish on that.

Okay. That's helpful color there. Just in terms of the loan pipeline here, I don't think I heard a loan origination number or the rate on the pipeline. Just kind of curious where loans are going on the books these days.

Six and a quarter. I'm sorry?

6.25% is the weighted average rate on the pipeline.

Okay. Appreciate that. Then on capital here with repurchases and the 11.25% and 11.5% target, is that something you guys are going to seek to achieve in the second half and just manage with that over, I think it was the medium term? Just kind of as we think about the strength of the buyback in the short term here.

I think we're leaving ourselves some flexibility there, Steve. It's going to be a function of organic growth, where the stock price is. We're committed to getting the share count down. We're committed to operating the bank between 11.25% and 11.5%. Like I said, it's something we talked about for a long period of time, in terms of when the right time to restart it was. To us, the biggest marker was getting the CRE ratio very close to 350, so we're there. Right? I would say, over the near to medium term, that's two quarters out, three quarters out. We should be there between 11.25% and 11.5%. It's going to be part of the ongoing capital management plan off the back, basically. Right? As we generate more earnings, as we hit 2027, as the NIM repricing takes more hold at that point in time, there's going to be more earnings then to either distribute or grow the balance sheet as well.

I wouldn't view this as a one-time buyback. This is going to be part and parcel of organic growth dividends and buyback as the bank used to do prior to wanting to reduce the CRE ratio.

Okay. Appreciate that color there, Avi. Just on expenses here, that guide looks a little bit less than what I was thinking. Just kind of curious, are you guys just focused on containing expenses around this level? I know we obviously had some hires this past quarter, or maybe these are just some efficiencies you guys are realizing at the current time.

Yep, sure. Typically the guide, with the start of the year doesn't include the hires, then the guide, the Q1 earnings includes all the hires, right? I think when I gave the guide in April, it was around $260 million plus or minus. I think now we're probably closer to $258 million-$259 million plus or minus. $130 million-$131 million, Steve. I mean, this quarter, we were at $64 million of core cash, and obviously excluding the intangible amortization from the numbers. $130 million-$131 million is $65 million-$65.5 million. I will say, as part of the team build-outs on the commercial banking side, we're in pretty much all the verticals that we want to be in at this point in time.

There's probably some backfilling over time, but there's not a substantial build-out, at least the next three or six months of adding a completely new vertical and all the costs that go with that. If you marry that up with just ongoing efficiency improvements that we focus on every day at the bank, renegotiating contracts, things like that, it's there. I think a thing that Stu said in his prepared remarks, we were pleased to get that number down to 49.9%. The reason why expense to assets has grown in the last two, three years is just the substantial hiring in the March to April timeframe. After we added Tom, we had the opportunity to add a bunch of commercial banking teams in the middle of the year last year. Don't expect that to continue for the rest of this year.

I mean, we feel in a good spot with the people that we have and making sure the efficiency ratio stays below 50%.

Okay. Maybe just put it this way. I know you guys have had great efficiency ratio gains over the last couple of years, even with expense growth of, let's call it in the high single digits. Maybe as we look out a little further, is it possible that that expense growth starts to moderate towards the mid-single digits as we think about next year?

Absolutely. Well, that's absent hiring any new teams or building any new verticals, right? I think yes. I mean, the franchise we have, the people we have, again, everybody's been at the bank less than three years at this point, all the hires that we have, so they have a long runway. We'd like to have that accrue to the bottom line at this point. I mean, there'll still be some team pickups here and individuals here and there, but not the substantial amount of new people. I think Stu said it on his remarks. I mean, we've added 16 teams, six new verticals, three new branches. I mean, that's over 20% of the bank in terms of headcount, right? That will slow. I think using a moderate 3%-4% growth rate on expenses for next year as you model 2027 would be very reasonable.

Awesome. Appreciate all that color there. Thank you very much, guys.

Thanks, Steve. Thank you. Our next question comes from Tyler Cacciatori with Stephens.

Please proceed. Hey, good morning.

This is Tyler on from Embreace.

Hey, Tyler. Hi, Tyler. Just the first one for me, sorry if I missed it, but do you have the spot cost of deposits at quarter end?

I'm just curious on how you feel about your ability to maybe maintain or lower deposit costs from here.

Yeah. It's pretty similar to the average cost, Tyler. It was probably 167-168 ±. I mean, I think Stu said it in his remarks. We've grown deposits, but at the same time, we've been focused on the cost of funds. The new teams that we have, the existing teams are very focused on DDA, right? I mean, that being said, if rates stay at where they are or if they go up, you're going to see a little bit of a deposit creep and not just with us, but with a lot of other banks here. I wouldn't put that more than the one to two basis points in either direction. We've got some visibility into the third quarter, the longer rates stay at this level, you're going to have some customers come in and ask for higher rates.

I think with the new deposits coming in and the mix that we have, we feel pretty good at the overall deposit cost.

Great. Thank you. Then, just staying on the NIM. I hear you on the repricing benefits through 2027. I know 2028 is still a ways out, but given the industry saw such a meaningful step in loan yields back in 2023, should we expect some of the repricing benefits to begin tapering off as we get into late 2027 or early 2028?

No. The dynamic at Dime was because we had Enbridge. Because we did so much of PPP back in the 2021, 2022 timeframe, the volume of loans that are repricing over the next 18 months is significant, right? It's not just the rate. I mean, the rate's around 425 on that stuff. It's more the volume of what we originated in that 2021, 2022 timeframe. We didn't originate that much in 2023, you're going to see less of a benefit in 2028, potentially. Those loans are also at a rate below our current rate. There'll be some pickup, but I think the big part of the pickup is between now and Q4 of 2027.

Great. Thank you. That'll be it for me.

Thank you. Thank you. Our next question is from Manuel Navas with Piper Sandler.

Please proceed. Hi, this is Grant Zerlin on for Manuel.

Hey, good morning. How you doing?

Doing well. I was just wondering if you could provide some color into what competition looks like on loan and deposit pricing.

Competition on loan and deposit.

I mean, look, on the deposit side, there is certainly some competition. There is some irrational banks out there that are offering higher rates. Because of the makeup of our deposit base with 31% DDA and really being business-focused, we do not have a lot of consumer, we do not have CDs, we have never been in that market. We are able to really manage that, and that is why our cost of funds is where it is. With the continued growth of bringing on new customers and new business relationships, including DDA, we are pretty comfortable that we can maintain our cost of funds within the range that we have specified. Certainly, there is some competition out there. Just given the makeup of our deposit base and the fact that we are not highly reliant on consumer deposits, we are somewhat isolated from swings on the deposit side.

On the loan side, I will let Tom speak to that a little bit.

I mean, listen, there is definitely competition out there. The interesting thing when you take a look at our year-over-year growth and our quarter-over-quarter growth, it has been very diversified, which is exactly what we strive for. I would say probably 40% of our growth has come from our traditional C&I businesses. Every day, the relationship-focused business. I think to Stu's point about focusing on DDA, that is where we are getting the operating accounts of everybody that we are involved with. From there, I think the growth has been equal across our specialty finance groups like our healthcare, our lender finance, our fund finance, and our sponsor group. Competition is tough out there. There is no doubt about it. People are doing some crazy things, we are just going to stick to our knitting.

We know what we do well and try to keep the growth as diversified as we can across the board. Right now, C&I is leading the way year-over-year as well as quarter-over-quarter, Q1 to Q2.

Thank you. Appreciate it. Switching over to NIM, I hear you with the ultimate goal for 2027. Is there any insight into what NIM could exit the year at?

No, we don't provide near-term guidance on the NIM. We've always said where we're going to be at the end of the year, we've historically not provided two quarters out in terms of NIM guidance. In my prepared remarks, I said we probably should see some modest NIM expansion in the third quarter more pronounced NIM expansion in the fourth quarter. We'll leave it at that.

All right. Thank you. That's it from me.

Thank you. This concludes our Q&A session for today, and I will pass it back to Stuart Lubow for closing comments.

Thank you, Carmen. Thank you to all our dedicated employees and our shareholders for their continued support, and we look forward to speaking with you after the third quarter.

This concludes our conference for today. Thank you for participating, and you may now disconnect.