Dime Community Bancshares Inc (DCOM) 2025 Q4 法說會逐字稿

Good day, and welcome to the Dime Community Bancshares Inc Q4 earnings call. (Operator Instructions)

As a reminder, this call may be 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 US 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 US 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 the financial information prepared and presented in accordance with the US GAAP. For information about these non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release.

At this time, I would like to turn the call over to Stuart Lubow, President and CEO. You may begin.

Good morning. Thank you, Michelle, and thank you all for joining us this morning for our quarterly earnings call. With me this morning, as usual, our Avi Reddy, our Chief Operating Officer and CFO; and also, Tom Geisel, our Chief Commercial Officer.

Today, I will touch upon the progress we've made in 2025 as we executed on all aspects of our strategic plan. I will then touch upon some bank-wide goals for 2026. Tom will talk about the progress we've made in building out our commercial banking platform and industry verticals. Avi will then provide some details on the fourth quarter and guidance for 2026.

Our core earnings power continues its upward trajectory. Core EPS was $0.79 for the fourth quarter, representing an 88% increase versus the prior year. The growth in EPS was driven by record total revenues of $124 million for the fourth quarter. The NIM was up 10 basis points and average earning assets for up over $650 million on a linked quarter basis. All our growth has been organic, built by our existing bankers and new hires. As you know, we do not have any purchase accounting in our numbers that tends to inflate results at banks that have engaged in M&A.

Core deposits were up $1.2 billion on a year-over-year basis. Deposit growth has been strong across all our channels, in addition, we have been successful in continuing to drive down our cost of funds and growing our noninterest-bearing DDA to 31% of deposits. As such, we have a core funded balance sheet with a significant liquidity position, which will allow us to take advantage of lending opportunities as they arise.

Speaking of loans, we continue to execute on our stated plan of growing business loans and managing our CRE concentration ratio, which is now below 400%. Business loans grew over $175 million on a linked quarter basis and over $500 million on a year-over-year basis. We were very happy to be able to bring Tom Geisel in the first quarter of 2025 and have already made great progress in terms of building out various industry verticals that Tom will talk about more in his remarks.

Our loan pipeline continues to be strong and is more than $1.3 billion with a weighted average rate between 6.25% and 6.50%. As we mentioned on last quarter's call, NPAs moved down nicely in the fourth quarter and now represent only 34 basis points of total assets. Multifamily credit continues to be very strong with 0 NPAs, our capital levels are best-in-class with a total capital ratio of more than 16%.

Disruption in our marketplace remains very high. As you saw, there was another merger transaction where (inaudible) bank won a local terrific year end. We were not involved in this transaction in any way. We remain focused on our organic growth strategy and hiring teams.

The environment for organic growth continues to be very strong with an extremely target-rich environment and the execution of our strategy is now showing up in our quarterly results. Our Manhattan branch is up and running, and we expect to save for our Lakewood and Locus Valley locations towards the end of the first year.

As we look forward to 2026, the momentum in our business continues to be strong, and we're focused on the following: as we have discussed previously, and as Avi will mention in his remarks, we have a significant amount of repricing assets in the next two years, which provides a tailwind for revenue growth. As the loan repricing story plays out, earnings power will be displayed.

In 2025, we put in place a building box to create a more diversified balance sheet and loan portfolio. I expect to see significant growth in both in 2026. As we grow revenues faster than our expenses, we expect to operate at a sub-50% efficiency ratio. Being inefficient has always been a hallmark (inaudible) we expect to return to the sub-50% level in 2026. Lastly, we continue to attract talented bankers who could help us grow core deposits and grow business on.

In conclusion, Dime is clearly differentiated our franchise from our local competitors as it relates to our organic growth. We have an outstanding deposit rate, strong liquidity and robust capital, which bodes well for the future, driven by significant loan repricing opportunities over the next two years. I want to end to thank you all our dedicated employees for their efforts in 2025 and in positioning Dime is the best commercial bank in the New York Metro area.

With that, I will turn over the call to Tom.

Thank you, Stu, and good morning. In my prepared remarks, I'll provide some background and color on our commercial banking initiatives. As many of you know, I was part of the leadership team at Sterling that helped transform that balance sheet from $5 billion to $25 billion diversified commercial bank balance sheet.

When I began speaking with Dime in the second half of 2024, it was apparent that Dime had a number of strengths that were attractive in recruiting talented bankers. First, an entrepreneurial and growth mindset, which is valued by commercial bankers. Second, the best deposit franchise in Metro New York, both from a cost perspective as well as a growth profile, which can be utilized for funding. Third, the back office was staffed with strong managers who had experience managing a larger and more diversified commercial portfolios. And finally, Dime had developed a reputation in the marketplace as a company where talent wanted to work. It was perceived and it perceived as a winner.

Even before I started, we outlined a strategy as to which industries and geographies we wanted to strengthen, build out and focus on. Our goal was to create a platform that had all the industry expertise of a $50 billion to $100 billion bank, but that operated nimbly like a $15 billion bank with access to senior management and quick decision-making. Of note, right around the time I joined, we added a new Chief Credit Officer, Rob Rowe, who is previously the Chief Credit Officer at Sterling.

Since I came on board in February, we have added the following capabilities: fund finance, which is exclusively focused on capital call lines; lender finance, our focus is on lending to institutions that are focused on business credit. We do not intend to be active on the consumer credit side; mid-corporate, our focus is on companies that are larger than a typical middle market company; Sponsor Finance, our focus is on noncyclical industries with good risk-adjusted returns, supporting sponsors and family offices; syndications, we added a team to focus on syndicating self-originated loans, allowing us to service larger clients while staying within our established risk tolerances; and lastly, geographic expansion.

Dime has always had a dominant presence on Long Island, and we are focused on expanding that to Manhattan and New Jersey. For example, in the fourth quarter, we hired a well-known banker to cover middle-market relationships in New Jersey. All of our commercial bankers and industry specialists are focused on direct relationship lending with the occasional club deal to manage our exposure. We're not building a business based on SNCs or participations as many small- to medium-sized banks often do.

The bankers that we have hired have added significant industry knowledge and a high level of expertise to Dime's offerings. As we look to 2026, each of these new commercial banking teams will contribute to loan growth and operating leverage. We also have our eyes on one or two industries where we already have a presence, but where we could add some additional depth.

With that overview, I'll turn it over to Avi for his prepared remarks.

Thank you, Tom. Core EPS for the fourth quarter was $0.79 per share. This represents an 88% year-over-year increase. Core EPS excludes the impact of severance, which was approximately $2.4 million on a pretax basis, and a couple of discrete tax items, which were $2.7 million. These items have been described in the GAAP to non-GAAP reconciliation tables in our earnings release. Core pretax pre-provision net revenue of $61.5 million for the fourth quarter of 2025 represents approximately 162 basis points of average assets.

The reported fourth quarter NIM increased to (inaudible) We had approximately 2 basis points of benefit from prepayment fees. Excluding prepayment fees, the fourth quarter NIM would have been 309. As a reminder, the third quarter NIM, excluding prepayment fees was 298.

Total deposits were up approximately $800 million versus the prior quarter. We saw strong inflows across all of our major channels. Deposit growth for the fourth quarter included approximately $100 million of seasonal tax receiver municipal deposits that typically arrive in the month of December and leave in mid-January and approximately $225 million of deposits from a municipality tied to a bond offering that we expect to leave the bank at the end of February. Excluding these items and typical seasonality in our branch network on the East End of Long Island, core deposit growth for the fourth quarter would have been closer to $400 million.

Similarly, the overall balance sheet size and cash position was elevated at quarter end by approximately $400 million due to the previously mentioned municipal deposits and seasonality. Our cost of total deposits was 185 in the fourth quarter down 24 basis points versus the prior quarter. By maintaining a strong focus on cost of funds management, our NIM has now increased for a seventh consecutive quarter and has surpassed the 3% mark. 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.

Core cash operating expenses, excluding intangible amortization of $62.3 million for the fourth quarter was below our guidance of approximately $63 million. Noninterest income of $11.5 million was above our fourth quarter guidance of approximately $10 million to $10.5 million. The loan loss provision declined to $10.9 million, and the allowance to loans increased to 91 basis points which is within our stated range of operating between 90 basis points and 1%.

Capital levels continue to grow, and our common equity Tier 1 ratio grew to 11.66%. Having best-in-class capital ratios versus our local peer group is a competitive advantage and will allow us to take advantage of opportunities as they arise and speaks to our strength and ability to service our growing customer base.

Next, I'll provide some guidance for 2026. As I mentioned previously, excluding prepayment fees, the NIM for the fourth quarter would have been 3.09%. We would use this as a starting point for modeling services going forward. We expect modest NIM expansion in the first half of the year and more substantial NIM expansion in the back half of the year as the pace of the back book loan repricing picks up.

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. In our current cash position, every future 25 basis point reduction or increase in short-term interest rates will not have more than a 2 to 3 basis point impact on NIM. Our NIM expansion in future quarters will be driven more by the back book loan repricing as well as core deposit growth and business loan growth.

To give you a sense of the significant back book repricing opportunity in our adjustable and fixed rate loan portfolios, for the full year 2026, we have approximately $1.4 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 4% that either reprice or mature in that time frame. Assuming a 250-basis point spread on those loans over the forward 5-year treasury, we could see a 20-basis point increase in the quarterly NIM by the end of 2026 from the repricing of these loans.

As we look into the back book for 2027, we have another $1.7 billion of loans at a weighted average rate of 4.25 that will lead to continued NIM expansion in 2027. Assuming a 250-basis point spread on those loans over the forward 5-year treasury, we could see another 20 to 25 basis point increase in the quarterly NIM by the end of 2027.

In summary, assuming the market consensus forward curve plays out, we have a path to a structurally higher NIM and enhanced earnings power over time. Now that our NIM is at the 310 level, the next marker in front of us in and after that 350.

With respect to the balance sheet, we expect a relatively flat balance sheet for the first half of 2026. The first quarter of the year is typically seasonally slow, and there's always a rush to get loans closed by year-end. In addition, we expect to continue to reduce our preconcentration ratio lower to the mid 350% area, driven by a reduction in transactional multifamily and transactional cream. This will offset the strong growth we are seeing on the business loan side.

We expect to reach an inflection point on CRE balances probably in the third quarter of the year and once we reach this inflection point, the overall balance sheet should start growing again at a mid-single-digit growth rate. If we put that all together, a point-to-point total loan growth estimate for 2026 is in the low single digits with flattish balances in the first half of the year and growth in the second half of the year. For 2027, we are internally modeling mid- to high single-digit end-of-period loan growth as business loans continue to grow and our industry verticals hit test ride.

Next, I'll turn to expenses. We expect core cash operating expenses, excluding intangible amortization for 2026 to be between $255 million and $257 million. This includes the full year impact of our de novo locations in Manhattan, Lakewood and Locus Valley and all the private and commercial banking teams that we hired throughout 2025.

With respect to the provision for loan losses, we expect the next couple of quarters to be in the $10 million to $11 million area as we move towards the midpoint of our allowance range of between 90 basis points and 1% and as we continue to aggressively work down NPAs and classified assets. For the second half of the year, we expect provisioning levels to trend down into the single digits and discover charge-offs.

Turning to noninterest income, we expect full year 2026 to be between $45 million and $46 million. Factors that will determine the individual quarters will be the timing of swap fee income, which can be hard to predict as well as SBA fees and title revenue. Finally, we expect the tax rate for the full year of 2026 of approximately 28%.

With that, I'll turn the call back to Michelle, and we'll be happy to take your questions.

(Operator Instructions) Mark Fitzgibbon, Piper Sandler.

Maybe first question is for Tom. Tom, could you share with us what industries accounted for the nice sequential quarter growth in the business loan balances this quarter? Just to give us a sense where that growth is coming from.

You know all of those verticals are pretty much new, so we started out at a base of 0, right? So I think Stu mentioned, we grew business loans about $500 million year-over-year. About $400 million of that came from the specialty groups that includes health care, lender finance, fund finance, sponsor and not-for-profit.

The business that has probably most of the momentum in 2025 was health care. I think you know that Dime into health care probably about two years ago, and that portfolio is built over time. So I would say probably out of the $500 million, about $400 million was the new specialized industries and probably 50% of that was health care.

Okay. And then secondly, I was curious, how much business do you have today roughly, and I won't hold you to exact numbers, but roughly in New Jersey, loans and sort of the $10 billion of loans and call it $12 billion of deposits, how much of that is sort of Jersey domiciled?

Yeah, Mark, so it's probably around somewhere between 8% to 10% of our portfolio is Northern New Jersey. A lot of clients that we followed over there. I'd say on the deposit side, it's less substantial than that. I mean, we're probably running at a 15% to 20% deposit to loan ratio for New Jersey.

But in terms of overall loans, I'd say somewhere between 8% and 10%. But that's something that's been consistent at the bank for the last four or five years since Stu got to the bank. As you know, Stu ran a couple of banks in New Jersey, and a lot of relationships have followed since he got to Dime back in 2017.

Okay. The last question I had, loan sale gains were -- SBA loan sale gains were strong this quarter. I would have expected maybe they'd be a bit less given the government shutdown in 4Q. I guess I'm curious are you sort of fully caught back up on the pipeline for these loans? Or maybe any thoughts you have on what 1Q activity levels might look like?

Yes, I'd say the latter, Mark, we probably caught up at this point. We were very close to recognizing some of these gains in Q3. And then once the government opened up, we kind of did that. So it's kind of hard to predict that line. I think that one on the swap fee line, it's just up and down basically. So I wouldn't expect the first quarter to be as large as Q4. Q4 was probably two quarters in one, basically, is how it characterized it.

Steve Moss, Raymond James.

Good morning. Maybe just on the deposit growth here. Next quarter for deposit growth, and I hear you Avi, in terms of some of the some of the municipal deposits. Just curious, you know, how you guys are -- what the deposit pipeline kind of looks like? And kind of where are you pricing those deposits these days?

So I'd say in terms of pricing, nothing has really changed there, Steve, where we got a lot of influx of new deposits coming into the bank. So I'd say, to get a new customer in the door, you probably got to offer high 2s to low 3s on the money market, but it's probably coming with 20%, 30% DDA. So the all-in cost is probably in the low 2s of stuff coming into the bank. The actual cost of deposits or the spot rate on deposits at the end of the year was 168. So that's lower than our overall cost of deposits, and that should help with the NIM going forward.

I'd say just if you look back at our history, we just wanted to point out the seasonality just because we have the municipal business. We have an (inaudible) business. And then this quarter, we had the one transactional municipal deposits that did come in. And so the point of that guidance was more along the lines of don't use our average earning assets. So Q4 is a proxy for Q1 and grow it off of that base. You probably have to take out $300 million to $400 million. But over the course of the year and if you look at the year-over-year growth, we had $1 billion of core deposit growth last year, and I think Stu attested this as well that our teams haven't really matured yet, and we continue to see the pace of account opening pick up basically.

I mean, just to give you a little color. I mean, those teams that we brought on that crossed at year-end across the $3 billion mark and opened up over in total, over 15,000 accounts and we're still seeing monthly and quarterly growth in all our teams. So we're still very bullish on deposit growth.

We just had a very outsized fourth quarter, very happy with it. All the channels for both the commercial group, the private banking group, our retail bank and our municipal group, were all up. So we're excited about that and as I said, very bullish. But the teams have really proven to be quite an asset, and we're still seeing quite a bit of new account opening. So we're expecting through this year continued growth in that market.

Okay. Great. Really appreciate all that color there. My other question here, just on the 100% rent-regulated piece. I know that was about $500 million at the end of the third quarter. Just -- and it came down pretty healthily at a pretty good pace in the third quarter. Just kind of wondering where that is now and if you have any color around like the scheduled maturities over the next year or two for that book?

So Steve, we didn't have a lot of maturities in that book in Q4. So it was relatively stable linked quarter as it's kind of hard to go quarter-over-quarter for some of these items. The way we really look at it is the pre-2019 book and the post 2019 book just because the stuff that was originated pre-2019 was prior to the rent-regulated rule changes.

And as you know, and so we look at that book, that books around $350 million at year-end 2025. That book used to be $450 million a year ago. And that work was $500 million two years ago, right? So that's the path that we had our eyes the most on. That book is fully reset at this point. I think in terms of maturities and repricings in the entire multifamily book that's ramp regulated, so both the 100% rent regulated and the majority rent-regulated book. Maturities and repricings are around $250 million for 2026. That's probably split $150 million and $100 million between the 100% in the 50% to 99% bucket.

So look, we're not seeing any issues there. As loans come up for maturity, they're paying off. As loans come up for repricing, I'd say, a bigger proportion of them are staying with us and paying market rates basically. But I think you'll continue to see attrition in that book.

The one thing we've always pointed out is it's a very granular book. We don't have any big loans in that portfolio. As opposed to the free market portfolio, where you could a few 10s and 15s in terms of size, in terms of credits. In terms of the rental book, it's very granular. So it's just going to take time for that to continue to wind down, but we're pretty comfortable with what we have right now.

Okay. Great. I appreciate all the color there, and I'll step back in the queue. Thank you very much.

David Konrad, KBW.

Thanks. Good morning. Just a follow-up question on the deposits. I know you had a lot of the municipality and seasonality this quarter, but noninterest-bearing deposits were almost 31% mix. Like where do you think 2026 will look like in terms of the mix of deposits in terms of noninterest-bearing deposits?

Look, Dave, you know if you go back in time, this company had a noninterest-bearing deposit base, somewhere between 35% and 40% when we completed our merger. Obviously, some of that was tied to PPP and then we came all the way back down to 25%, right? So I'd say the starting point really should be in 2023, once you saw deposits leave the system, we've built that up to 30% to 31% right now. I think we'd like to continue growing that over time.

What we've really tried to do with the deposit base is focus on low-cost deposits. And so I think what we really try to manage to getting the overall cost of deposits down. And right now, like I said, it's 168 plus or minus is the spot cost over there. But we're not really bringing on new relationships to the bank unless they bring us their full operating accounts and have 20% to 30% DDA, right? So I think at a minimum, seeing a floor of around 30% is probably reasonable, and we'd like to have that ratio eke up slowly over time.

And you know you should note that, again, getting back to the teams, that $3 billion balance that they have, 38% of that balance is DDA. So I mean, they really focus on the DDA side. And obviously, while quarter end was slightly higher due to some municipal deposits, so those were not DDA deposits. those are money market and whatnot. So I think there's a good chance that we're going to see 31% move up nicely during the year. And really, that's what we've been focusing on with our new team hires as well.

Matthew Breese, Stephens Inc.

Good morning. I wanted to focus first maybe on just the cash and then securities. Avi, I heard you in your opening comments, but could you give us just some better idea of what the timeline and strategy is for deploying that cash? And what level do you think is kind of the normalized level (inaudible)

So there's no specific timeline, Matt, in terms of us rushing out to buy securities. We probably bought around $150 million in the fourth quarter. We're looking at rates consistently. I think we like having the flexibility on the balance sheet, like I said, at the start. What it really does is it creates a neutral balance sheet that's not tied to short-term rates, right?

Over time, as we make more business loans, have more floating rate assets that automatically will take care of the ALM profile of the bank. But in the near term, it just helps us having cash in that we don't have to go out and hedge the balance sheet in different ways. So I don't see that cash balance coming down significantly in the near term, absent some of the seasonality that I talked about in Q4. I think if you read between the lines on the loan growth, we said loan growth is probably flat for the first half of the year and then start growing in the second half of the year.

So in terms of use of cash, in terms of loans, starting in the second half of the year, there will be a use of cash for loans. But in the first half of the year, it's going to be in cash and we're going to look at the market for securities and whether there's an opportunity to add some we will, but we're not running out to put $500 million to work or $750 million to work overnight in something. This is -- we're building the balance sheet more for the longer term.

And we're pretty happy with the liquidity position and our loan-to-deposit ratio means in the mid-80s at this point, which is very consistent with what a national bank operates at. Obviously, the banks are not in our local peer group are much more overlent in somewhere between 90% and 100%. But I think we're comparing ourselves really to a national bank, and we like the fact that we have this excess liquidity at this moment.

Okay. Appreciate that. And then you had mentioned in there at in floating rate loans. Could you just give me -- update us on where -- sorry, where floating rate loans stand today as a percentage of total loans? These are loans priced off of SOFR prime and the expectation for a year from now?

Sure. So look, I think in terms of the new business and Tom's verticals, you know, a majority of that is floating rate. So if you think about fund finance business, that's the floating rate portfolio, and we're doing health care loans, those are priced off of sulfur. So anything coming on the books is likely more floating rates than fixed rate, right. Right now, floating rate is probably somewhere between 35% and 40% of the balance sheet. Fixed is probably around 25% and adjustable is probably the difference over there.

Got it. Okay. And then could you just comment -- prepayment activity in 2025 was a big headwind for commercial real estate multifamily growth. What did you see in the fourth quarter? And do you feel like we -- there's some light at the end of that tunnel should we see or expect prepayment activity to start to decline?

Look, I think it really depends on its loan by loan, and it's whether we want to be in the market or not in the market for that type of asset, right? And I think our guidance was we're focused on getting the CRE ratio, the mid-350s by maybe exiting some transactional multifamily and transactional free that doesn't have deposits, right? Third quarter, we probably saw payoff rates in the 20% to 25% area. In the fourth quarter, it was probably 15%, right? If you look over the cycle, it's somewhere between 15% to 20%.

So I think rates -- short-term rates probably have to drop a little bit more for there to be a big payoff wave over there. Right now, it's kind of working in our favor because our goal is to get our fee ratio down to the mid-50s. That being said, for relationship CRE that has deposits, we're very competitive with our rates and we're able to retain them and their core customers at the bank. So I would delineate between transactional and relationship CRE. And on the relationship preside, I think we are seeing pretty strong retention.

Great. Appreciate it. Just last one for me. The muni deposit outflows you talked about, what categories deposits will that impact? That's all I have. Thanks.

So the $225 million that I talked about, and that Stu mentioned, that's an interest-bearing deposit. It's probably in the 3% area, plus or minus. So that's interest-bearing. Some of the tax receivable money that comes in, that's in the DDA piece. So that's probably, call it, $60 million to $70 million over there. So it's a split of categories, more of it in the interest-bearing side than on the noninterest-bearing side.

I'm showing no further questions at this time. I'd like to turn the call back over to Stuart Lubow for closing remarks.

Thank you, Michelle, and thank you to all our dedicated employees and our shareholders for their continued support. We look forward to speaking with you at the end of the first quarter.

Thank you for your participation. You may now disconnect. Everyone, have a great day.