Dime Commercial Bancshares, Inc. 2026 Q3 Earnings Call

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. I will provide 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.

Revenues 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 7 basis points versus the linked 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 and our growth 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 on assets of 1.10% for the third quarter and a core efficiency ratio of below 48%.

As you know, we have been very active on the hiring front over the past few 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 Camoia. Finally, as it relates to profitability, our significant loan repricing opportunity over the next five quarters will continue to serve as a catalyst for continued revenue growth in the quarters ahead.

During the quarter, we reduced our CRE 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 net interest income growth. Avi Reddy 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 Guarnieri 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 presence 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 a 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 repricing 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 Reddy.

Thank you, Stu. Core EPS for the third quarter was $0.91 per share. Core pre-tax, pre-provision 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 CRE 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 CRE 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 on 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 NIM for the third quarter would have been closer to 332. We would use this 332 NIM as a starting point for modeling purposes going forward. We expect continued NIM expansion in the fourth quarter, driven primarily by loan repricing and secondarily from the recent Federal Reserve rate increase. With respect to rate hikes, we expect the September rate hike to benefit NIM by a couple of basis points, and any future rate hikes will likely be neutral to NIM as they 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 NIM that is not subject to cyclical moves based on the trajectory of short-term rates. 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. On our prior earnings call, we discussed a run rate quarterly NIM of over 350 by the end of 2027. Based on our strong performance this quarter and our current pipelines, we believe there is a clearer line of sight to a NIM on our existing balance sheet of over 360 by the end of 2027. Next, I will 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 28.5%. With that, I will turn the call back to Shannon, and we will be happy to take your questions.