Dime Community Bancshares, Inc. /NY/ Q3 FY2024 earnings call

• Growth: Continued to execute on growth plan, with core deposits up over $500M and business loan portfolio up $125M in Q3. Net interest margin increased to 250 basis points, with a 29 basis point improvement from Q1 2024 to Q3.
• Margin: Spread between loans and core deposits increased by ~15 basis points since Fed rate cut in mid-September, contributing to NIM expansion in Q4. Expect to return to 3%+ net interest margin.
• Expenses: Cash and non-interest expense levels were $57.4M linked quarter, with expectation to keep expense levels relatively flat in Q4 and 2025 through efficiency initiatives.
• Asset Quality: Remains solid, with net charge offs at 15 basis points, criticized and classified assets flat, and early stage delinquencies down 28% linked quarter.
• Capital Ratios: Total capital at 14.8% and common equity Tier 1 ratio at 10.2% at September 30. Built loan loss reserve by ~9% or 6 basis points in Q3.
• Themes: Disruption in local marketplaces, impact of declining rates on NIM, and growth in DDA (now ~30% of deposits).

In the third quarter, Dime grew core deposits by over $500 million and the business loan portfolio by $125 million. The net interest margin increased to 250 basis points. Non-interest income for the third quarter was $7.6 million. Core cash operating expenses for the third quarter excluding intangible amortization was $57.4 million. The loan loss provision was $11.6 million. Core deposits contributed significantly to the margin expansion, with business loans showing strong growth in specific verticals like C&I and healthcare.

• NIM: Expect 10-12 basis point run-rate NIM improvement in Q4 from core spread improvement. Potential for 3% NIM in 2025 and >3.25% NIM in 2026. Back book loan repricing opportunity in second half of 2025 and 2026 with $1.9B of loans re pricing or maturing then.
• Reserves: Expect to operate with reserve level in 90 basis points to 1% area over next 9-12 months, with gradual build of 5-6 basis points per quarter.
• Loan Growth: Expect to end the year with ~$11B of total gross loans, with strong pipeline in C&I, healthcare, and owner occupied CRE.

• Model Updates: Part of loan loss provision increase in Q3 was due to model enhancements related to prepayment speeds and peer group loss history data, which could impact future provisions.
• Partnership Disputes: A small loan was moved to non-accrual status due to a partnership dispute, though it's secured with a personal guarantee.
• Rate Changes: Impact of rate cuts on deposit and loan betas, and potential effects on portfolio remix and growth expectations.

Q: Steve Moss of Raymond James asked about deposit trends and margin expansion.

A: Avi Reddy and Stuart Lubow discussed deposit growth from new hires, remixing the balance sheet by paying off FHLB and reducing broker deposits, with significant runway for deposit teams. Stu mentioned slower Q4 transitions but continued positive flows.

Q: Manuel Navas of D.A. Davidson asked about loan growth pipeline and reserve build.

A: Stuart Lubow and Avi Reddy talked about ~$1B pipeline in C&I, healthcare, and owner occupied CRE with weighted average rate of 7.9%, and expectation of 5-6 basis point reserve build per quarter to reach 90-100 basis points over 9-12 months.

Q: Mark Fitzgibbon of Piper Sandler asked about non-performers, CRE risk-based capital, and acquisitions.

A: Avi Reddy confirmed the non-performer was due to a partnership dispute with no specific reserve, and they aim for low-400s risk-based capital ratio over 12 months. Stuart Lubow stated acquisitions are not a priority but open to opportunities if they make sense for shareholder value.

Q: Matthew Breese of Stephens Inc. asked about deposit and loan betas, and floating rate loans.

A: Avi Reddy discussed deposit beta at ~55% and loan beta at ~20-25%, with 35% of loans being pure floating rate priced off SOFR/prime. Stuart Lubow mentioned they were able to pass on rate cuts to most customers.

Q: Christopher O'Connell of Keefe, Bruette and Woods asked about reserve commentary, margin dynamics, and new teams.

A: Avi Reddy explained the CECL model factors, margin dynamics with CD portfolio breakdown, and new teams' deposits mix being in line with expectations, around 35-40% DDA.