Dime Community Bancshares Q2 2024 Earnings Report

Dime Community Bancshares EPS Results

• Actual EPS: $0.37
• Consensus EPS: $0.36
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.68

Dime Community Bancshares Revenue Results

• Actual Revenue: $171.23 million
• Expected Revenue: $82.19 million
• Beat/Miss: Beat by +$89.04 million
• YoY Revenue Growth: N/A

Dime Community Bancshares Announcement Details

• Quarter: Q2 2024
• Date: 7/23/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 23, 2024
• Conference Call Time: 9:00AM ET

Dime Community Bancshares (NASDAQ:DCOM) is the bank holding company for Dime Community Bank, headquartered in Hauppauge, New York. Through its subsidiary, the company offers a comprehensive suite of banking and financial services to both individual and commercial customers. With a network of branches spanning the New York metropolitan area and South Florida, Dime Community Bancshares emphasizes relationship banking and local decision-making.

The company’s core lending activities include commercial and multifamily real estate loans, construction and land development financing, and one-to-four-family residential mortgage lending. Alongside its lending portfolio, Dime Community Bank provides deposit products such as checking and savings accounts, money market instruments, certificates of deposit, and business cash management services. Ancillary offerings include treasury management solutions, remote deposit capture, and an ATM network designed to meet the needs of small- to mid-sized enterprises.

Tracing its origins to 1864 as Dime Savings Bank of Williamsburgh, the institution has evolved in tandem with its communities. In 2005, Dime Community Bancshares was formed as a holding company to support strategic growth initiatives, broaden its product lineup and enhance corporate governance. Over time, the bank has strengthened its real estate lending capabilities and expanded its geographic footprint through targeted branch openings in high-growth markets.

Serving a primarily regional customer base, Dime Community Bancshares leverages deep local market knowledge to tailor products and underwriting standards to community needs. The company is guided by an experienced management team that prioritizes personalized service, prudent risk management and sustainable growth across its core New York and Florida markets.

Dime Community Bancshares Q2 2024 Earnings Call Transcript

Key Takeaways

• In Q2 Dime grew core deposits by over $300 million and business loans by over $200 million, enabling a substantial reduction in wholesale funding.
• The net interest margin expanded by 20 basis points sequentially to a base of 2.34% (excluding non-accrual benefit and sub debt), with an upward bias expected ahead of loan repricing in 2H 2025-2026.
• Capital levels were strengthened with a $75 million subordinated debt raise, driving the total capital ratio to 14.5%, the highest among its local peer group, and CET1 above 10%.
• Asset quality remained solid, with NPAs down 29% sequentially, classified assets expected to fall ~14%, and the allowance for loan losses at 72 basis points after a $5.6 million provision.
• Dime continued its recruitment-driven expansion by onboarding 8 deposit-gathering teams since Q1, launching new healthcare and nonprofit lending verticals, and securing regulatory approval for a Westchester branch.

Presentation

[Operator]

Thank you for standing by, and welcome to Dime Community Bancshares, Inc second quarter earnings conference call. 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 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 as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP.

[Operator]

For information about non-GAAP measures and for reconciliation to GAAP, please refer to today's earnings release. 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 during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Stuart Lubow, President and CEO. Please go ahead.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Good morning. Thank you, Lisa, and thank you all for joining us this morning for our quarterly earnings call. With me today is Avi Reddy, our CFO. In the second quarter, Dime continued to execute on our growth plan. The momentum in our business is strong, and we grew core deposits by over $300 million and business loans by over $200 million. The strong growth in core deposits has enabled us to reduce our wholesale funding position substantially since year-end. As a result, the net interest margin increased by 20 basis points in the quarter. We were pleased with the increase in the margin and believe the first quarter of 2024 was a trough for this cycle in terms of both net interest income and NIM.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Our cost of deposits declined on a linked-quarter basis, and since the end of the second quarter, deposits have continued to remain stable to down. Going forward, we expect to a slow and steady build in NIM absent any rate cuts. Rate cuts and the eventual repricing of our legacy lower coupon fixed and adjustable rate loan portfolios should accelerate NIM expansion as we get into the latter half of 2025 and 2026, and this will drive a structurally higher NIM. Over the past month, we have successfully raised $75 million in subordinated debt. At the end of the second quarter, our total capital ratio was 14.5%, and we now rank at the absolute top end of our local peer group in terms of total capital. Capital is obviously important in executing our growth strategy.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Asset quality continues to remain solid, with NPAs down 29% on a linked-quarter basis. We plan to file our 10-Q next week and expect to report that classified assets will also be down approximately 14% on a linked-quarter basis. We recently received regulatory approval for a new branch location in Westchester County. In fact, I was in White Plains just last week for a business reception we hosted with many important new and prospective clients and proud of our ability to expand Dime's franchise into this new, attractive new market. Subsequent to our first quarter earnings call, where we announced the onboarding of six deposit gathering teams, we've onboarded another two deposit gathering teams in May and June. One of these teams is based in Williamsburg, a market that is very familiar to Dime and where we were founded.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

The second team is based in Manhattan. Additionally, we hired an exceptional banker to build out our not-for-profit lending vertical. I am proud of the company-wide effort in terms of recruiting and integrating all these bankers into the Dime umbrella. Clearly, our recruiting efforts over the past year have been successful. Our deposit gathering groups are up over $1 billion of total deposits, and our middle market C&I group helped drive strong business loan growth this quarter. In the quarters ahead, we expect the healthcare vertical to begin to meaningfully contribute to the loan growth and the diversification of our balance sheet, as they have built a substantial loan pipeline at an attractive yields. In summary, I am very optimistic about the trajectory that Dime is on.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Our market continues to be significantly disrupted, and the strategic offense we've been playing is paying off in the numbers. With that, I will turn it over to Avi.

[Avi Reddy, CFO at Dime Community Bancshares]

Thank you, Stu. Reported EPS was $0.43 per share, an increase of 5% over the linked quarter. In line with the mid-quarter update we provided in June, we saw meaningful NIM expansion to the tune of 20 basis points. NIM expansion was driven by the strong year-to-date growth in core deposits and our business loan portfolio, as well as the proactive reduction in higher-cost wholesale funding. Non-interest income for the second quarter was $11.8 million. This included a gain on the sale of a branch that we executed a sale-leaseback on. Core cash operating expenses for the second quarter, excluding intangible amortization, was $55.4 million. We have recruited approximately 65 revenue-generating bankers over the course of the past five quarters, including 15 deposit gathering teams, a fully built out healthcare vertical, and most recently, a not-for-profit vertical.

[Avi Reddy, CFO at Dime Community Bancshares]

We expect the revenue generation from these hires to far outweigh the startup expenses associated with the organic build-out of all these groups in the years ahead. We had a $5.6 million loan loss provision this quarter. The allowance to loans increased to 72 basis points. Our CET1 ratio is above 10%, and our total capital ratio of 14.5% is now best in class amongst our local peer group. Next, I'll provide some thoughts on the NIM, expenses, and balance sheet growth. With respect to the NIM, we called out in the earnings release that there was a 4 basis point benefit from the payoff of a loan that was previously on non-accrual status.

[Avi Reddy, CFO at Dime Community Bancshares]

In addition, the sub-debt offering, which closed on the last day of the quarter, is expected to have a 3 basis points downward impact on the NIM going forward. As such, the base NIM to work from for modeling purposes for future quarters is closer to 2.34. As Stu said, we expect a slow and steady improvement in the NIM until the impact of rate cuts kick in. We also have a significant repricing opportunity in our adjustable and fixed rate loan portfolios that's expected to kick in in the second half of 2025 and 2026.

[Avi Reddy, CFO at Dime Community Bancshares]

To give you a sense of the repricing opportunity, in the second half of 2025 and in 2026, we have approximately $2 billion of adjustable and fixed rate loans across the loan portfolio at a weighted average rate of 3.9% that either reprice or mature in that time frame. Assuming a conservative 225 basis point spread for those loans over the forward five-year Treasury, we should see a substantial 35 basis point increase in the NIM as these loans reset to higher rates in 2025 and 2026. With respect to expenses, we expect core cash operating expenses for the third quarter to be approximately $57 million, and we expect to hold that quarterly run rate with very nominal growth in 2025.

[Avi Reddy, CFO at Dime Community Bancshares]

We are working on a few company-wide initiatives that should drop to the bottom line in 2025, and this should result in very nominal expense growth for 2025. With respect to our positioning on lending, we anticipate continued growth in our business lending portfolio. Growth in the business portfolio will offset declines in multifamily and CRE, where we are still servicing existing relationships. On an aggregate basis, we expect the loan portfolio to be up low single digits for the second half of the year. With that, I'll turn the call back to Lisa, and we'll be happy to take all your questions.

[Operator]

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. We also ask that you wait to hear your name and company announced before you proceed with your question. One moment for the first question. Our first question today is coming from Mark Fitzgibbon of Piper Sandler. Your line is open.

[Greg Zingone, Research Analyst at Piper Sandler]

Hey, good morning, guys. This is Greg Zingone stepping in for Mark at the moment. How are you?

[Avi Reddy, CFO at Dime Community Bancshares]

Hey, Greg. How you doing?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Hey, Greg, how are you?

[Greg Zingone, Research Analyst at Piper Sandler]

Just curious, what was your spot NIM for June?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, so what I tried to point out in the prepared remarks, Greg, was we had around 4 basis points from the payoff of our previous non-accrual loan. All that happened in the month of June, so the June NIM was a little inflated. But if you back that out, you know, the spot NIM would probably been around 2.36-2.37 for the month of June. We also mentioned that, you know, the sub-debt offering closed at the month, you know, at the end of June, so that'll have an impact going forward, but probably around 2.36-2.37 ex the sub-debt for June.

[Greg Zingone, Research Analyst at Piper Sandler]

Okay. And then on the $5.5 million provision, is that a good run rate for us to think about for the remainder of the year?

[Avi Reddy, CFO at Dime Community Bancshares]

Well, we evaluate the provision every quarter based on economic conditions, so it's really gonna be a function of, you know, what the Moody’s forecasts are on a going-forward basis. I think right now we feel, you know, pretty adequately, you know, provisioned. We built the reserve a basis point here. So it's really gonna be a function of, you know, how the Moody’s estimates come out, come out, Greg.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, and as we continue to book new loans, C&I and business-related loans, obviously, those provisions are somewhat higher. So, you know, there'll be, just in terms of the ongoing, shift in the loan portfolio, there'll be, you know, some provisioning associated with that, that will, that will change, relative to the model.

[Greg Zingone, Research Analyst at Piper Sandler]

Okay. And then lastly, how big of a push do you plan to make in Westchester? Is adding more teams or more branches in Westchester a priority going forward?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

I think, you know, we've got two teams up there now. We've just gotten approval for a full service or a limited service branch up there. We're not really looking to open up retail locations. It's really more second story, you know, business-related growth. And so, you know, for now, I could see us bringing on more teams over time. I don't see us opening up a lot more bricks and mortar up there in terms of branch locations.

[Greg Zingone, Research Analyst at Piper Sandler]

Awesome. Thank you, guys.

[Avi Reddy, CFO at Dime Community Bancshares]

Thanks, Greg.

[Operator]

Thank you, and one moment for the next question. Our next question will be coming from Manuel Navas of D.A. Davidson. Your line is open.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

Hey, good morning, fellows. I appreciate. I think I just missed the OpEx guide for next quarter. Could you just reiterate that? And then any color you can add on some of the things you're looking at for next year. You're saying you're gonna have nominal expense growth. Just, could you highlight or discuss any of those initiatives in greater detail, or is it too early to say?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, we're just going through our budgeting process now, Manuel. So I think as we get towards the end of the year into, you know, into really our January call, we'll be able to outline all of those in, in detail. The guidance was, you know, we, we probably expect to be around $57 million, you know, in, in Q3, you know, kind of hold that for the rest of the year. But our goal is, you know, for next year to have very, very nominal growth, you know, absent any, you know, additional team hiring, you know, opportunity that could take place next year. So that's pretty much the guidance.

[Avi Reddy, CFO at Dime Community Bancshares]

At this point, I think we'll have more details as we get, you know, get into our December and January timeframe once we get through the budgeting season.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

I really appreciate that. That leads me to my next question. What's kind of the pipeline on hires? Has it kind of calmed down? Are you still seeing talent out there that's interesting? What's just kind of an update on hiring, the hiring process?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, well, you know, we're still talking to folks. There's still talent out there, both on both sides of the balance sheet, both on the deposit side and on the lending side. We've obviously been busy on both sides of the balance sheet. We brought on, you know, a group of C&I lenders, and they've, you know, really have begun contributing in a significant way. Our Healthcare Group pipeline is very significant, and I think there's gonna be some meaningful loan volume this quarter in that business as well. And we are exploring other teams in terms of C&I business. So yeah, there's some opportunity.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

I think as we get later in the year, you know, as folks get closer to year end and bonuses and whatnot, that's gonna slow down a little bit, but we are planting the seeds into next year. So, you know, I do think there's some opportunity. I think we've proved that, you know, we're the bank to be in terms of opportunity and bringing our customers over. You know, we've opened, you know, 3,000-4,000 new business accounts and relationship accounts with the new teams that are just starting to fund. You know, we're almost at $1.1 billion in new deposits, nearly half of that DDA.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

So, you know, the model and the thesis that we have has proved out, and I think, you know, we're looked at as a place to go in terms of opportunity. So I really do think there's a lot, a lot to come, in the future.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

Is Healthcare gonna be a big chunk of the low single-digit growth in the back half of this year? I think you've given pipeline in the past for that, for that group. Is that something that's disclosable today?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Sure. I mean, our pipeline in the Healthcare business is $172 million at an average rate of 7.80%. And, you know, but our C&I pipeline is $430 million, an average rate of 8.5%. So, you know, it's across the board, and it's really, you know, again, following what we've been saying for the last year in terms of diversification. So, you know, we're quite encouraged by the build-out of both our middle market C&I business, our Healthcare business. Even our residential group is up substantially in terms of pipeline. They have over $60 million in the pipeline at a 6.5% rate, all adjustable-rate mortgages.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

You know, again, you know, we're out there, and we're doing business. So we're very encouraged.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

If I just shift to the NIM for a moment, I really appreciate the repricing opportunity, second half of next year into 2026. More near term, if we do get a rate cut in September, could the slow and steady NIM increases accelerate a bit in the fourth quarter?

[Avi Reddy, CFO at Dime Community Bancshares]

Yes, yes.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

Okay.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, I mean, I think-

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

Confirmation of that?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

I think we're seeing, you know, just month-over-month, with the new, new originations and, and, and repricing of what loans we do have that are repricing, this year, we're seeing a slow and steady growth, you know, in terms of loan yields, and, and deposit yields are, are flattened down. So just the natural progression is positive, but certainly with a, with, a rate cut, in September and, and possibly one later in the year, you know, we could see that accelerate, you know, quite a bit. You know, just, just month-to-date, for example, our yields, yields on our loan are up, over three basis points. And, you know, and we expect that to, to accelerate with, with this quarter's, new originations and repricing.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

So, you know, again, we're optimistic. And, you know, as I said, absent rate cuts, we're gonna see a, you know, a slow and steady grind up. But certainly, the rate cuts are gonna help, you know, accelerate that, that growth.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

My last question is, is that repricing opportunity doesn't include any...

[Stuart Lubow, President and CEO at Dime Community Bancshares]

... It just includes the forward curve for the second half of 2025 into 2026. That's just the loan side. It doesn't include expectations on rate cuts in there, correct? Is that the right way to think about that analysis?

[Avi Reddy, CFO at Dime Community Bancshares]

Correct. Yep, just off the forward curve, Manuel. So the comment was, you know, we have, you know, $2 billion in the back half of 2025 and 2026 at a rate of 3.90. Just follow the forward curve, and that's, you know, which is around 4% for the five-year going forward. You should see a 35 basis point increase in the NIM overall, just solely because of that. Now, on top of that, we are remixing the loan portfolio. That's obviously adding, as we said, around 4 basis points-5 basis points every quarter to the NIM. And then, you layer on top of that, the deposit growth that we have. We still have around $750 million of brokered on the balance sheet.

[Avi Reddy, CFO at Dime Community Bancshares]

We've obviously paid down a lot of our short-term FHLB borrowings, so that was the first step in the balance sheet evolution. The brokered is still at 7.50, so you know, as we—you know, as the new teams bring in deposits, as our lending teams bring in deposits, that's gonna help offset the cost, you know, the brokered deposits on the balance sheet. So I think the message here is we don't need rate cuts to see, you know, an upward bias in the NIM. With rate cuts, we're gonna have an even greater increase in the NIM. And then once the repricing opportunity kicks in, you know, the NIM is really gonna accelerate at that point in time, back and probably higher than where we were in the last cycle, based on what our models are showing.

[Manuel Navas, Senior Research Analyst at D.A. Davidson]

All right. That's great. I really appreciate the commentary. Thank you very much.

[Operator]

Thank you. Our next question will be coming from Steve Moss of Raymond James. Your line is open.

[Steve Moss, Managing Director at Raymond James]

Good morning.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Hey, Steve.

[Avi Reddy, CFO at Dime Community Bancshares]

Hey, Steve.

[Steve Moss, Managing Director at Raymond James]

Just following up on deposits here. Stu, I think you said balances on deposits were stable to down at the beginning of the call. Just kind of curious here, you know, you had a healthy step up in the deposit growth, with all the teams you've added here. Is it possible that we could see that pace continue this quarter?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah.

[Steve Moss, Managing Director at Raymond James]

And then the second part to that-

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Mm-hmm, go ahead. You know, what I said was yields on deposits were stable, stable to down, but, you know, we're seeing steady growth on the deposit side, so we expect continued growth on the deposit side.

[Steve Moss, Managing Director at Raymond James]

Okay. And so perhaps at a similar pace to what we saw this past quarter?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, I don't think we don't think about it on a quarterly basis, Steve. Obviously, you know, in the first and second quarters, there was, you know, significant disruption with one of our competitors. So sometimes it ebbs and flows. But, I mean, the way we look at it is the groups that have come on, right? The average tenure of the groups on a weighted average basis is only 7 months-8 months at the bank. So they have a substantial runway in front of them to do that. So, you know, we're measuring it in terms of years as opposed to quarters. So I think, you know, a year from now, we're gonna be substantially higher than where we are right now. Every individual quarter, you have seasonality, deposits coming in, deposits coming out.

[Avi Reddy, CFO at Dime Community Bancshares]

the other way we track this, too, Stu, it's accounts. So we're continuing to see accounts open, you know, every day, every week, and, you know, very bullish about, you know, them bringing, bringing over more and more deposits over time.

[Steve Moss, Managing Director at Raymond James]

Okay. Could you share with us how many accounts were opened this quarter?

[Avi Reddy, CFO at Dime Community Bancshares]

This quarter we probably had, I'd say, close to around 700-800 accounts that were opened.

[Steve Moss, Managing Director at Raymond James]

Just curious what the blended cost of funds you're seeing on the deposits coming over these days?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, probably say around between 250 and 270 ±-

[Steve Moss, Managing Director at Raymond James]

Okay

[Avi Reddy, CFO at Dime Community Bancshares]

... from the new groups. Because as Stu said, substantial portion of it is in DDA, probably 40%-45% DDA of the stuff that's coming in. So it's between 250 and 275.

[Steve Moss, Managing Director at Raymond James]

Okay, appreciate that. And then in terms of the drivers here on the lower classified, down 14% quarter-over-quarter, just curious to get some incremental color around those drivers.

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, we should have all the detail in the 10-Q. We just provide an expectation right now. I think multifamily is down around $15 million-$20 million. I think C&I and owner-occupied are down, you know, the rest, basically. Investor CRE is basically flat, but all the detail will be in our 10-Q next week, Steve.

[Steve Moss, Managing Director at Raymond James]

Appreciate that. Okay, so I guess just, you know, last one for me here. In terms of, you know, it sounds like you guys remain active on, on the hiring front or at least interested, you know... Do you expect, like, a steady pace of ads in the second half of the year for, for additional teams, or is it more maybe a 2025?

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, I think it's more 2025. As we're getting toward the end of the year, folks tend to have, you know, the view of, well, I'm gonna, I'm gonna stay where I am for now. I got bonuses coming up. And so it's probably more towards, you know, the end of the first quarter of 2025. Although there probably might be some opportunity on the lending side with some teams that, I think, you know, may be available, and, you know, we are talking to seriously. So, but I think on a deposit side, it's probably more, you know, geared toward early 2025.

[Steve Moss, Managing Director at Raymond James]

Okay, great. Really appreciate all the color. Nice quarter.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Thank you.

[Operator]

... Thank you. If you would like to ask a question, please press star one one on your telephone. Our next question will be coming from Christopher O’Connell of KBW. Your line is open.

[Christopher O’Connell, Director at KBW]

Hey, good morning.

[Avi Reddy, CFO at Dime Community Bancshares]

Hey, Chris. Good morning.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Hey, Chris.

[Christopher O’Connell, Director at KBW]

So yeah, just wanted to start off on the NIM and, you know, apologize if I miss anything, but from what I understand, you know, slow and steady progress until there's rate cuts from here in the back half of the year. And that's inclusive of the sub debt offering, correct? And kind of minus the non-accrual recovery. Are you guys thinking the NIM will progress and be up from the 2.37% June NIM range, ex the non-accrual recovery?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, no. So Chris, in my prepared remarks, what I said was the base NIM to use is 2.34. So the 2.34 excludes the 4 basis points from the non-accrual interest recovery and then the 3 basis points from the sub-debt. So I'd start with the 2.34 and use the slow and steady and upward bias off of that base. As we've said, the loan yields are going up probably, you know, 4 basis points-5 basis points of every quarter on an average basis, so that's going to help. And obviously, if you see stabilization in the cost of deposits, you know, you're going to see a natural, you know, upward progression in the NIM. So I think that's the case till there's rate cuts.

[Avi Reddy, CFO at Dime Community Bancshares]

Once there's rate cuts, we obviously have more, you know, deposits than assets that we can reprice. So that's going to help, you know, help us, I'd say, starting in Q4 into Q1 and Q2 of next year. And then, you know, layer on top of that, the substantial repricing opportunity that really starts, you know, in the second half of 2025. So it's going to be a layered, you know, approach in terms of the NIM. And then I think you also have to factor into all of that, the new deposit teams that are coming, that are bringing in deposits. As I said, you know, a rate of between 2.50 and 2.75 versus the brokered cost right now, which is 5.35.

[Avi Reddy, CFO at Dime Community Bancshares]

So I think if you put all of that together, you know, we're pretty confident that, you know, as we get into, you know, back half of 2025 and 2026, then the NIM structurally will be a lot higher than where it is right now.

[Christopher O’Connell, Director at KBW]

Great. That's helpful. And then as you guys are... You know, it sounds like very good quarter multifamily on the, you know, criticized, classifieds, no NPLs. And can you just remind us of, you know, how much you guys have maturing in the rent-regulated portfolio in the second half of the year? And just anything that you've been seeing from your customers in terms of, just, you know, any qualitative data, as to, you know, what you've been seeing in terms of either debt service coverage ratios or just conversations with the customers, you know, for what's matured year to date?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah. So I'll, I'll start off with the, what's coming to you and then, Stu will add some qualitative comments. I mean, in Q3, we probably have around $10 million on the rent-regulated side, and in Q4 we have, I think, $15 million to $20 million. So, so it's very modest, this year in terms of, what's remaining. In the second quarter, for example, we probably had around, $45 million of rent-regulated loans that, were supposed to reprice. Around $20 million of that satisfied, around $25 million of that repriced, and we've had no issues associated with them. So probably like a one third, two third split, as of the last quarter in terms of, satisfactions and, repricings. Probably give you some color qualitatively on, that.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, I mean, we haven't had a lot of conversations with, with customers. We haven't had... You know, the phones are not ringing off the hook in terms of issues or, or problems. Obviously, our, our NPLs and delinquencies are, are stable to down. So, you know, it's-- you know, we're monitoring everything. We haven't seen a significant change in, in debt service coverages. Actually, you know, overall, probably, a lot of it, it, you know, has actually gone to the positive in terms of growth in debt service coverage. I'd say 75%-80% of the portfolio, year-over-year has had debt service coverage.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

You know, at this point, you know, we continue to monitor and you know and certainly stay in contact with customers where necessary, but we're not seeing any significant issues at this point.

[Christopher O’Connell, Director at KBW]

Great. And then just on the expense discussions of, you know, jumps up to $57 million next quarter. I'm assuming a lot of that's in compensation from the new hires. And then it sounds like you think, you know, that level can hold, you know, relatively flat, you know, into 2025. Just, you know, what are some of the puts and takes? You know, I'm assuming there's merit increase, et cetera, in 2025. Where you guys think that you have opportunities to kind of save and kind of limit the overall expense growth, you know, from here into 2025?

[Avi Reddy, CFO at Dime Community Bancshares]

... Yeah, yeah. So I think all of that's fair, Chris. So I think, you know, for the second half of this year, around $57 million plus or minus is probably a good range. Obviously, the merit increases are going to impact really on April 1st. So, you know, the first quarter of next year is gonna be pretty consistent with where the second half of this year is gonna be. I mean, look, we've, we've always managed expenses efficiently. Like you said, you know, we're gonna see an uptick in salary and comp expense, especially as the new groups, you know, are performing, you know, very well. So, you know, there's, you know, accruals and the such to think about on a going-forward basis.

[Avi Reddy, CFO at Dime Community Bancshares]

But we're working, like I said, when I answered Manuel's question, we're working on a few, you know, company-wide initiatives. We'll probably have more to disclose, when we get into early next year. I think the guidance for next year is very nominal growth. I wouldn't say flat because we know we're obviously investing in our businesses, you know, throughout the year, but we're gonna be very judicious, as we always are. And as you, you know, see the NIM, you know, trajectory, you know, improve over time, I think that's gonna give us a little bit of room to invest in the business, as well. Look, we're very happy with the early performance of the groups. The groups are basically, you know, better than break even, at this point in time.

[Avi Reddy, CFO at Dime Community Bancshares]

And there's no additional, you know, fixed costs that are coming in, you know, beyond what, you know, the $57 million run rate that we have, right now. So look, we'll, we'll have more to say, you know, then. And, and I think just down the road, you know, there will come up, you know, a time when we're able to grow the balance sheet a little bit more. And at that point in time, you know, I think we'd, we'd, you know, our expense-to-asset ratio will also naturally start, start coming down. You know, we've historically managed the company, you know, between 150 and 155.

[Avi Reddy, CFO at Dime Community Bancshares]

We're probably closer to 160-165 right now, but, you know, we do see that coming down in the years ahead, as if and when balance sheet growth picks up.

[Christopher O’Connell, Director at KBW]

Great. And then any, you know, small but any color on the drop in customer service fees this quarter? Was last quarter kind of an unusually strong quarter, or should we take it as, like, a blend of the two?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, yeah. We just had some rollover fees last quarter on some loans basically that we're repricing. So as I said earlier, we had more multifamily loans this quarter that actually satisfied versus repriced, and so that's where that fits in. Last quarter, we had more loans... In the first quarter, more loans that took the rollover option, and that's where that goes in there. So I would say, look, there's a couple of seasonal items here and there, you know, that come in and out, but you know, nothing material.

[Christopher O’Connell, Director at KBW]

Got it. I know you guys are usually cautious on this, but, you know, any sense of just, you know, outside of the, you know, amount of, you know, fixed maturities and everything happening in, in the second half of 2025 into 2026, but you know, what the impact of, of each, you know, 25 basis point cut would be on the margin?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, I think, I think it's gonna be, you know, obviously the first, you know, rate cut and the second rate cut, you know, it's gonna-- part of it's gonna depend on the competition, you know, in terms of what they're doing. That said, I will say our, our deposit base is more skewed towards commercial customers, and we have more, money markets than time deposits in our base. So which should lend itself to more, you know, in terms of, you know, being-- having more benefit from rate cuts than a, than a lot of our, a lot of our peers, right? You know, if you look at the balance sheet right now, around 31%-32% is, is variable rate in terms of the, the loan portfolio.

[Avi Reddy, CFO at Dime Community Bancshares]

Obviously, 30% of the balance sheet is DDA, you know, on the deposit side of the balance sheet. And we probably have, you know, some deposits that are, you know, cost less than 1%, and so it's gonna be harder to change the rates on those. But, I would say, you know, by and large, you know, our goal is really to get the margin back, you know, to that 3% plus area, which is gonna drive higher, you know, returns overall for the company. And our internal models show us getting there, you know, you know, latter part of 2025, you know, into 2026.

[Avi Reddy, CFO at Dime Community Bancshares]

How it happens between here and there could be choppy up and down in an individual quarter, but there's definitely gonna be, you know, a level of benefit from rate cuts.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Yeah, and we do have, you know, as Avi said before, we do have $700 million of brokered that, you know, we'll, we'll be able to move those down very quickly in terms of, you know, a rate cut. Plus, we have about, $1.8 billion of municipals that are also, you know, you know, easily moved, moved in terms of, a rate cut. So, you know, look, we're, we're looking to, you know, we've-- we're prepared. We've already segregated the portfolio in terms of, when a rate cut happens, you know, which, which buckets are gonna move, and how much.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

So, I mean, we're pretty optimistic, but, you know, we're a little cautious at this point, because obviously, you know, competition's gonna play a bit of a role there as well.

[Christopher O’Connell, Director at KBW]

Got it. And last one for me, just what's a good tax rate going forward?

[Avi Reddy, CFO at Dime Community Bancshares]

Yeah, I think around 27, Chris. We had a couple of discrete items this quarter, so I'd, I'd use 27 going forward.

[Christopher O’Connell, Director at KBW]

Great. Thank you.

[Avi Reddy, CFO at Dime Community Bancshares]

Thank you.

[Operator]

Thank you. There are no more questions in the queue. This does conclude today's Q&A session, and I would now like to turn the call back over to Stuart Lubow for closing remarks. Please go ahead.

[Stuart Lubow, President and CEO at Dime Community Bancshares]

Thank you, Lisa. Thank you all for joining us today. I'd like to thank our dedicated employees and our shareholders for their continued support, and I look forward to speaking with you after the third quarter.

[Operator]

Thank you for joining today's conference call. You may all disconnect.

Participants

Executives

• Avi Reddy, CFO
• Stuart Lubow, President and CEO

Analysts

• Christopher O’Connell, Director at KBW
• Greg Zingone, Research Analyst at Piper Sandler
• Manuel Navas, Senior Research Analyst at D.A. Davidson
• Steve Moss, Managing Director at Raymond James