Dime Community Bancshares Q3 2026 Earnings Call Transcript

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Provided by Quartr
October 20, 2026

Key Takeaways

  • Positive Sentiment: Record third-quarter revenue of $135 million and core EPS of $0.91 reflected 53% year-over-year EPS growth, a 1.10% ROA and a core efficiency ratio below 48%.
  • Positive Sentiment: The net interest margin rose for the 10th consecutive quarter to 3.35% reported, or approximately 3.32% excluding purchase accounting and prepayment fees. Management raised its long-term outlook, now seeing existing-balance-sheet NIM above 3.60% by the end of 2027, supported by loan repricing and stable deposit costs.
  • Positive Sentiment: Business loans grew approximately 30% year over year, with diversified contributions from C&I, fund finance, lender finance, sponsor finance and healthcare. The loan pipeline was about $1.4 billion, while core deposits increased roughly $1.1 billion year over year, including growth in non-interest-bearing DDA.
  • Positive Sentiment: Dime agreed to acquire $600 million-asset Empire State Bank for consideration that is slightly more than 50% cash; management expects the transaction to be about 3.5% accretive to run-rate earnings, with an internal rate of return above 20% and only about a 35-basis-point impact on capital ratios.
  • Negative Sentiment: Credit costs remain elevated, with a $13.8 million provision, allowance-to-loans rising to 0.99% and higher NPAs tied to specific C&I and multifamily exposures. Management expects provisions to remain at roughly recent-quarter levels for the next couple of quarters, while multifamily runoff and rent-regulated housing exposure continue to weigh on loan growth.
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Earnings Conference Call
Dime Community Bancshares Q3 2026
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the Dime Commercial Bancshares, Inc third quarter earnings conference call. At this time, all participants are on a listen-only mode. After the speakers' 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 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.

Operator

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 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 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. I would now like to hand the conference over to your speaker today, Stuart Lubow, President and CEO. Please go ahead.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Good morning. 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.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

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 seven 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%.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

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.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

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 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.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

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.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

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.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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 million. 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.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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, 30-89 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%-450%, and Dime will be rewarded in the medium to longer term with a higher valuation.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

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.

Operator

Thank you. As a reminder, to ask a question please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steve Moss with Raymond James. Your line is now open.

Steve Moss
Steve Moss
Analyst at Raymond James

Good morning, and nice quarter.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Hi there, Steve. How are you?

Steve Moss
Steve Moss
Analyst at Raymond James

Hey, Stu. Doing well. Maybe just starting here on the margin, Avi. With that 360 margin by the end of 2027, just kind of curious, obviously rates are higher here. We've seen some spread compression across the industry. Just maybe just a little updated thoughts in terms of dynamics here around your assumptions to that 360 margin.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yes. I just want to be clear, we are actually increasing the NIM guidance here. Take your comment well. Across the industry, there have been some spread compression. We're not seeing that here. We've been able to maintain our cost of deposits very close to that 168 area as we three weeks into the quarter here. There's been a couple of basis points drift up in deposit costs, but it's actually lower than what we thought. And on the loan side, in our press release, the weighted average rate on loans was around 550. We've seen that expand to 558 right now sitting here today. I think we're even more confident sitting here today than we were three months back, which is why we increased the guidance both from a NIM perspective as well as from a NII perspective.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

I think that's just a testament to the quality of the deposit base that we have at the bank, the new deposits that are coming into the bank, as well as all of the new business lines that Tom's put in place over the last year and a half, which are now coming to fruition.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Yeah, you've got to remember, our core DDA now, non-interest-bearing DDA, is now up to over 32%, and it's continuing to grow. The private banker is continuing to bring in new customers, new clients, new relationships. We're very excited about where we are in terms of our core funding abilities. Then on the loans side, with all the teams in place now and the verticals in place, the pipeline's very strong, and they're also bringing a nice chunk of deposits in as well. We're very comfortable that we're going to continue seeing NIM expansion at these levels.

Steve Moss
Steve Moss
Analyst at Raymond James

Right. Just to tap the margin a little further, in terms of, if I recall correctly, it's about $2.5 billion of fixed rate loans at around 4.25% that'll reprice next year. Are you guys then thinking that like up 200 basis points at this point?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, no. The $2.5 billion was the number last quarter, Steve. You've got to roll that forward. We've had one quarter of, one of those six quarters has gone away. We're closer to $2 billion right now, and the rate on those remaining loans are around 440 at this point. Yeah, there's still around 200 basis points off of that, in terms of an improvement. As Stu said early on, our pipeline rate right now, it's actually gone up to 650. There should be probably a 210 basis points-225 basis point increase on that $2 billion. Now, all of that's not going to stay with us. Some of that's going to refi out of the bank. Some of it's going to stay with us.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

But I think we showed this quarter that we're able to grow overall loans, keeping in mind the reduction in the multifamily portfolio as well. You should see the repricing benefit as well as continued growth in the overall loan portfolio at a low to mid-single-digit growth rate that we talked about last time around.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Yeah. In the previous quarters, you have been seeing about $150 million-$175 million of commercial real estate move out. You have to assume that that will continue, most likely. It has been about $150 million a quarter of multifamily has been prepaying or paying off and refinancing out. We are still seeing those same metrics. Although in a higher rate environment, it might slow down a little bit.

Steve Moss
Steve Moss
Analyst at Raymond James

Okay. That is helpful there. That was going to be my next question. Then maybe just on the core deposit growth here. It was really strong this quarter. Just curious how you are thinking about the cadence here on growth and just any color you can give there.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yep. Steve, typically the third and fourth quarters of the year are our best quarters, just given seasonality, the East End, some of our private banks in terms of the type of business mix that they have. I would say there is nothing in the numbers in Q3 that we expect to go away in Q4, so it is a good starting point. Then we have started the quarter reasonably here. I would say it is kind of hard to predict in individual quarters where we go. Q1, generally, we do see some outflows. I think Q4 should steadily build off of Q3.

Steve Moss
Steve Moss
Analyst at Raymond James

Okay. I appreciate all the color here, and I will step back in the queue, guys. Thank you very much.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Thanks, Steve.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Thank you.

Operator

Our next question comes from the line of Manuel Navas with Piper Sandler. Your line is now open.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Hey, Manuel.

Manuel Navas
Manuel Navas
Analyst at Piper Sandler

Hey. I hear you on the low-single digits, mid-single digits growth pace. It was really strong this quarter. Can you talk a little bit about the mix this quarter? How it accelerated a bit? I guess the pace should maybe slow a little bit in the fourth quarter. But can you just talk about the growth trajectory and what businesses drove it most?

Tom Geisel
Chief Commercial Officer at Dime Commercial Bancshares

Yeah, sure. A couple of things. If you go back and take a look at the year on the business loan side, Q1 net-loan growth was about $125 million. Q2 was $275 million, and then Q3 was $350 million. So nice chronology of growth across the year and across the quarters. The fourth quarter, I think, is probably going to be flat to where we were in this quarter. Q1 tends to be lower just by the nature of the business. Q2 and Q3 tends to be stronger as you know in banking. Q4 just depends on the overall economic environment and the momentum. So we feel pretty good about where we think we'll end the year. To Stu's point about the $929 million or so growth year-over-year, what we're really happy about is the diversification of that growth.

Tom Geisel
Chief Commercial Officer at Dime Commercial Bancshares

Our C&I business, our traditional C&I business, led the way at about 25%. Then when you start to add in some of the new specialty finance businesses we put in place like lender finance, fund finance, sponsor finance, and healthcare, they all came in at about 20%. So we're really happy. We didn't have one business that pretty much outshined the others. When you look about the quarter, the quarter had about 1/3 growth from C&I, followed by fund finance, and then the balance of the other specialty groups fell behind. So real diverse business growth across the year and across the quarter.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, Manuel, I'd just add a couple of things, right? I think our guidance still, when you go back to last quarter, think about the balance sheet in three different pieces. So on the business loan front, really somewhere between $200 million and $250 million every quarter. This quarter we were at $350 million, so probably a little bit higher in terms of the run rate. The multifamily piece, we still expect around $500 million of runoff on that piece. Then what changed this quarter, which is why overall loans grew, is we're back in the commercial real estate market doing relationship CRE. CRE balances were down only $10 million or $15 million this quarter. We probably originated $100 million this quarter at nice spreads, nice LTVs, nice debt service. So that should continue going forward.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Where the variable is going to be going forward is business loans. Some quarters it may be closer to $200 million, some quarters it may be closer to $250 million, some it may be closer to $300 million over there. But when you put all of that together, you come back to that low to mid-single digits for the next probably six to nine months.

Manuel Navas
Manuel Navas
Analyst at Piper Sandler

Great. That $500 million multifamily decline, that gets you towards that 25% longer term target. No shift there, in essence, on the mix projected going forward?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah. It is probably a little bit less than 25%. Right now we are at 27%. So, I would use $500 million off the current numbers, basically.

Manuel Navas
Manuel Navas
Analyst at Piper Sandler

I appreciate that. Is there any other color you could add on kind of the deposit growth, which was so strong? Kind of what areas that came from most? I know you talked a little bit about the private banker business mix, and you talked a little bit about the trajectory over the course of the year. But just what businesses led it most and where there might be some competition.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, where we're really growing deposits is just business deposits. If you look at our base, right now it's probably 70%-75% of the base is business deposits and consumer deposits are 25%. The consumer piece this time last year was 30%. This time two years back was probably 35%. We're actually seeing small declines on the consumer side because we're not the highest rate payers out there for consumer deposits, which really means business deposits are growing at an even faster pace. We did hire three teams earlier this year in April. They're doing really well in line with our projections. It takes a little bit of time for teams to get going, but they were a good contributor to third-quarter growth. Our municipal business did really well in the third quarter. Our branches did well.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

I would say, look, we think we've got the best footprint in our area. We've got the best bankers. We've got the best branch network. We've hired the best private bankers. It's really the people that we have. Stu said we're able to do this with growing DDA. We're bringing in core operating accounts. Over the course of this year, we've opened over 6,000 accounts basically. A lot of what's coming in now is the work that was done over the last three to six months, and we continue to see that account opening process not stop. I think this quarter was especially strong in the third quarter. Fourth quarter, we'll have to see where we end up at.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

I will say we have been able to manage the cost of funds really well, and we're not really seeing a creep up in that yet.

Manuel Navas
Manuel Navas
Analyst at Piper Sandler

Yeah. That does bode well. My last question is, you've added now Staten Island with the transaction today. You've grown in the affordable business vertical. What is remaining for where you'd like to add density? Perhaps another team by next April. What is it you're looking at next as like to have in terms of a new lending vertical or a new geographic area you'd like to invest in?

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Look, I think we've kind of accomplished what we were set out to do in terms of verticals and business lines. We've been opportunistic. When the opportunity arises and talented people become available, we've taken the opportunity to bring them on board, and we've been successful at it. The same thing with private banking teams. There are probably still a few out there that we'd be interested in. I think overall, strategically, it's really now we need to operate on all cylinders and get things cranking. I think we're really about there. A lot of these teams have been on for quite a while and their pipelines are growing, and that's why you're seeing the results in terms of loan originations and closings. Strategically, I think we're really in a spot where we really got to execute and grow the business.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

I think we have the horses and the manpower to do that now. I don't see any significant moves away from that. We will be opportunistic if an opportunity arises in terms of teams or verticals.

Tom Geisel
Chief Commercial Officer at Dime Commercial Bancshares

Yeah, I think one thing to think about is when we bring a new team on, it takes them anywhere from a year to 18 months to really get their footing. You can tell by the loan growth results, many of those teams are just starting to get there now. It's nice to see that the investment that we put into the business a year or so ago is starting to come to fruition. We just want to keep pushing that for now and focusing on the organic side.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, Manuel, I'd just round it out by saying we're very focused on getting our profitability to a level by the back half of 2027, where you're talking about an ROA in excess of 130 at that point. You saw this quarter with the efficiency ratios sub 48% at this point. We've updated our NIM guidance where we think NIM guidance is going to be over 360 at that point. We've made all the investments. Anything going forward is probably marginal and pays for itself pretty quick. As Stu said, right now it's about execution and driving the profitability to reflect the value in our deposit base, which is still not in there in terms of the overall profitability because there's so much repricing assets that we have over the next five quarters.

Manuel Navas
Manuel Navas
Analyst at Piper Sandler

I really appreciate the commentary. Thank you.

Operator

Thank you. Our next question comes from the line of David Konrad with KBW. Your line is now open.

David Konrad
David Konrad
Analyst at KBW

Great. Thanks. Good morning. Just want to talk about credit for a little bit. You mentioned criticized and special mention was down high-single digits, but you also mentioned the NPA growth was pretty strong this quarter. Looks like partially in business loans and in multifamily. So maybe a little bit of color of the NPA moves and then maybe expectations in the fourth quarter for provisions and maybe NPAs as well.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yes. I will take that, David. So on the C&I side, we had one relationship. This had been substandard for a couple of years with us. We took $6 million specific reserve on this. We have some collateral behind it as well. So we feel pretty well-secured over there. Person was involved in property management, kind of tied to the real estate space over there. On the multifamily side, one relationship, this had been in the 60-89-days bucket for the last two years. Slow-paying relationship, and so we kind of charged that down and got an updated appraisal on that. So I would say, look, it is part and parcel of the business that we have. Substandard loans were down 7%. The 30-89-days bucket was down substantially. You will see those disclosures in the 10-Q when we put that out.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Look, I would just say overall, in terms of provisioning levels, we would probably expect something similar to the last couple of quarters for the next couple of quarters. Our goal really is to get the earnings stream of this company to a 130+ ROA by the back half of 2027. I do not think we should be operating at a $13 million-$15 million provision level for more than a couple of quarters. But I think for the next couple of quarters, that is not unreasonable, just given we would just like to work out some of these credits. It really depends, right? Certain situations, you sell the loan and you move on. That is the best lowest cost option to the bank. In other situations, you take a specific reserve and you do a longer-term workout.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

I am not really going to comment on projections for different type of credit quality metrics. What I will say is we feel pretty well reserved with what we have right now. We have got our pre-tax, pre-provision earnings is 185 basis points. Could be some choppiness next couple of quarters. But I think by the time we get to the back half of 2027, we feel pretty good about earnings stream of the company including provisions.

David Konrad
David Konrad
Analyst at KBW

Great. Thank you. One more. The operating leverage story here has been pretty remarkable. You are at a ratio roughly around 48%, a little bit better than 48%. I know expenses are going up a little bit for the fourth quarter, but is that sustainable? It feels like it is when you are talking about more 30 basis points better NIM expansion next year. How much can you drive that operating leverage?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yes, I would use that $66 million as a reasonable run rate for next year. Then if you assume 3%, 4%-ish regular merit increase type stuff. Look, it depends, right? I think we have done the heavy lifting on the expense side in terms of building out the infrastructure to support the private bank. We have opened two new branches. We have gone into New Jersey. We have added a lot of teams underneath Tom. I think all of that is done. Going forward, our goal is to get that 48% down to 45% and then lower than 45% down the road. I think expenses are what they are. I think with additional scale with the Empire deal, which we have not talked about, that should help the efficiency ratio as well given the fact that a lot of the back office we are able to support with what we have right here.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

We should see that continuing to trend down over time, mainly driven by revenue growth.

David Konrad
David Konrad
Analyst at KBW

Great. Thank you. Appreciate it.

Operator

Thank you. As a reminder, to ask a question at this time, please press star one one on your touch-tone telephone. Our next question comes from the line of Matthew Breese with Stephens. Your line is now open.

Matthew Breese
Matthew Breese
Analyst at Stephens

Hey, good morning.

Matthew Breese
Matthew Breese
Analyst at Stephens

A few questions from me. Just starting on the NPA pickup, within multifamily, how much of that was tied to the rent-regulated space? Avi, maybe you could give us just an update on the health of that portfolio from an NPL and delinquency standpoint. Secondly, I was just curious, I heard you on substandard. What did classified loans do this quarter, and any kind of directional change there?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, sure. The relationship this quarter, Matt, that was rent-regulated, the NPAs that we have in the book are all rent-regulated on the multifamily side. Anything that's free market, we don't have anything there that's NPA at this point. I'd say, look, overall, we're monitoring the portfolio very closely. What we really spend a lot of time on is there's $1 billion-ish overall of rent-regulated, which is over 50%, basically is how we characterize it, right? That portfolio, this past quarter, there was probably around $40 million of a decline in that. So we're seeing a steady decline in that portfolio, specifically in the multifamily portfolio. Classified actually is substandard. That's the definition, right? So, in that particular portfolio on the multifamily side, overall, we have around $135 million of substandard. Last quarter, it's down to probably $125 million this quarter.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

So we're not seeing any pickup there. I think we know our portfolio. We know what we got. Could there be some hits over time? Sure. But by and large, it's very manageable. Our average loan size is around $3.5 million in the overall multifamily portfolio. On the rent-regulated side, it's less than that. Our pre-2019 portfolio that we keep our eyes on is down $275 million. So we feel good about that. It's winding down. It's not a growth part of our business. We're not doing any new rent-regulated loans at this point. I think we've reached the point where our earnings power is so strong that we'll work through anything that comes up over time.

Matthew Breese
Matthew Breese
Analyst at Stephens

Great. I appreciate all that. Just on deposit cost, Avi, I heard you say it's coming in better than expected. I'm just curious, as you think about that 360 or north of NIM by year-end 2027, what kind of deposit beta are you anticipating?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah. I think on the first rate hike that happened, Matt, we've not seen much over there. There's obviously clients we've moved. I think as we see a pickup in rate increases, you're going to see the beta be a bit higher on the deposit side. I don't think it's going to be any different than on the way down. The one difference I think is that the DDA that we have, right now it's real DDA, it's real operating accounts, it's real stuff that's been coming into the bank. I think the last time around rates went to 5%, the issue that a lot of banks had was there was a lot of migration out of DDA into interest-bearing. We just don't see that happening this time around, right?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

I think for the second rate hike, if there's one in October or December, you'll see a bigger pickup than the first hike. But on the first hike here, we ended the quarter with the cost of deposits $1.68. We're sitting here today at $1.72±. And yeah, there'll be a little bit more creep off the $1.72, but not substantial. I do think on the second and third, it'll probably pick up a little bit off of that. Which is why if you go back to my guidance on the NIM, we said the first rate hike was probably a couple basis points accretive to NIM, and then once you get to the second one, we're probably more neutral on NIM at that point.

Matthew Breese
Matthew Breese
Analyst at Stephens

Yeah. No, that makes sense.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah.

Matthew Breese
Matthew Breese
Analyst at Stephens

Also tying to the NIM outlook, you guys are sitting on a lot of cash, I think it's up to 14% of total assets. Can you help me out with kind of the deployment strategy there and timeframe for deployment? And within that ROA target you have and the 360 NIM guide, what does the cash as a percentage of assets look like?

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah. I think we like the cash position because it keeps us neutral to short-term rates at this point. In the third quarter, we did not buy any securities. I think we'd like to have a little bit more visibility into where rates end up at before jumping in and buying securities. I think that 360 NIM really doesn't assume much deployment of the cash position. It's just off the $2 billion of maturing and repricing loans. If you assume let's call it $1.7 billion, $1.8 billion of that you can reprice up 200, 225 basis points. That itself should get us 20, 25 basis points of NIM off of that. I think that the cash deployment, that's something over and above that.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

But if you come back to our loan growth assumptions, we've said low to mid-single digit growth on the loan side, and we're growing deposits faster than a low to mid-single digit growth. That would really mean there's more cash on the balance sheet, right? Long story short, it doesn't really capture that. I think that's upside in the NIM. Another way to look at it is if we did deploy it, the 360% is more like 380%, 394% if we ran with the loan-to-deposit ratio closer to 90%-95%.

Matthew Breese
Matthew Breese
Analyst at Stephens

Okay. Do you think cash could build from here? I didn't really anticipate that, but it sounds like you might be leading me there.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

No. Look, if you look at it this quarter, the loan-to-deposit ratio went down even though we grew loans because we grew deposits faster, right? It is a possibility, but we'll deal with it as it comes.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Yeah. Once we get to a point, Matt, where we're comfortable with our CRE ratio, and we're back in the CRE business today on a selected basis, you'll see larger loan growth and then the deployment of the cash. At this point, you're still seeing net runoff on the commercial real estate side, both on the multifamily and obviously on the straight commercial real estate. Once that kind of levels out at that point, and we expect that toward mid to late 2027, you'll start to see more significant loan growth and deployment of more cash.

Matthew Breese
Matthew Breese
Analyst at Stephens

Okay. Last one for me. Avi, just on the deal, there's a few numbers I was hoping you could help me out with. Maybe forecasted cost saves, what percentage you're using for CDI, and then the credit interest rate marks. And one-

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah.

Matthew Breese
Matthew Breese
Analyst at Stephens

Sorry.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Yeah, sure. The deal size is pretty small, 4% of our asset base. I think overall, we expect to run this at a ROA well in excess of 2% at the bank, fully factor in cost savings over there. The rate mark and credit mark, you probably end up somewhere close to somewhere between 4% and 5%±, including the rate and credit mark. Obviously, rates are elevated, so it depends on what point in time you do it. We kind of assumed the worst case where the five-year was at 5%. I think if you include that, it's probably somewhere between 4.5% and 5% rate on CRE put together on it. In terms of the CDI assumption, I'll just use 3% on the core deposits on that.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Deal costs, they probably should be in the $12 million-$13 million area, plus or minus, on a pre-tax basis.

Matthew Breese
Matthew Breese
Analyst at Stephens

Great. I'll leave it there. Thank you for taking all my questions. Appreciate it.

Avi Reddy
COO and CFO at Dime Commercial Bancshares

Okay. Thanks, Matt.

Operator

Thank you. I am currently showing no further questions at this time. I would now like to turn the call back over to Stuart Lubow for closing remarks.

Stuart Lubow
President and CEO at Dime Commercial Bancshares

Thank you, Shannon, and thank you all, and our dedicated employees and our shareholders for their continued support. We look forward to speaking with you after our fourth quarter.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect.

Analysts
    • Stuart Lubow
      President and CEO at Dime Commercial Bancshares
    • Avi Reddy
      COO and CFO at Dime Commercial Bancshares
    • Steve Moss
      Analyst at Raymond James
    • Manuel Navas
      Analyst at Piper Sandler
    • Tom Geisel
      Chief Commercial Officer at Dime Commercial Bancshares
    • David Konrad
      Analyst at KBW
    • Matthew Breese
      Analyst at Stephens
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