KBRA Affirms Ratings for Dime Commercial Bancshares, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, the preferred shares rating of BB+, and the short-term debt rating of K3 for Hauppauge, New York-based Dime Commercial Bancshares, Inc. (NYSE: DCOM) ("Dime" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its main subsidiary, Dime Commercial Bank. The Outlook for all long-term ratings is Positive.

Key Credit Considerations

The ratings and continuation of the Positive Outlook reflects management's successful execution of its operating strategies, notably its deposit gathering and loan portfolio diversification initiatives. These efforts have contributed to stronger earnings, improved capital and reserve levels, and a meaningfully lower investor CRE concentration. As a result, several key financial metrics now compare favorably with the rated peer group, a trend we expect to continue as the balance sheet transformation progresses. Funding and liquidity are notable strengths within the rating profile. The successful execution of the deposit-focused team strategy has generated more than $3 billion of core deposits since 2023, which allowed management to largely eliminate noncore funding sources and materially enhance on-balance-sheet liquidity. As a result, key liquidity metrics, including the loan-to-core deposit ratio (88% as of 1Q26) and cash plus securities-to-assets ratio (24% of total assets), compare favorably to peers. Additionally, the funding profile has become increasingly attractive, as reflected in a higher proportion of NIB deposits (31% of total) and a cost of deposits that now tracks meaningfully below the rated peer average (1.61% in 1Q26; 25 bps below the rated peer average) despite operating in one of the nation's most competitive banking markets.

The substantial reduction in higher-cost wholesale funding and improvement in the deposit mix have been the primary drivers of recent NIM and ROA expansion (ROA of 0.92% in 1Q26), though back-book loan repricing has also provided support and should become a more meaningful tailwind over the next several years (~$3 billion of loans set to reprice by YE27). As a result, management expects NIM to exceed 3.50% by YE27 (3.21% during 1Q26), which should support the potential for better-than-peer earnings performance. However, this remains dependent on relative credit outperformance. Dime has generally outperformed through the cycle and maintains what we view as a conservative underwriting culture. Nevertheless, broader weakness across certain CRE segments—including NYC rent-regulated multifamily, which represented ~10% of total loans as of 1Q26—warrants close monitoring in the current higher interest rate environment. Although NPAs and NCOs have remained above historical norms in recent years (with the NCO ratio averaging ~0.3% over the past six quarters), we believe this partly reflects management's proactive approach to identifying and resolving problem credits. Some degree of credit-related noise could persist in the near term, particularly given the company's improved earnings profile and willingness to address underperforming credits. Even so, we do not expect any incremental deterioration to materially impair Dime's ability to generate stronger returns over the medium term.

Another notable improvement has been the strengthening of both capital and reserve levels (CET1 ratio of 11.9%; LLR to total loans of 0.95% as of 1Q26), which now track much closer to rated peer averages than in prior years. This has been driven by the company's common equity raise in 4Q24, measured balance sheet growth, and stronger earnings retention. While capital and reserve metrics no longer represent a relative weakness within the rating profile, management appears comfortable operating near current levels, suggesting limited upside. Despite a still-elevated investor CRE concentration (371% of total risk-based capital at 1Q26), we view the current levels as appropriate given the long-term credit track record and loan portfolio diversification efforts.

Rating Sensitivities

Given the Positive Outlook, a rating upgrade is possible over the medium term if DCOM continues to strengthen profitability and reduce concentration risk, while maintaining sound credit performance and fairly stable loss-absorbing capacity. Conversely, a downgrade is not expected, but if unexpected credit issues, more aggressive capital management, or a reversion of its improved liquidity/funding profile were to occur, negative rating action could transpire.

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