KBRA Affirms Ratings for Dime Community Bancshares, Inc.; Revises Outlook to Positive

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 Community Bancshares, Inc. (NASDAQ: 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 Community Bank. The Outlook for all long-term ratings is revised to Positive from Stable.

The revision of the Outlook to Positive from Stable primarily reflects the strong execution of strategic initiatives in recent years, particularly capitalizing on disruption and dislocation across the company’s footprint following area bank failures in 2023. Dime’s management team was opportunistic, leveraging sector headwinds to accelerate strategic objectives to strengthen the balance sheet and financial profile. A key success has been the onboarding of deposit-focused teams, which has significantly improved the liquidity and funding profile, with the company now outperforming peers on most key metrics. Over the past two years, DCOM has added $2 billion in core deposits, with a healthy DDA mix between 35%–40%, which, along with respectable deposit market share in Long Island, has contributed to lower deposit costs than most KBRA-rated peers (2.09% during 1Q24). The inflow of liquidity has also enabled a meaningful reduction in wholesale funding and supported the loan diversification growth efforts, notably within C&I lending.

Dime's ratings are also supported by its long-standing outperformance in credit quality, demonstrated across multiple cycles. Since the onset of the global financial crisis (GFC), the company’s NCO ratio has averaged 15 bps, highlighting its disciplined credit culture. This performance reflects both the resilience of DCOM’s operating markets, which were less impacted during the GFC and remain robust and diverse economies, as well as its conservative underwriting standards, concentrated but lower-risk loan portfolio, and deep knowledge of local borrowers and markets. While the loan book does include exposure to sectors under pressure, such as investor office (excluding medical properties) and NYC rent-regulated multifamily (~16% of total loans collectively), DCOM has reported a minimal level of problem loans, well-contained NCOs, and improving risk ratings; in addition, management has shared a generally optimistic credit outlook. Additionally, we take comfort in management’s stated intention to gradually diversify the loan portfolio and reduce investor CRE exposure, which has already been demonstrated in recent years, including a peak ratio of 555% of total risk-based capital in 2022 vs. 442% currently. Moreover, management is targeting a continued reduction into the low-400% range over time. Should credit pressures emerge, KBRA recognizes the significant improvement in terms of loss-absorbing capacity over the past year, with an improving earnings profile, a growing reserve position, which is expected to continue building toward 0.90%-1.00% of total loans as C&I growth is emphasized (0.83% of total loans as of 1Q25), and stronger capital levels.

Risk-based capital ratios have been trending higher in recent years, supported by net proceeds of $136 million from its common equity raise in 4Q24 and slower loan growth. While still slightly below the rated peer average (CET1 ratio of 11.1% as of 1Q25), we believe ratios are adequate considering Dime’s lower credit risk profile. Moreover, capital ratios track in line with other similarly rated local peers.

Earnings have rebounded following several initiatives, notably the securities portfolio restructuring, and strong core deposit growth (average cost of ~2% on new relationships) that paid down wholesale borrowings and funded higher-yielding C&I growth. As such, NIM has expanded over 70 bps from the trough in 1Q24. Management expects for further widening over the next year from continued loan/deposit growth and back-book loan portfolio repricing, which should drive ROA above 1.0% (core measure of 0.77% during 1Q25).

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