Hello, and welcome to today's Dime Community Bancshares Incorporated Second Quarter Earnings Call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions]. 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 other factors that may cause actual results to differ materially from those contained in any such statements including and set forth in today's press release and the company filings with the U.S. Securities and Exchange Commission to which we'll 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. The information about these non-GAAP measures and for reconciliation to GAAP, please refer today's earnings release. I would now like to pass the conference over to our host Kevin O'Connor, CEO of Dime Community Bank. Kevin, please go ahead.

Thank you, Bailey, and thank you all for joining us this morning for our second quarter earnings call. With me today are Stu Lubow, our President and COO; and Avi Reddy, our CFO. I'm excited to discuss our second quarter results as they believe they provide a clear illustration of the earnings potential of Dime and the quality of our execution. I'd like to give full credit to each of our 800 plus employees on delivering record growth in loans and earnings, which excluding one-time items were in excess of $1 per share. Capitalizing on the strong loan pipelines we've discussed on prior calls, the loan growth was broad-based across all major categories. Especially pleasing was the growth in business loans, which were up 17% annualized versus the prior quarter to almost $2 billion. When we began the year, we expected net loan growth of 4% to 6% for 2022. In early June, we revised the guidance at the top end of this range. Given our continued strong pipelines and the traction of our recent hires, we are now comfortable increasing the loan growth guidance again to 6% to 8%. Stu I'm sure can divide more color on the current pipeline and the mix in our Q&A section. Apart from strong loan growth, we continue to execute well on our strategic plan priorities, managing our cost of funds, prioritizing NIM expansion, prudently managing expenses, and maintaining solid asset quality. Cost of deposits was up only 5 basis points for the quarter and continues to compare favorably to our local competitors. But the level of DDA in our balance sheet remains a clear differentiator versus other community banks in our footprint. These are in fact up $283 million versus a year ago quarter. The uplift in our loan portfolio rates more…

Thank you, Kevin. Our reported net income to common for the second quarter was $36.7 million. Excluding the impact of loss on extinguishment of debt and severance expense, adjusted net income to common would have been $39.3 million or $1.01 per share. The reported NIM and the adjusted NIM for the quarter was 3.29%. The net accretion balance from purchase accounting currently stands at approximately at $1.9 million. While purchase accounting accretion was fairly immaterial this quarter, as mentioned previously, there could be some lingering impact on the income statement in the future, depending on payoff activity on premium and discount loans. We lose spot period end deposits by approximately $135 million in the second quarter, while keeping our cost of deposits relatively well controlled. The average cost of deposits increased by 5 basis points compared to the first quarter. The spot rate on deposits at quarter end was approximately 24 basis points. While we were pleased that our deposit betas significantly lag the level of fed funds increases in the second quarter, given the rapid pace of rate increases, we do expect deposit betas to increase from the low levels seen in the second quarter. Offsetting future increases in deposit cost is the repricing opportunity on our loan portfolio. As you'd expect given the current interest rate environment, we are proactively managing our loan pricing. The rate of new loans that are in various stages of closing is approximately 4.25% and new additions of pipeline are in the 4.50% to 4.75% area. This is significantly higher than our existing portfolio rate on at June 30 of 3.95%. Core operating expenses excluding loss on extinguishment of debt, severance expense and intangible amortization for the second quarter came in at $48.5 million. Expenses on the year-to-date basis have been in line…

Thank you. [Operator Instructions]. The first question today comes from the line of Mark Fitzgibbon from Piper Sandler. Please, go ahead. Your line is now open.

Hey guys. Good morning and nice quarter.

Good morning, Mark.

Good morning, Mark.

First question I had. Avi, I missed what you said about the margin being impacted by a few basis points in the third quarter. Could you just clarify what that -- why that was?

Yes, we -- the overall comments, Mark, on the margin is, we don't provide quarterly guidance. But, in general, the day count convention, that's the diming of this, we typically see the Q1 margins, being higher just given the fewer number of days in that quarter. We also just mentioned prepayment fees, which have been around 5 basis points on the margin, for the first and second quarter of this year, we expect that to dry up, going forward, just given the fact that, we have payoff that's probably going too slow. We've also seen deposit costs be very moderated so far. That being said, at some point, deposit costs are going to go up. Our spot rate was 24 basis points on deposits at June 30. I mean that being said our loan rates was 4 or 5, at the end of the quarter, currently actually to 10 basis points up. So you put all that together, on an individual quarter the margin maybe up, maybe down. But our real guidance is, when you exclude some of these one-time items we had a little bit of non-accrual interest recapture this quarter which is a couple of basis points as well. But stripping all that stuff out, the margin is going to expand going forward, in the medium term and we do expect it to get to around 3.35% by the middle of 2024. We're also probably guiding the higher average interest earning balances just given the loan growth is higher. So you put that all together, the net interest income guide is, is, definitely higher than what it was probably the last time around.

Got you. And then on the deposit front, it looked like you had kind of a big swing out of money market account balances into savings. Was there a promotion or something that, that that kind of drove that or anything there?

Yes. No. Just managing customers via rate. I mean, basically savings and money market are the same product. I mean, with some of the regulations out there on the savings account, you can do unlimited number of transactions right now. So it's just managing customers in the individual products, and just managing our cost of deposits. So as we see the cost of deposits only 5 basis points, it's not really significant amount of promotion. We kind of stayed away from any promotional money markets at this point in time and just getting customers and the right product for us.

Mark, that's really a change into business savings account. So -- and we really were managing the individual customer relationships as opposed to changing the base rate on the entire money market portfolio.

Okay. And Stu, what are the -- what's the loan pipeline size at the end of the quarter?

Right now, it's about $2.7 billion. The yield on that portfolio is $4.64 the weighted average rate on what's in the pipeline today is about $4.64.

Okay. And then last question I had is, I think the CRA to risk-based capital ratios, I think 534%, how much higher are you comfortable letting that go?

Yes. Mark. I mean, generally we'd like to be high 400, low 500; we're pretty comfortable with where it is right now. Obviously, we've bought back a lot of our stuff because we believe it's very cheap. We do see significant growth in our C&I portfolio. Stu can talk a bit about how the pipeline is weighted towards C&I credits. We really focused on doing owner occupied loans. I mean, that being said, look, our company has a long history of being over 300%. We do a significant amount of stress testing. We get approvals from the Fed every time we do. We do a buyback and we're -- they're very comfortable with our concentration and it comes down to credit quality at the end of the day and our credit quality has been pretty pristine through the current cycle and prior cycles.

Thank you. The next question today comes from the line of Manuel Navas from D.A. Davidson. Please go ahead. Your line is now open.

Hey, just adding to questions about deposit trends. I get a little bit of a mix shift away from DDA. Anything just to add there, and still what you're still above here, there, but just kind of any color to add on that shift.

Yes, Manuel, not much of a change. I mean looking at spot balances is pretty hard. I really point you to the year-over-year increase in DDA. There's a lot of seasonality. We do have some municipal deposits. I mean we actually grew business deposits by around $150 million on a year-to-date basis. We've seen some minor outflows in consumer overall, but we are trying to be more competitive on rate as rates do go up. So really nothing there to be concerned about. We do see us growing DDA over time and all our internal plans are still based on growing DDA. And obviously, as rates keep going up, you have some customers that and you've heard this from a lot of our -- your banks, looking to take idle cash and putting in -- putting it into treasuries to some extent. But beyond that, our portfolio is pretty granular and we feel pretty good with where we are.

Yes. And looking at the loan pipeline, we have about $500 million in C&I business in the pipeline about two-thirds of that is new business. So we would expect that deposits would be garnered once those loans are closed and we open the operating account. So we feel pretty comfortable that we can continue to enhance and grow our business DDA going forward.

That's helpful.

Yes, Manuel, quick -- one other clarification. We do payout our escrow deposits at the -- at the end of the first half of the year and the end of the year. So when you optically look at the end of Q1 versus Q2, it's always going to be lower we do payout of escrow deposits. Got it.

That's at the end of 2Q or at the end of 1Q?

At the end of 2Q. We pay -- people really pay taxes get paid in the second quarter. So that comes out of the escrow balances.

Okay. Perfect. And one little clarification on the fee guidance. Did I hear you right that you were including the $2.2 million fully debt benefit in the fee guidance for the year?

No.

Excluding it.

Oh, you were excluding. Perfect. And then it was nice to see that the SBA fees and swaps bounced back up. Any change to budget there for the year?

No, I think the way we look at those two businesses are, you got to look at it over a multi-quarter time horizon. So I mean our annual run rate, you take the first half there. We feel the SBA business was like in Q1, our team was very busy with PPP and forgiveness. And so we feel that the SBA that's a pretty good run rate going forward, $750 to $1 million plus or minus obviously premiums have come down a bit in that business, but our team is growing and we feel very comfortable with that. And then on the swap product, you look there's a minimum amount of swap fee revenue we'd like to generate every quarter. We like the subordinated assets that it provides. And so constantly adjusting pricing on that product to get our fee income and our ALM profile to where we need. In the long run, that should be $4 million to $5 million annual run rate business for us. Obviously, Q1 couple of transactions flipped over into Q2, but overall, we're pretty happy with our performance first half, Manuel.

Thank you. The next question today comes from the line of Matthew Breese from Stephens. Please go ahead. Your line is now open.

Good morning, everybody. I wanted to touch on multifamily, growth this quarter were stronger than we've seen in quite some time. I'm curious just what happened there, was it a slowdown of prepay and continued originations or did you find the rate characteristics of it -- of that product better this quarter? Just some color there and maybe some specific outlook on how that can proceed from here.

I think you answered the question.

Yes. Well, but just to give you a little bit, so first of all the multifamily is a bit gross stuff because we had about $70 million of construction multifamily go permanent. So those were loans that were already in the book. The construction was completed. They were fully leased up and they converted to permanent multifamily loans. The other is you're right. Prepays were down a bit. And we did have a hangover from the first two quarters, the first part of the year in terms of the pipeline. Today, total application in the multifamily portfolio is about $55 million. And the rate is about $4.75. So we're really not focusing on that. We priced it up. We are basically now looking at multifamily more in terms of servicing our existing relationships in that business, but really not -- because our pipeline is so strong, really not out there in the market chasing product, although rates have improved dramatically, current rate in the market is probably in the 4.75% to 5% range. But we have significant pipeline in the other categories particularly C&I and an owner-occupied. And so it's really a kind of a hangover from an existing pipeline. Prepayment slowdown and some gross up because we had a transfer of $70 million odd to from a construction portfolio went to the permanent portfolio. Okay. So you liked it.

Hey, Matt, just one other point though. Hey Matt, just one other point, you go back to the time, the balance sheet came together go back to March of 2021, our multifamily book was $3.6 billion then it's basically $3.6 billion now. So you got -- you had a lot of payoffs, the time and we're just back the same dollar balances at the time of the model [ph] really.

Got it. Okay. I mean I was trying to translate what happened this quarter and maybe get a good read on the increased loan growth guidance. Was it due to increased ability to generate multifamily? It sounds like it's more C&I commercial real estate and more activity there. Is that an accurate read?

That's correct.

Yes. Okay. And then Avi, you mentioned a couple of times that your expectations and not unreasonable is that deposit betas will pick up here at some point, obviously your beta cycle, that date has been excellent. I'm curious when you talk about deposit betas accelerating, what does it mean for you just given the level of non-interest bearing it could be better than peers, would expect it to be just curious how you think about it.

Yes. I think so the spot rate matters at quarter end it was 24 basis points. The rate on deposits today is 27. So even assuming no change between now and the end of the quarter, we're going to see, a double-digit increase in deposit cost, for next quarter, and all that's equal holding it flat, I mean, that's if the Fed raised rates more. I think the one thing we all need to wait and see is, and you probably know this from some other banks, at some point, deposit costs are going to get into the system. We've lagged so far and we continue to lag, but, based on models and based on we've seen historically, we're trying to be conservative there. I think, the other piece is, our loan growth guidance, right. So we've gone from 4% to 6%, to 6% to 6% to 8%, so we see a lot of demand there. And if you're going to grow the balance sheet more on the margin, you're going to have to pay up for some deposits, over time. So I think keeping that all in mind, when we initially came out, we said, we thought deposit betas would be 20% to 25% this cycle. If you ask us now, it's probably, 25% it's probably our best guess in terms of, where we end up. So I think we're going to do better than our local peers for sure. But that said, we're in a competitive market and we're going to see, where we need to be on deposit cost.

Got it. Okay. And then, Kevin, I think in the past you've talked about longer term, maybe by that 2024 area, you can get to that 1.25 type ROA, looking at this quarter's results maybe you get there faster than you initially thought. Maybe some thoughts around your ability to achieve that sustainably in the near-term or exceed that profitability target? Just in general, thoughts there?

Well, I mean, I think, I'll be listening it builds up the margin, so the discussion about the margin, as that -- how that impacts it, but we still feel comfortable the 1.25 is really where we can sustainably run the organization.

Got it. Okay. And then any update on M&A, activity, discussions, willingness to participate in this kind of market?

As you can see what we've accomplished this quarter, the focus really is growing on what we have. I think the -- that would be a distraction that would take us away. I mean I think, people sitting on this table and the employees we have listening on the phone are excited to what we're doing every day and how this company is coming together. So I think that's going to be the focus. Those are the opportunities in front of us. We keep bringing on some new people to increase the loan portfolio. The systems are getting better. The processes are getting better. I'm excited about what we can do, organically.

Thank you. [Operator Instructions]. The next question today comes from Chris O'Connell from KBW. Please go ahead. Your line is now open.

Hey good morning. So just wanted to circle back on the deposit commentary. One is, I mean, do you guys have a sense of, where you think -- or I guess, in your modeling, where deposit betas are going to be over the course of this trading cycle?

Yes. Chris, I think you know from the start of the cycle, probably 25% is probably our best guess at this point. I think that being said, model is a model, it's only as good as, the assumptions in there. And I think, the pace of increases this quarter has been faster than what anybody thought. I think on the flip side though, it's really about having DDAs managing that, growing that, and then replacing your loan portfolio. So it's not a one-sided equation. So I think if deposit betas are going to be higher, we're going to see higher loan betas as well over time. So we feel pretty comfortable with the overall NIM getting to 3.35%, in a couple of years and managing, around that, as it relates to deposits and loan growth and loan mix.

Okay. Got it. And further, NIM on the 3.35%, how does that change, even if you don't do in numbers directionally, if there's no cutting in the back half of 2023?

Not, it doesn't change much because I mean our assumptions are for middle of 2024 and, by the time, you cut rates it takes a while for it to go through the system. So not much of a change at that point in time.

Okay. And then just going into, I think, you probably have pretty good welcome this next quarter or so. But as we move into 2023, how are you guys thinking about, your deposit growth and core customer growth? I know it's underlying growth, it sounds like, you feel good about right now. I mean, was there -- was there another shift to, kind of, locking rates and utilized CDs little bit more and, how are you thinking about, kind of, long-term deposit growth, given the tightening conditions?

Yes. I think for now we're pretty comfortable with our liquidity position. We're also comfortable taking the loan to deposits between 95% and 100%. Historically, that's been a fine number for us to run our liquidity. In multifamily, it's a pretty fast cash growing assets in most times. And so we feel comfortable, growing loans a bit quicker than deposits in the -- in the near to medium term. I think at the end of the day, it's about just managing the balance sheet at the lowest cost for the medium term and not damaging the franchise, in the near term, in terms of the rate setting. So I think it's going to be a function of how quickly we grow loans. And as Stu said, with more C&I business coming online, there's more deposits coming online with that. We have our own issues here at the bank, we're very focused on that. We have multiple different deposit gatherers, who are just 100% focused on deposit. So, look I think at the end of the day it's keeping, it's not repricing the base and waiting as long as you can and hopefully we don't have to do that. There are going to be some customers who have -- who have a lot, a lot of loan balance and deposit balances that we need to pay up for overtime. But I think I think, over time, we feel pretty good about our liquidity position. We have ample room to borrow if we needed to. We've not tapped that, like a few other banks in our footprint. So I see overall, it's still about growing DDA. And my earlier comment was we've grown business deposits by $150 million year-to-date and we need to still keep doing that. The consumer book at our bank, it used to be 40%, 45% of the overall portfolio when we combine both legacy institution. That's down to probably 33% rate now. At some point that's going to level off. And I think once that levels off, you're going to see some additional growth in the deposit book as business becomes a bigger and bigger part of the overall type.

Great. Those were helpful. And then, last one for me is, just in terms of like credit quality and opportunities that you guys are seeing in the market on the loan side, where are you seeing the most attractive opportunities today? And what categories are you being the most cautious on?

Well, we -- obviously, we're seeing a lot of business from some of our new teams. And also our existing teams in the C&I world, obviously taking business from larger institutions and those that have been through mergers and have experienced disruption, we're seeing a lot of opportunity there. Our owner-occupied portfolio tied into the C&I business as well, has a nice pipeline in place today. And the CRE investment as well. Well, we are not really involved with this retail and office space. We don't have a big portfolio in that today and we're really staying away from that. So from a credit standpoint, we're very careful. Our average LTV on the entire CRE portfolio is 57%. What we're seeing today is not much different from that. We're in the 60% to 65% on new deals. Back in the first quarter February timeframe, we upped our stress testing on our underwriting. We basically increased qualifying rates by 1% over current rates and we're still doing that and then stress test it from there. So we feel pretty comfortable from a credit perspective. And the areas that were many people might be concerned about, maybe office building, Manhattan office, retail, we've stayed away from historically and we continue to do so.

Thank you. The next question today is a follow-up question from Manuel Navas from D.A. Davidson. Please go ahead. Your line is now open.

Hey, just following up on that some of the competition commentary. Are you seeing any specific offers in market on deposit rates or is it just anticipated deposit rate increases and also on the loan side, we've seen pushback on pricing. So kind of speak to both sides on competition a little bit.

Yes. I’ll speak on the deposit side. I mean in general, our competitors have been pretty rationale. Some of the larger mergers that have taken place, it's really two rationale competitors entering our market. So not really seen a lot on the deposit side, obviously there are some customers just looking at the treasury market and they can get 2.5%, 3% on treasuries, that that's a different type of discussion from -- but from the banks in general, it's pretty rationale.

Yes. And on the loan side, we're really not seeing a lot of pushback. We're winning deals with the rates that our rack rates and we're looking at that daily, if not weekly. And so the pushback has not been there. Activity has been robust. So I think everything's pretty rationale. And pricing gets out of whack, we're not following the market down. So we're very disciplined on our pricing.

Thank you. There are no further questions registered at this time. So I'd like to pass the call back over to Kevin O'Connor for closing remarks.

Well, I just want to thank everybody for your interest in the company, taking the time to participate today, enjoy the question-and-answer and the dialogue back and forth. And everybody, have a great weekend.

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