Dime Community Bancshares, Inc.

Hello and welcome to today's Dime Community Bancshares, Inc. second quarter earnings call. My name is Bailey and I'll 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. If you would like to ask a question, please press star followed by one on your telephone keypad. Before we begin, the company would like to remind you that discussions during this call contain forward looking statements. made under the safe-to-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 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, Thank you for joining us today.

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 I 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 a dollar 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 percent annualized versus the prior quarter to almost $2 billion. When we began the year, we expected net loan growth of 4 to 6 percent for 2022. In early June, we revised the guidance to 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 provide 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 five basis points for the quarter, and continues to compare favorably to our local competitors. But the level of VDI on our balance sheet remains a clear differentiator versus other community banks in our footprint. These are, in fact, up $283 million versus the year-ago quarter. The uplift in our loan portfolio rates more than offset the increase in our cost of deposits, contributing to the linked quarter margin expansion. Our core efficiency ratio this quarter was 46%, and for the year we've operated at 48%. Again, within our stated goal of operating a sub-50% efficiency ratio, regardless of the prevailing environment. Our asset quality remains strong, with NPAs representing only 30 basis points of total assets. Despite the growth in loans, our loan loss provision for the quarter was fairly immaterial. The provision for growth was largely offset by improvement in the reserves on loans which came on as part of our merger transactions. Like everyone else, we are vigilantly watching for any signs of deterioration in our local economies, and thus far we've not seen any meaningful early warning indicators of credit concerns within our portfolio. As you know, we are primarily a secured lender with conservative underwriting standards. Our credit losses have been well below the bank index over multiple cycles. Underpinning our strong historical credit performance has been our bulletproof multifamily portfolio that has come through every cycle unscathed including the COVID-induced shutdown of New York City. The LTV on our multifamily portfolio, which represents 38% of loans, is approximately 55%. This portfolio will clearly outperform in any recessionary environment. Similarly, the LTV of our Manhattan office portfolio, which represents only $123 million of balances, is only 51%. Again, very well secured and monitored. Turning to capital, In the month of May, we successfully issued $160 million of sub-debt at a rate of 5%. While it was a challenging environment for the capital markets, we were pleased to get our insurance done. We subsequently used the proceeds to redeem two legacy debt instruments. Similar to the rest of the banking industry, we did see the impact of rising rates on the fair value of our AFS securities portfolio, which contributed to a $27 million decline in AOCI. Despite this, tangible book value per share increased by 2 cents for the prior quarter. Importantly, our regulatory capital ratios remain strong. Our Tier 1 leverage ratio increased by 6 basis points in the quarter and stands at a healthy 8.71%. As we've said before, a low-risk balance sheet, which performs favorably in stress testing, has provided us the opportunity to be active on the capital return front. During the second quarter, we increased the pace of our stock buyback and repurchased $22 million worth of stock. In the month of May, our board authorized a new share repurchase plan, and we continue to be an active purchaser for our stock. To conclude my prepared remarks, we had a strong quarter, and our year-to-date core return on assets was 1.24%, providing good visibility into the earnings power of our company. As mentioned in our press release, I'd really like to thank our entire employee base for their daily efforts in furthering our goal of being the premier business bank in our footprint. In this regard, it's especially gratifying to have our CRA rating upgraded by our regulators to an outstanding designation. This quarter's results make me even more excited for Dom's future. We have a tremendous opportunity in front of us as a pure-play community commercial bank highly focused on being responsive to our customers' needs. At this point, I'd like to turn the conference call over to Avi, who provides some additional color on our quarterly results, as well as our expectations for the rest of 2022.

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 329. The net accretion balance from purchase accounting currently stands at approximately $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 grew 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 five 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 lagged 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 costs is a repricing opportunity on our loan portfolio. As you would expect, given the current interest rate environment, we are proactively managing our loan pricing. The rate on new loans that are in various stages of closing is approximately $425, and new additions to the pipeline are in the $450 to $475 area. This is significantly higher than our existing portfolio rate at June 30th of $395. Core operating expenses excluding loss and extinguishing of debt, severance expense, and intangible amortization for the second quarter came in at $48.5 million. Expenses on a year-to-date basis have been in line with our expense guidance for the full year. Non-interest income for the second quarter was approximately $12.1 million. Included in non-interest income was $2.2 million of BOLI income related to mortality proceeds from a debt claim. As we mentioned on our first quarter earnings call, After a slow start to the year, we were expecting a pickup in fees from our SBA division and from our back-to-back loan swap program in the second quarter, both of which came to fruition. Moving on to credit quality, our provision for the quarter was $44,000. Basically, the provisioning on the loan growth was offset by improvements in our individually analyzed PCD loans. As we have mentioned before, a meaningful portion of our reserves is contained within individually analyzed loans as part of our merger-related accounting. The reserve level on these loans improves this quarter as credit quality on this subportfolio has been better than what we projected at the time of the merger. When looking at our individual core loan segments, our wonderful family portfolio is reserved at approximately 55 basis points, our multifamily portfolio is reserved at approximately 20 basis points, our pre-portfolio at approximately 50 basis points, and our C&I portfolio at approximately 1%. Assuming no change to the Moody's forecast, these portfolio level reserves should serve as a guide for future provisioning on net loan growth. For reference, we use the Moody's June forecast and our models incorporate both the Moody's baseline scenario as well as the Moody's downside S4 scenario. Our existing allowance for credit losses of 82 basis points is still above the historical pre-pandemic combined levels of the legacy institutions. During the second quarter, we bought back approximately 717,000 shares at $31.91. We believe share repurchases continue to be attractive given our trading levels, our organic prospects, and strong balance sheet that performs favorably under stress testing. We will continue to manage our balance sheet efficiently, and our tangible equity ratio of 802, including the full impact of AOCI, and 855, excluding the impact of AOCI, is within our comfort zone. As Kevin noted, our Tier 1 leverage is very strong at 871. Now let's turn over to guidance and targets. We are again increasing our loan growth guidance for calendar year 2022 to approximately 6% to 8%, excluding PPP. This would equate to spot balances at year end, excluding PPP, of between $9.7 billion and $9.9 billion. We are pleased with our performance at the halfway point of the year and expect to build on the pipelines and momentum we have created thus far. As you know well by now, we don't provide quarterly quantitative NIM guidance. We do want to provide you some directional perspective. Based on the current market expectation for rate increases in 2022 and then some rate cuts after, we see the NIM being approximately 335 by the middle of 2024. As Kevin mentioned, NIM prioritization is a firm-wide focus for us. Given the day count convention we use, we expect the NIM to be impacted by a few basis points in the third quarter, and we also expect prepayment fees, which have been contributing approximately five basis points to the margin, for the first and second quarter of 2022 to start drying up. In the second quarter, we had a small recapture of interest income from prior non-accruals, and this is also not expected to continue. In addition, our deposit betas will pick up in the second half of the year. All that being said, as the impact of rate increases work their way through the loan portfolio and we reprice into a higher rate for originations, we expect the margin to get to 335 by the middle of 2024. We are reiterating our full year guidance for core cash non-interest expense, excluding intangible amortization, to be between 197 million and 199 million. This quarter, we had a $2 million benefit to the non-interest income line item from a BOLI claim. Excluding the impact of this, our year-to-date non-interest income would have been $17 million. As we mentioned previously, the impact of the Durbin amendments will kick in starting the third quarter of this year. We continue to expect full-year non-interest income, excluding the previously mentioned BOLI benefit, to be within our $33 million to $34 million guidance. Finally, with respect to the tax rate for the remainder of 2022, we expect it to be approximately 28%. With that, I'll turn the call back to the operator for questions.