Earnings Call Transcript - DCOM Q2 2022

Operator, Operator

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. 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. For more information about these non-GAAP measures and for reconciliation to GAAP, please refer to 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.

Kevin O'Connor, CEO

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 $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 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 5 basis points for the quarter and continues to compare favorably to our local competitors. 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 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 was 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 that came on as part of our merger transaction. Like everyone else, we are diligently 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 robust 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 over 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 subordinated debt at a rate of 5%. While it was a challenging environment for the capital markets, we were pleased to get our issuance 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 $0.02 from 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 active in purchasing 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 for our company. As mentioned in our press release, I would 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 about Dime'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 to provide some additional color on our quarterly results as well as our expectations for the rest of 2022.

Avi Reddy, CFO

Thank you, Kevin. Our reported net income to common for the second quarter was $36.7 million. Excluding the impact of the 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 $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 observed a decrease in 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 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 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 to the pipeline are in the 4.50% to 4.75% area. This is significantly higher than our existing portfolio rate on 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 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 death 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 loan growth was offset by improvements in our individually analyzed PCD loans. As we have mentioned before, a meaningful portion of our reserve is contained within individually analyzed loans as part of our merger-related accounting. The reserve level of these loans improved this quarter as credit quality on this top portfolio has been better than what we projected at the time of the merger. When looking at our individual core loan segments, our one-to-four family portfolio is reserved at approximately 55 basis points, our multifamily portfolio is reserved at approximately 20 basis points, our CRE 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. To 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 8.02, including the full impact of AOCI, and 8.55 excluding the impact of AOCI is within our comfort zone. As Kevin noted, our Tier-1 leverage is very strong at 8.71. Now, let's start 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 qualitative 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 3.35% by the middle of 2024. As Kevin mentioned, NIM prioritization is a firm-wide focus for us. Given the day count convention, we expect the NIM to be impacted by a few basis points in the third quarter. We also expect pre-payment fees that have contributed approximately 5 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 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 works their way through the loan portfolio and we re-price into higher rate originations, we expect the margin to get to 3.35% by the middle of 2024. We are reiterating our full-year guidance for core cash non-interest expenses 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've mentioned previously, the impact of the Durbin Amendment 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.

Operator, Operator

Thank you. The first question today comes from Mark Fitzgibbon from Piper Sandler. Please go ahead. Your line is now open.

Mark Fitzgibbon, Analyst

Hey guys. Good morning and nice quarter.

Kevin O'Connor, CEO

Good morning, Mark.

Avi Reddy, CFO

Good morning, Mark.

Mark Fitzgibbon, Analyst

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 why that was?

Avi Reddy, CFO

Yes, the overall comments, Mark, on the margin is, we don't provide quarterly guidance. But, in general, the day count convention, 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 to 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 were 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 may be 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 definitely higher than what it was probably the last time around.

Mark Fitzgibbon, Analyst

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 drove that or anything there?

Avi Reddy, CFO

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 an 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 a significant amount of promotion. We kind of stayed away from any promotional money markets at this point in time and just getting customers into the right product for us.

Stu Lubow, President and COO

Mark, that's really a shift in business savings accounts. We were focused on managing individual customer relationships rather than adjusting the base rate on the entire money market portfolio.

Mark Fitzgibbon, Analyst

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

Stu Lubow, President and COO

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.

Mark Fitzgibbon, Analyst

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?

Avi Reddy, CFO

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 stock 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 focus on doing owner-occupied loans. That being said, 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 a buyback, and they are 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.

Operator, Operator

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.

Manuel Navas, Analyst

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.

Avi Reddy, CFO

Yes, Manuel, not much of a change. I mean looking at spot balances is pretty hard. I would 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. Obviously, as rates keep going up, you have some customers that, and you've heard this from a lot of your banks, looking to take idle cash and putting it into treasuries to some extent. But beyond that, our portfolio is pretty granular and we feel pretty good with where we are.

Stu Lubow, President and COO

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.

Manuel Navas, Analyst

That's helpful.

Avi Reddy, CFO

Yes, Manuel, just a quick clarification. We pay out our escrow deposits at the end of the first half of the year and at the end of the year. Therefore, when you compare the end of Q1 to Q2, the figures will always appear lower due to the escrow deposits being paid out.

Manuel Navas, Analyst

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

Kevin O'Connor, CEO

At the end of the second quarter, we pay taxes, which comes out of the escrow balances.

Manuel Navas, Analyst

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?

Avi Reddy, CFO

No.

Kevin O'Connor, CEO

Excluding it.

Manuel Navas, Analyst

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?

Avi Reddy, CFO

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. So we feel that the SBA that's a pretty good run rate going forward, $750,000 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. 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. So we are 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 a $4 million to $5 million annual run rate business for us. Obviously, Q1 had a couple of transactions flipped over into Q2, but overall, we're pretty happy with our performance in the first half, Manuel.

Operator, Operator

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

Matthew Breese, Analyst

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 that product better this quarter? Just some color there and maybe some specific outlook on how that can proceed from here.

Avi Reddy, CFO

I think you answered the question.

Stu Lubow, President and COO

Yes. Well, but just to give you a little bit, so first of all, the multifamily is a bit of a growth spurt because we had about $70 million of construction multifamily go permanent. 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. 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 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. We have significant pipeline in the other categories, particularly C&I and owner-occupied. 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 from a construction portfolio to the permanent portfolio.

Avi Reddy, CFO

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 had a lot of payoffs at the time and we're just back to the same dollar balances at the time of the model.

Matthew Breese, Analyst

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?

Kevin O'Connor, CEO

That's correct.

Matthew Breese, Analyst

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.

Avi Reddy, CFO

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 what 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. 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 thought deposit betas would be 20% to 25% this cycle. If you ask us now, it’s probably 25% is 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.

Matthew Breese, Analyst

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?

Kevin O'Connor, CEO

I believe that we are focused on improving our margins and how that will affect our overall performance. However, we remain confident that a return on assets of 1.25 is a sustainable target for running the organization.

Matthew Breese, Analyst

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

Kevin O'Connor, CEO

As you can see what we've accomplished this quarter, the focus really is growing on what we have. I think that would be a distraction that would take us away. I mean I think, people sitting at this table and the employees we have listening on the phone are excited about 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 improving. I'm excited about what we can do organically.

Operator, Operator

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

Chris O'Connell, Analyst

Good morning. I wanted to follow up on the discussion about deposits. Do you have any insight or expectations regarding where deposit betas will be throughout this trading cycle?

Avi Reddy, CFO

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. 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. 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.

Chris O'Connell, Analyst

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?

Avi Reddy, CFO

Not, it doesn't change much because I mean our assumptions are for the 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.

Chris O'Connell, Analyst

Okay. As we look ahead to the next quarter, how are you approaching your deposit growth and core customer growth as we move into 2023? It seems like you feel positive about the underlying growth right now. Is there a shift toward locking in rates and using CDs more, and how do you view long-term deposit growth considering the tightening conditions?

Avi Reddy, CFO

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 asset most times. We feel comfortable growing loans a bit quicker than deposits 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. 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 are focused on that. We have multiple different deposit gatherers who are just 100% focused on deposit. At the end of the day, it's still about growing DDA. My earlier comment was we've grown business deposits by $150 million year-to-date, and we need to keep doing that. The consumer book at our bank used to be 40%, 45% of the overall portfolio when we combine both legacy institutions. That's down to probably 33% 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.

Chris O'Connell, Analyst

Great. Those were helpful. And then, last one for me is just in terms of 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?

Kevin O'Connor, CEO

We are witnessing significant business from both our new and existing teams in the Commercial and Industrial (C&I) sector, particularly as we capitalize on opportunities created by larger institutions that are undergoing mergers and experiencing disruptions. Our owner-occupied portfolio associated with the C&I business has a strong pipeline. Regarding Commercial Real Estate (CRE) investment, we are not active in the retail and office space, as we do not hold a substantial portfolio in that area, and we are intentionally avoiding it. From a credit perspective, we maintain caution, with an average Loan-To-Value (LTV) ratio of 57% across our entire CRE portfolio. Currently, new deals fall within the 60% to 65% LTV range. In the first quarter, around February, we enhanced our stress testing during underwriting by increasing qualifying rates by 1% above current rates and continuing to stress-test from that. As a result, we feel confident about our credit position. We have historically avoided sectors that might raise concerns, such as office buildings, particularly in Manhattan, and retail, and we plan to maintain this cautious approach.

Operator, Operator

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.

Manuel Navas, Analyst

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.

Avi Reddy, CFO

Yes, I’ll address the deposit side. Generally, our competitors have been quite reasonable. The recent larger mergers involve two rational competitors entering our market. Therefore, we’re not observing much activity on the deposit front. Of course, some customers are considering the treasury market, where they can earn 2.5% to 3% on treasuries, which is a different discussion. However, among banks in general, the behavior has been quite rational.

Stu Lubow, President and COO

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. So the pushback has not been there. Activity has been robust. I think everything's pretty rational. When pricing gets out of whack, we're not following the market down. So we're very disciplined on our pricing.

Operator, Operator

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.

Kevin O'Connor, CEO

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.

Operator, Operator

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