Investors Bancorp, Inc.
Q3 2014 Earnings Call Transcript

Published: 31 Oct 2014

[Operator:]

Good morning, and welcome to the Investors Bancorp Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Thomas Splaine Jr., Please go ahead.

[Thomas F. Splaine:]

Thank you, Amy, and good morning, everyone. I'm Tom Splaine, Senior Vice President, Chief Financial Officer, and we'll begin this morning's call with our forward-looking statements disclosure. On this call, representatives of Investors Bancorp may make some forward-looking statements with respect to our financial position, our results of operations, business and prospects. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Investors Bancorp's control and are difficult to predict and can cause our results to materially differ from those expressed or forecasted in these forward-looking statements. In our press release and in our earnings release, we have included our Safe Harbor disclosure. We refer you to that statement, and these documents are incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the section entitled Risk Factors and Management Discussion and Analysis of Financial Conditions and Results of Operations set forth in Investors Bancorp's filings with the SEC. And now, I'd like to turn the call over to our President and CEO, Kevin Cummings; and our Senior Executive Vice President and Chief Operating Officer, Domenick Cama.

[Kevin D. Cummings:]

Thanks, Tom, and good morning. Happy Halloween, everyone, out there. It's Halloween, we're a little bit late this year because of the timing of the -- of our board meeting, which is the fourth Tuesday. Investors had another strong quarter, as we posted record earnings of $39 million for the quarter compared to net income of $29.3 million for the 3 months ended last year, September 30. This increase in earnings represents a 33% increase from the prior year, and also, it reflects a 10% increase in core earnings from the second quarter. Our core earnings in the second quarter reflected the onetime expenses previously disclosed, relating to our second step, totaling $20.5 million net of tax and relates to our contribution to the foundation -- to the investors foundation and also the acceleration of our vesting of our stock benefit plans while we were in MHC. Year-to-date, core earnings are $109 million for the 9 months versus $84.5 million in 2013, a 29% increase year-over-year. This marks our 27th consecutive quarter of greater than 15% increases in core earnings for the quarter year-over-year. We are happy to report EPS is up 10% at $0.11 per share from the second quarter, and we declared our normal quarterly dividend of $0.04 per share. Our net interest margin was 3.27% for the quarter versus 3.28% in the second quarter and 3.36% in the first quarter of this year. For the third quarter of 2013, net interest margin was 3.38%. Prepayment penalties were $4.3 million for the quarter ended September 30, '14 versus $4.8 million in the previous quarter, June 30, '14. Our net interest margin come tough for the quarter, as we continued to invest the proceeds of the second step into commercial loans, which grew 6.5% from June quarter end. Those loans now exceed $8.1 billion, and commercial loans now comprise 56% of total loans. Net interest income is up year-over-year $27.4 million and represents a 25% increase from 2013 for the 3 months period ended the third quarter. Our asset quality remained strong with non-accrual loans at 81 basis points versus 78 basis points last quarter and 95 basis points at September last year. Our ORE was reduced for the quarter to $5.7 million from $8 million at June 30. At the end of September, these properties represent 45 units and are mainly properties acquired through acquisition. The Investors Bank portion of this portfolio represents $1.2 million in 9 properties. It should be noted that over the last 6 quarters, we have recorded gains on sale of ORE of close to $2.3 million, and we'll continue to move these assets through the system. The biggest portion of our NPAs or NPLs is in the residential loan portfolio, and that's mainly due to the time it takes to get possession of the properties here in New Jersey and the Northeast. It should be noted though, that 31% of these residential NPLs relate to our service by others portfolio and our loans purchased from other banks years back, and it's a business that we are not currently active in and have greatly reduced in recent years. The average loan in our non-performing portfolio in that residential portfolio is under $225,000. So I guess the point here is that these loans are not significant. We've retaken our marks on them, and we're moving them through the system, with respect to the judicial system, as best we can. On the commercial side, non-accrual loans increased $1.2 million and consists of 40 loans, for approximately $30 million or 37 basis points. That's less than 40 basis points of total commercial loans. As mentioned on our second quarter call, the one large loan is for $10 million, which is under contract but has not been closed. We tried -- we thought we were going to get it done in third quarter, but it is expected to close before year end. And that's on the land loan that's been on the books and under the forbearance agreement since 2008 when it was originated. No loss is expected on this transaction. The remaining 39 loans average under $800,000 and consist of only 5 loans originated by Investors Bank for approximately $3 million. The remaining $17 million in loans were acquired through our recent acquisitions, and we are currently evaluating those assets for a possible bulk sale in the fourth quarter or early next year. Our allowance coverage ratio to non-accrual loans was 165%, and the allowance to total loans was 1.33%. Our provisioning for the quarter exceeded net charge-offs by $5 million and reflects our strong loan growth and general economic conditions. Competition is intense in our markets, especially in the multi-family space, but we continue to maintain our credit standards and monitor this portfolio very closely. With respect to expenses, our efficiency ratio -- our core efficiency ratio was 51.8% versus 54.6% in the second quarter, and we started to see some of the cost saves from our Roma and GCF conversions and a reduced FDIC premium due to the increase in our capital from the second step. We continue to make investments in our compliance, risk management and commercial C&I businesses. We are incurring elevated professional fees due to our core conversion of our operating system. This project is on schedule and it is expected to be completed in August 2015. We opened a new branch in Staten Island during the quarter and expect 3 more branches there in that market over the next 18 months. Last week, I was visiting that market and attended a luncheon to accept an award for supporting a local charity. I met with our team at the luncheon, and this team is energized and excited about the potential of this market. The team is headed by Brian Gomez. And our new branch, which just been opened less than a month, currently exceeds $10 million. Our penetration of the GCF and Roma markets has being going very well. Our core deposit growth through October 25 has been 13% and 24%, respectively, since acquisition. Since October of last year, when we instituted and got our loan teams going even before the merger, we've originated over $400 million in loans -- in commercial loans in this market. Our team, on the retail side led by Sharon Lingswiler, and on the loan side by Tim Touhey and Robert Ravaschiere, have done a great job establishing our brand and our energy in this market. The market in South Jersey is strong, and we are making significant progress integrating and capitalizing on the opportunities that a local regional bank can bring. Recently, we started a tradition here at Investors of recognizing one of our employees as an unsung hero, who has done an outstanding job for us and has embraced the core values of character, commitment, community and cooperation. It's difficult to pick one, but we have so many people working on so many projects, new products and the core conversion. Just this week, we had our retail quarterly rally attended by the whole branch system, close to over 900 people. The excitement and energy in the room was an inspiration to me. Yesterday, our commercial team came together for a strategy and planning meeting, and included close to 200 people. There is great momentum and excitement at this bank. But the one employee selected for this quarter's unsung hero, who embraces the energy and excitement of this bank is Drew Goldman. [ph] This young man joined the bank as a part-time employee in 2006 and worked in residential lending with Charlie Lynch, our long- time retired Senior Vice President. Charlie recommended Drew for our accelerated MBA program, where the bank supports high-performing employees with tuition reimbursement. Drew went on to NYU, the Stern School of Business, and completed his studies with an MBA degree in 2012. He moved into commercial lending area as an analyst, while in school, and was recently promoted to VP, Commercial Lending in 2014. He works with Bert Owens, his team leader and current mentor. Drew embraces all the attributes of what it means to be an Investor employee. He's a team player who makes others better. He mentors the younger analysts here in Short Hills and continues to give more than he takes. He has been given a great opportunity by mentors like Charlie and Bert but more importantly, he gives back and helps others. We thank Drew and all employees like him who continue to make a difference at Investors everyday they come in. And it's those investments in those investments our people that we will continue to make in our staff and in our training. We have a new HR director, Elaine Rizzo, who's revamping our HR procedures; and along with Victoria Magliacane, our Senior VP in Retail Sales and Servicing; and our Chief Culture Officer, Dennis Budinich, are driving the development and education of our employees and teams to the next level. With our growth, we understand that we have to become a learning organization, and we need to get stronger and better. If you're not changing, you're suffering a slow death. We will continue to make the investments in our people with seminars and trainings from the likes of Steve Covey Organization, John Maxwell and Dale Carnegie. We are rolling out a bank-wide training initiative for our employees called, Career Power. It will be the investments like this that will enable us to grow, empower our employees and maintain our energy and momentum in our markets. In September, we completed our offsite strategic planning meeting with our board and senior management. We are very excited about the prospects over the next 3 to 5 years. It is nothing fancy or exotic. It will be our 4 pillars to leveraging our capital

[Operator:]

[Operator Instructions] Our first question comes from Matthew Kelley at Sterne Agee.

[Matthew Brandon Kelley:]

I guess the first question, just on the margin. The core margin x prepayments came in a little better than we were expecting and was definitely stronger than your guidance provided in July. Maybe walk us through and give us an update on the guidance going forward.

[Domenick A. Cama:]

Sure. Morning Matt, it's Domenick. The NIM was better than expected because prepayments actually held in more than we anticipated they would be. We had approximately $4.3 million in prepayments in the third quarter versus $4.8 million. And we did not anticipate a strong prepayment income for the third quarter. Nonetheless, we are providing guidance of a reduction of 4 to 6 basis points for the fourth quarter. And that's due, obviously, to the lower interest rate environment and also to the deposit campaign that we're running throughout the region in increasing our deposits.

[Matthew Brandon Kelley:]

Okay. Got you. And then, just a couple of other items. On the expense side, are you running at a new lower FDIC insurance rate now? Is that a program -- it's like 8 basis points this quarter, is that the new run rate?

[Thomas F. Splaine:]

Yes, Matt, the impact second step raising all that capital, it basically changed our -- the way FDIC assesses us, based on our risk factors on our assets. So having a lot more capital actually decreased our FDIC insurance premium. So we got a little bit of impact at the very end of Q2 and a full quarter's worth of impact here in Q3. So we would anticipate holding this run rate other than the growth of the assets and growth of deposits as we move forward.

[Matthew Brandon Kelley:]

And where would you see total non-interest expenses for the fourth quarter now? What additional cost saves do we have? And where do you think total expenses shake out in Q4?

[Thomas F. Splaine:]

We're -- it's about $76.5 million right now. Right now, the way we look at it is that we continue to build infrastructure around the bank. So we still anticipate operating expenses to go up. But we are -- right now, we're targeting somewhere around $78 million for Q4, based upon infrastructure build and some advertising and some costs that go along with doing -- with the core conversion.

[Domenick A. Cama:]

Matt. One of the things that happened during the quarter was that -- and I think it's something that you've pointed to in past research, given that we vested all of the shares in the benefit plans, these quarters now, post second step, don't have the run rate of the expense of that benefit plan. And we won't pick it up again until the benefit plans -- if the benefits plans are approved sometime in the second quarter of 2015. And that was worth about $800,000 a quarter.

[Matthew Brandon Kelley:]

Okay. Got you. And then just a couple of...

[Domenick A. Cama:]

So that was a reduction that we saw in the third quarter that you will now not see in the fourth quarter anymore. As a matter of fact, it will then pick up in the second quarter of 2015.

[Matthew Brandon Kelley:]

Got it. Got it. And then just a couple of other...

[Domenick A. Cama:]

And Matt, from a marketing point of view, we might have some opportunities to make some investments in our branding and in new products too, we might anticipate in the fourth quarter.

[Matthew Brandon Kelley:]

Got you. And are we still using a 38% tax rate for next year? Is that appropriate?

[Thomas F. Splaine:]

Yes. I mean, the way we look at the business right now, where we're at, we're just under 38% right now, but I think a good starting point. For modeling purposes is -- I think 38% is a good number for us right now.

[Matthew Brandon Kelley:]

Okay. And then why did the average diluted share count go down? What was going on with the average diluted share count? I saw the reconciliation on tangible book, and appreciate that. What about on average diluted?

[Thomas F. Splaine:]

The -- if you look at where our outstanding diluted shares were, as a last quarter from the 10-Q, we're down about 1 million shares quarter-over-quarter. And part the impact of that is that, when we did the second step, we reloaded the ESOP plans. We had about 6.6 million shares into the ESOP plan, which gets removed from our EPS count. And what's happening is that, that 6 million shares, the averaging of that is pulling down some of the bigger impact this quarter on our EPS count on weighted average number of shares.

[Operator:]

Next question comes from Jared Shaw at Wells Fargo Securities.

[Jared David Wesley Shaw:]

Can you just walk us through a little bit of the trends you're seeing on the commercial side on the multi-family product, what you're seeing with pricing? Was there any slowdown in 4Q? Maybe the mix of purchases versus refi? And then as well as talk a little bit about your C&I growth, which is very strong this quarter, where you're seeing that from?

[Domenick A. Cama:]

Sure. Jared, on the multi-family side, despite the volatility in the 10-year that occurred throughout the last 4 weeks, pricing stayed relatively the same. A 5-year multifamily in our -- here, at Investors is 3.125 [ph] 3 1/8 [ph]. And we did not see significant declines in that yield. What we did see -- what we have seen and continue to see is the change in structure, that is, we see banks giving more dollars on particular deals. And also, we see banks giving longer I/O periods, interest-only periods. And that's something that concerns us a little bit, especially with cap rate coming down to where they've come to over the last 6 months or so. For our commercial side, we still -- one of the reasons why we continue to diversify the portfolio with C&I and CRE, is that, simply because of the competition in that multi-family market. And I think that has helped to stabilize our average asset yield and our NIM, because of the fact that we have those 2 components of the commercial portfolio pulling up the spread, as opposed to the multi-family, which pulls it down. In terms of the C&I business, we continue to make good inroads there. We continue to hire experienced loan officers who are out building a book of business, here at Investors. We're trying to move into the Nassau and Suffolk County market, and we continue to build down in the Mercer County and Burlington County markets, which are the markets that we picked up as a result of the Roma and GCF transactions. So I mean, in terms of credit trends, you can look at our non-performing loan ratios on the commercial side, and that number is about 35 basis points. It's really nothing, and Kevin went through some of the detail before. And so we're pretty comfortable with where we are from a credit perspective on the commercial loan portfolio.

[Jared David Wesley Shaw:]

Do you think that, looking at the dollars of growth, especially in the C&I side, it was pretty significant this quarter, is that -- as those new hires are coming online and fully penetrating, sort of their market, is that something that we could see for a few more quarters in terms of the higher dollar amount of period end growth on the C&I?

[Domenick A. Cama:]

Yes. Absolutely. That's, again, part of the strategic objective is to increase that line item on the balance sheet. And yes, I think it's safe to say that our businesses -- we have a fully engaged a medical lending team who had a very good month in October. We have an asset-based lending team in place now that was a little slower, but they're starting to pick up. They had a good month in October. So I think it's safe to say the answer to your question is, yes, we will continue to see C&I portfolio grow at a pretty healthy clip over the next few quarters.

[Kevin D. Cummings:]

Yes, Jared. That business, if you were to -- we manage the business internally. You don't get to see these numbers. But on a -- with the owner-occupied properties, that loan total is up over $900 million. And it's up over $370 million year-over-year. So we've made tremendous progress. We've invested a lot, in both people and support people in that business. And we got a team in place that right now, it's kind of almost underutilized. I mean, could almost be $2 billion with the people that we have in place here today. So we have a lot of work to do, and we're excited by the progress they're making. And it's an area where we get better yield, and it's more of a relationship business, as opposed to the rental and income-producing commercial real estate properties, which is sometimes more broker-driven. So this is where, hopefully, we're bringing in more deposits and it's really the pivot we're making to the next level of being that full-service regional commercial bank that is -- we could be the category killer in the middle market here in the New York, New Jersey area.

[Jared David Wesley Shaw:]

Great. Just finally on the deposit side, the growth there. You said the campaign, that was responsible for bringing a lot of that in. Was that the Roma campaign? Was that expended to the whole market? Or is that still a campaign that was focused more on the acquired geographies?

[Domenick A. Cama:]

No, it's now been expanded into the entire market. As a matter of fact, it's been shut down in the Roma market, and now moved. But through September 30, it was mainly Roma.

[Kevin D. Cummings:]

It was all Roma. Yes, it was all Roma.

[Jared David Wesley Shaw:]

Okay. So that's something now -- so going into fourth quarter, we'll see that having expanded the rest to the geography?

[Domenick A. Cama:]

That's right.

[Kevin D. Cummings:]

Correct.

[Operator:]

Next question comes from Collyn Gilbert of KBW.

[Collyn Bement Gilbert:]

Just a follow-up on Jared's question about the deposit campaign, can you just give a little bit more color as to what exactly that involves?

[Domenick A. Cama:]

You mean in terms of what types of products and rates?

[Collyn Bement Gilbert:]

Yes. Products and pricing, and yes, what the goal is with that.

[Domenick A. Cama:]

It's a money market account, at a rate of 1.25% guaranteed for 6 months and then flipped into, again, a money market account for the remaining 6 months at a yield of 75 basis points. And so we're offering customers an opportunity to open a money market account with a minimum of $100,000 balance. And in exchange, they get a 1.01% yield for the entire year, for 12 months.

[Collyn Bement Gilbert:]

Okay, okay. That's helpful. And then Dom, just to your comments on the NIM. You had said that you're thinking maybe 4 to 6 basis points of compression in the fourth quarter. Is that exclusive of any kind of pre-pay?

[Domenick A. Cama:]

Yes.

[Operator:]

The next question comes from Rick Weiss of Boenning and Scattergood.

[Richard D. Weiss:]

When it comes to future loan growth, how will it be funded? Will it be coming from any kind of investment securities that are rolling off? Or do you see borrowings picking up? How's that going to be accomplished?

[Domenick A. Cama:]

Yes, Rick. The -- that's exactly right. Given the new deposit campaign, we anticipate that we'll be raising somewhere around $400 million to $600 million in that new campaign, and we do also anticipate using borrowings, to a good degree, to fund the loan growth. So borrowings will be going up, and that's part of the reason why we paid down the borrowings so significantly with the proceeds from the second step, because we wanted to be prepared to fund loan growth in the event that deposit growth could not keep pace.

[Richard D. Weiss:]

Okay, and with those borrowings, would you anticipate longer-term borrowings to help manage your interest rate risk?

[Domenick A. Cama:]

Yes. It's a weighted approach, Rick. Just in the modeling that we've done here, we're using up an average -- a proxy rate of around 1 3/4%, and that is to compensate for approximately a 2.65% rate on the long end a 40 basis point rate on the short end. The answer to your question, it's a weighted approach. We're not going to front-load the entire borrowing position in longer term, nor are we going to do it in short term. We use a laddered approach.

[Richard D. Weiss:]

All right. Got it. And with multi-family, with the loan growth there. Is that coming in from the combination of existing customers who are increasing the size of their loans when they refi and staying with you? Or is it just new customers? Or both?

[Domenick A. Cama:]

It's both. One thing Rick, just to follow-up on something, though. Is the loan to deposit ratio, it's one of the things we watch very closely here. And one of the things that, for like FDIC purposes, core [ph] report purposes, we have a significant investment from the holding company as a deposit at the bank, and our loan-to-deposit ratio of the bank-only level is around 115%. So with the different levers that we have, with the deposit campaign, the additional collateral that we have and borrowings from the deferral home loan bank, and then even some of the opportunities that we have on the broker deposit side, if we choose that, we feel that we can manage our way and muscle our way through it.

[Richard D. Weiss:]

Okay. And so the holding company level, I think it's like about 124%? Is that right?

[Domenick A. Cama:]

Yes.

[Richard D. Weiss:]

And so it'll probably stay around there, it sounds like.

[Domenick A. Cama:]

Well, it might creep up a little bit, Rick. Again, because of the capital that we have and the liquidity on the balance sheet, we may approach the 130% range. And again, it depends on what kind of loan growth we have in the fourth quarter, but we are expecting a strong fourth quarter this year. So it could start to approach 130%.

[Operator:]

The next question comes from Mark Fitzgibbon at Sandler O'Neill.

[Mark T. Fitzgibbon:]

The first question I had, I wonder if you could share with us the size of the loan pipeline and what the mix of that looks like.

[Domenick A. Cama:]

Yes, Mark. Actually, the pipeline is pretty strong. It's the strongest it's been in quite some time. It's up to about $1.7 billion. And over the last few quarters, it's averaged about $1 billion to $1.1 billion. And so it's up significantly. And about 60% of the pipeline is still in multi-family, with the remaining in CRE.

[Mark T. Fitzgibbon:]

Okay. And then secondly, as it relates to reserve. You guys have much higher reserve coverage than your peers, and I know the portfolio is relatively young. But are we likely to see the reserves run down a bit over time as the loan book grows?

[Domenick A. Cama:]

I would say not to that, Mark. As you point out, the portfolio is relatively unseasoned. 53% of the portfolio has been originated within the last 18 months. And so that causes us to be, in my opinion, conservative in the -- in our approach to provisioning and in our allowance. We also have a growing C&I portfolio, which, obviously, does not have a real estate's collateral. And so that also puts us in a position of wanting to provide what we can in order to mitigate the risks or potential risks in that portfolio.

[Mark T. Fitzgibbon:]

Okay. And then the last question I had for you is how big are the largest multi-family and commercial real estate loans you guys are making these days?

[Domenick A. Cama:]

The average portfolio -- the average of the portfolio is still somewhere between $3 million to $4 million. However, we are starting to see some bigger credits come through. Obviously, we raised the additional capital. And so we are seeing some loans that are in the $20 million to $25 million range. We just saw one yesterday that was $42 million. So that number is starting to creep up for us. And obviously, it's a reflection of the size of the bank and the fact that we've raised all this additional capital.

[Operator:]

The next question comes from Laurie Hunsicker, Compass Point.

[Laurie Havener Hunsicker:]

A couple of things. I wonder, going back to loans, do you have a period and breakdown by type that you could share with us?

[Domenick A. Cama:]

Of what, Laurie?

[Laurie Havener Hunsicker:]

Of the loans, I'm sorry. Looking at...

[Domenick A. Cama:]

Of the commercial loan estate?

[Laurie Havener Hunsicker:]

What's resi, what's multi-family, what's commercial real estate, what's construction, what's C&I with [ph] consumer as of period end?

[Kevin D. Cummings:]

Sure. It's $6.2 billion -- $6.3 billion in residential and home equities, $4.7 billion in multifamily, $2.8 billion in commercial real estate, $160 million in construction. And then C&I loans, non-real estate $413 million. So basically, it's $8.1 billion in commercial loans, $6.2 billion -- $6.3 billion; if you round it, in residential.

[Laurie Havener Hunsicker:]

Perfect. And then going back to the Staten Island branches that you mentioned, what is the timing on the additional branches? And roughly, what is the cost that we should be factoring into the non-interest expense line?

[Domenick A. Cama:]

We anticipate opening 3 more branches before the first quarter of 2015. From a cost perspective, it's difficult to say, because we amortize the costs over a long period of time. But I'm not prepared to answer that question, Laurie.

[Laurie Havener Hunsicker:]

Okay. I mean, I guess, just round numbers, given that it's not [indiscernible] thinking, maybe...

[Kevin D. Cummings:]

Off the top of my head, I'm not sure [indiscernible]. Yes, I don't want to give you a number. We could find it pretty easily, but I just don't have it that handy. I mean, we work with it, like anywhere, $800,000 to $1 million being the operating costs, but it depends on the real estate costs. And I'm not -- I just don't the recall what the real estate costs are there for those 3 properties.

[Laurie Havener Hunsicker:]

Perfect. And then, obviously, $10 million in a month, very, very impressive. What are you targeting when you look at your -- those sort of collective new branches combined? What are you targeting in deposits?

[Kevin D. Cummings:]

We send our folks out prior to opening the branches. And we do -- we work very hard in order to raise deposits. In New York market, in New Jersey market, when we've seen a big impact on deposits -- big increase in deposits, we have government deposits to help subsidize some of those branches. That's not happening in New York. And it's just simply a reflection of our philosophy and our strategy of bringing deposits in for all of the loans that we do here. So it's been an effort. We've been -- despite the fact that we haven't been opened on Staten Island, we've been working the Staten Island market for approximately 2 years now.

[Laurie Havener Hunsicker:]

Got it. Okay. And just one more Staten Island question. What is your longer plan in terms of how many branches you want to have there?

[Kevin D. Cummings:]

We plan to have 6 branches. When all is said and done, we'll have 6 branches on Staten Island.

[Laurie Havener Hunsicker:]

Okay. Great. Okay. And then just switching back over Fiserv, you mentioned August, that that's tracking. One of the things you had previously mentioned is that you probably wouldn't look to do an acquisition until that whole conversion is complete. Is that still your thought?

[Kevin D. Cummings:]

Yes.

[Laurie Havener Hunsicker:]

Okay. And then last question, regarding early buybacks. Any comments you can share with how that's progressing, if it's progressed? What you're thinking?

[Kevin D. Cummings:]

Yes, sure. The update is simply that we did submit a request to the Federal Reserve Board. We have not heard as of yet. I know I've read some of your comments in which you cite the fact that our stock price, being a lower level, would constitute an extraordinary circumstance. I'm not sure that the Fed would agree with that assessment. So what we do know is that there have not been any institutions, post the OCC and OTS merger, that have received an early buyback approval.

[Laurie Havener Hunsicker:]

Okay. And so just last question, surrounding that. Is there -- I mean, there's the 30-day window already lapsed or...?

[Kevin D. Cummings:]

The 30-day window...

[Laurie Havener Hunsicker:]

How did that look? In other words, from whenever you sent the letter in requesting early buybacks.

[Kevin D. Cummings:]

Yes, we sent the letter in the early part of October. So the 30-day period has not lapsed yet.

[Kevin D. Cummings:]

That'll be next week, though. I tried to call my general counselors out of the office, just to get an update, if he had heard anything, but he wasn't available today.

[Laurie Havener Hunsicker:]

Okay. So, we'll see your press release, or...

[Kevin D. Cummings:]

No. I don't think so. I mean, if we hear anything, I don't think we'll be putting out press release.

[Domenick A. Cama:]

Unless it's positive.

[Laurie Havener Hunsicker:]

Unless it's positive. Perfect. Okay and then just sort of one last question.

[Kevin D. Cummings:]

Laura, (sic) [Laurie] we've some situations with this, where it kind of just hangs out there, like when we went for the dividend. You don't want to -- we just -- we're very patient and we don't want to deal with -- make a big deal about this. We made the request and we're just going to be very patient.

[Laurie Havener Hunsicker:]

Understandable. If, obviously, nothing materializes, but we were to fast-forward 6 months and your stock were still at current levels, is it out of the question to assume that you would be very aggressive?

[Domenick A. Cama:]

I think, Laurie, the one positive thing that we have going for us is that the repurchases can begin without any request for approval, assuming -- once the 1-year period has lapsed. So that means that on May 7 of 2015, which would represent that 1-year anniversary, we could immediately start to repurchase shares. We are currently planning for that. We anticipate even going to our board to request a repurchase authority in the board meeting prior to that date. And -- but trying to determine if it's going to be 5% or 10%, or as you point out in your note, 15% to 20%, is something that we just can't anticipate at this point.

[Operator:]

Our next question comes from David Darst at Guggenheim.

[David Darst:]

Dom, it looks like you've been pretty successful growing interest-bearing checking outside of the campaign that you've been running. Can you talk about the strategies there? And I guess, the overall deposit mix shift, is there still room for higher cost CDs to come off and offset the money markets that you're going to be adding this quarter?

[Domenick A. Cama:]

Yes. David, it's -- Kevin uses a term around here called blocking and tackling. What he means by that is that the growth in interest-bearing checking accounts comes as a result of a lot of hard work by a lot of people here at our bank. One of our primary strategies here is, as we grow our commercial loan portfolio, every commercial loan customer, whether it be real estate, multi-family, C&I, has to open a checking account as part of the agreement for the loan. So you're seeing some of that. We're also very successful in the municipal deposit space here in New Jersey. We're the third largest depository for municipal deposits in the state. And so we've seen some growth there. In terms of can we see some additional CD contraction? I think the answer to that is, yes. We're at approximately a 73% core, 27% CD ratio right now. But I can tell you that CDs run out of here at a pretty quick clip.

[David Darst:]

Can you give is the rate that you expect to mature in the fourth quarter?

[Domenick A. Cama:]

Yes, the maturing volume for CDs for the fourth quarter is about $450 million.

[David Darst:]

Okay. And then as you're discussing your sales and training programs and those initiatives, is that focused around deposit relationships? Or are you also implementing new fee-income products?

[Domenick A. Cama:]

In terms of sales and training?

[David Darst:]

Correct.

[Domenick A. Cama:]

Yes, sales and training is really -- revolves around, not only deposit, but loan products. But also a big part of our sales -- of our training here revolves around teaching accountability to our employees, leadership qualities to our employees. And so most of the training that's occurring is occurring along those lines. In terms of non-interest income products, our business -- we did start a non-deposit annuity business last -- several years ago, and that business is starting to pick up some steam. I think it contributed to about $600,000 in revenue this quarter. And -- so that's picking up some steam. We're looking for more people to put into that business. And that's worked well for us. That's the extent of the non-interest income.

[David Darst:]

Okay. Any products on what drove your margin or anything on the commercial side?

[Domenick A. Cama:]

We -- Kevin mentioned the rally we had 2 nights ago, that was to launch a new checking product that we will be introducing to the market in 2015. And it really is intended to

[Operator:]

The next question comes from Jake Civiello at RBC Capital Markets.

[Jake Civiello:]

Just -- most of my questions have been asked and answered, but just one clarification that I had was Dom, you mentioned the deposit campaign hopes of bringing in $400 million, $600 million. Is that -- what was the time frame for that? Is that fourth quarter only? Or extending on to 2015?

[Domenick A. Cama:]

Fourth quarter only.

[Operator:]

The next question is a follow-up from Collyn Gilbert of KBW.

[Collyn Bement Gilbert:]

Sorry guys. Just thinking about, Dom, some of your comments on the borrowings and how you're thinking about funding the balance sheet. If we stay in this rate environment for a while, structurally, how do you see that NIM kind of bottoming and when? I mean, I'm just thinking you're at 3 whatever on multi-family, maybe sub-4 on CRE, funding in a little bit above that 100 basis points, just kind of thinking through sort of the structural direction of that NIM.

[Domenick A. Cama:]

I mean, it's really, in this interest rate environment, Collyn, it's no great surprise that the slope is downward. It's a matter of how much additional business -- how much additional deposit business we can add with -- at a lower interest rate. I mean, we do -- we are offering the campaign but don't forget, we're also trying to raise deposits in the government sector. And those deposits come in at somewhere between 25 to 35 basis points. So that has helped us. And those come in, in big chunks. The other thing that we're doing is, we haven't done to any great degree over the last years of our history is use more broker deposits and use more money market funds. And as a matter of fact, we just recently had an infusion of approximately $200 million in money market funds that's classified as a brokered account. And that came in, what, Tom, at 35 basis points?

[Thomas F. Splaine:]

It's 23 basis points.

[Domenick A. Cama:]

23 basis points. I overstated it. So in terms of the NIM, Collyn, obviously, it's going to continue to grind down, given this interest rate environment. I -- like, when I think about it, I don't think that it goes much below 3.15% [ph], but you never say never, just simply because of what I've seen and the way it's come down. But again, I'm throwing that number out there at 3.15% [ph], but if the interest rate environment continues, it could go lower. But that's kind of where I see it going over, say, the next 4 to 6 quarters.

[Thomas F. Splaine:]

And you got to remember, Collyn, last quarter -- I mean, fourth quarter of last year, first quarter of this year, our deposit growth exceeded the loan growth. And the best thing that we try to do, it's really an on boarding of a customer. We've had good success, and I think the latest statistic is we've maintained, through the stuff that we did last quarter of last year, 75% of the customers through the end of September this year. So we're tracking that. We feel that with our service model when we get the people in the branch, we can keep them. And we're very excited about this new checking product, and I don't want to talk too much about it, but it's really going to give our teams on the consumer side, especially, the -- a product that they can really cross-sell and hopefully drive some core deposits into the bank where we've been seeing some runoff on the consumer side.

[Kevin D. Cummings:]

I'll tell you, it's our biggest challenge, the blocking and tackling. It's hand-to-hand combat, and we're going to continue to work on it.

[Operator:]

We have another follow-up question from Matthew Kelley with Sterne Agee.

[Matthew Brandon Kelley:]

Just staying on that topic, the last couple of years, you were pretty successful acquiring cheap funding, whole banks and deposit branch deals. How would you handicap the next year or 2 those types of transactions, which help address this issue on how you fund your growth?

[Domenick A. Cama:]

Yes, Matt, obviously, the train that left the station is the mutual holding company. If you look at some of the deals that we did, a lot of them revolved around -- 4 them revolved around having the mutual holding company status. And also, remember that we did most of the deals during a period of economic recession in which the banks were, I don't want to say broke, but they were not in the best shape. So as we move forward, our strategy has been -- will be, Kevin mentioned this in the strategic planning meeting is that, that will be a primary focus of what we do going forward. Our numbers are big. And we can run a campaign here and there and raise $300 million, $400 million, $500 million, but given the loan growth that we've had, really, what we see is the best way to fund it is to find more deposit-rich organization within our geography that maybe are not growing at a fast enough pace and would want to join up with us. But certainly, as we move forward in exceeding $18 billion in assets is that we're in the fund this growth probably through acquisitions. That will be the bias here is funding the growth using acquisitions.

[Matthew Brandon Kelley:]

Got you. And then just one other quick follow-up. On the $1.7 billion pipeline, you said about 60% was multi-family. How would that break down between the 5-year product and the 7-year product? Is there a skew there?

[Domenick A. Cama:]

Yes. It's about a little bit higher skew on the multi-family. It's about 37% and the 7-year is about 32%.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Cummings for any closing remarks.

[Kevin D. Cummings:]

Okay. Well, thank you, for participating today. We're well positioned to maintain and continue our growth, and our asset quality remains strong, and I just want to thank you all. Have a great Halloween. Have a great weekend, and we'll see you in January of next year. Thank you very much.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.