Investors Bancorp, Inc.
Q2 2015 Earnings Call Transcript

Published: 31 Jul 2015

[Operator:]

Good morning and welcome to the Investors Bancorp Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. We’ll begin this morning’s call with the company standard forward looking statement disclosure. On this call, representatives of Investors Bancorp Inc., may make some forward-looking statements with respect to its financial position, results of operations and business. 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 which can cause actual results to materially differ from those expressed or forecasted in these forward-looking statements. In last night’s press release, the company has included the Safe Harbor disclosure. We refer you to that statement. That document is 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, Management Discussion and Analysis of Financial Conditions and Results of Operations set forth in Investors Bancorp’s filings with the SEC. Now, I'll turn the call over to Kevin Cummings, our President and CEO of Investors Bancorp. Please go ahead.

[Kevin Cummings:]

Good morning and thank you, Emily for that introduction. With me today is Sean Burke, our CFO and Domenick Cama, our Chief Operating Officer. Tom Splaine, our investors relation officer is away on vacation. I’d like to welcome everyone to today’s earnings call as we completed our first year as a fully public company after our second step in May of last year. Your management team has been busy and is committed to executing on its business plan in a prudent manner which enhances the franchise of the bank as the leading regional community bank serving the New York, New Jersey metropolitan area. Today we are the largest full service commercial bank headquartered in New Jersey with over $20 billion in assets. We have executed on our plan since going public in 2005 by emphasizing a four-pronged approach to leveraging the capital that you have invested in our company. Those tools are organic growth as assets were up 2.6 billion since last year and that represents 15% growth and more importantly our tangible capital ratio is down from 19.7% in June of 2014 to 16.6% this quarter. In addition, since then stock buyback and smart acquisitions that did not book value are all part of our plan to leverage our capital in a safe and sound manner. We declared dividends of $0.20 a share to date in 2015 and post second step we have purchased close to 18 million shares at an average price of 11.98 per share. As I mentioned earlier, and all of you know we have been on the sidelines with respect to the mergers and acquisitions as we are focused on enhancing our technology platform and have been working very hard to complete our core conversion scheduled for completion the weekend of August 23. Investors Bank had a very strong quarter as we posted earnings of $46.4 million versus $15.2 million in 2014. Let me remind you that in 2014 we had non-core expenses of $33 million relating to our second step which reduced income by $20.3 million net of tax. On a regular basis, after reducing the current quarter for a small tax benefit relating to the New York City tax law change in April, core earnings were $45.2 million for the current quarter, up 28% versus the core earnings of 35.4 last year. Year-to-date earnings are $87.1 million versus $69.9 million, a 25% increase year-over-year. On a earnings per share basis core earnings are up 40% for the quarter from $0.10 to $0.14 and 30% for the year, which reflects our stock buybacks and the timing of our second step last year. We are pleased with our progress and continued transformation of our business to a full-service bank. Our commercial loan portfolio surpassed $10 billion this quarter and realized 32% growth from last year. Business lending which includes owner-occupied mortgages had the largest percentage growth of 56% as it grew from 850 million to 1.3 billion in the last 12 months. We continue to allocate resources to this business as we continue to transform both the balance sheet and the business plan. Our multifamily and CRE groups continued to execute on their plan as their growth was almost $2 billion year-over-year, a 30% annual growth rate. As we managed this growth, our credit quality continues to improve as total non-accrual loans are now $20 million of which 3 million was with one relationship that was current to principal and interest at the end of the quarter. These non-accrual loans represent 20 basis points of the portfolio at the end of June. It should be noted that 70% of these non-accrual loans related to loans purchased through acquisition of other banks, and only 6.4 million related to the investors portfolio of approximately 9.5 billion at June 30, 2015. This 6.4 million represents 7 basis points of the total loans originated by the bank by our commercial lenders. On the resi and consumer side we continue to make progress but it is painful because of the judicial process in the state of New Jersey. We continue to evaluate ways to accelerate this [Technical Difficulty] once we get this [indiscernible] of these assets through the foreclosure process, we mark the assets in a conservative manner to move the properties quickly off our balance sheet. We've had nine consecutive quarters of gain on sale of ORE and we’ll continue to monitor this portfolio. Our allowance for loan losses to total loans increased from 1.33% at the end of March 31 quarter to 1.36 linked quarter mainly due to a request of resi loans to loan held for sale category of $347 million at the end of June. Including this amount in total loans, our ratio would've remained flat at 133. We continue to provide for loan losses as our provision was $7 million for the quarter after net charge-offs of 1.2 million. We will continue to monitor our credit quality as we continue to change our loan mix from one that is historically residential to a full-service commercial bank. It is an unseasoned commercial portfolio with growth of $6.4 million since December 2011, three and half years ago. This growth represents a 178% growth over that period. We will be prudent and watchful as we continue to grow and transform our business and our balance sheet from a thrift to a full-service commercial bank. Our credit quality remains strong and we’re very happy where we are today. Now I would like to turn it over the call over to Sean Burke, our CFO who will give some more details on the balance sheet and income statement for the quarter.

[Sean Burke:]

Thanks, Kevin. I would like to briefly review some of our financial potential highlights with for the quarter. Total assets eclipsed the 20 billion threshold in the second quarter, as Kevin mentioned, up 14% on an annualized basis from the prior quarter. Lending activity in our market continues to be strong. Our loan portfolio inclusive of loans held for sale rose 433 million to 16 billion quarter over quarter, representing nearly 11% growth on an annualized basis. Dissecting the loan growth shows that C&I led the way with 43% annualized growth, multifamily with 25% growth, CRA with 12% and residential going the other direction shrinking on a linked quarter basis. Subsequent to quarter end, we sold 335 million of mortgage loans. The loan package included a significant portion of 30 year loans and helps reduce our overall interest rate positioning. The loans were moved to held for sale in anticipation of the sale execution. Our pipeline of loans as of June 30 stood at 2.7 billion with multifamily making up 45% of that total, C&I 30%, CRE 20% and the remainder residential. On the liability side, deposit growth was very strong and outpaced loan growth for the quarter. Deposits grew 516 million or 17% on an annualized basis to 12.9 billion. Non-interest checking balances grew at an 11% annualized clip from the first quarter. Also of note, we introduced the 13-month CD campaign aimed at stemming runoff which proved very successful and contributed meaningfully to our deposit growth. Asset quality metrics remained very strong and improved slightly from the first quarter. Non-accrual total loans declined to 0.68% at June 30 and our allowance to nonaccrual loan coverage inched up to 201%. In addition, early-stage delinquencies declined quarter over quarter. Shifting gears to income statement. We recorded net income for the quarter of 46.4 million or $0.14 per diluted share. Excluding the 1.2 million tax benefit, quarterly net income and EPS grew 28% and 35% respectively versus the second quarter of 2014. Net interest income for the quarter rose 10% year-over-year to 149 million driven by strong loan volume while net interest margin declined to 3.14%, down four basis points on a linked quarter basis. Prepayment penalty income totaled $5.6 million for the quarter versus $4.6 million in the first quarter. Absent pre-penalty income, margin would have declined 6 basis points instead of 4 basis points. Provision for loan losses totaled 7 million which represents a 2 million decline versus the first quarter of 2015. Non-interest income totaled 11.6 million, an increase of 3.1 million from the first quarter. The increase is primarily due to gains on loan sales. More specifically we executed two small CRA sales generating approximately a 1.1 million gain and had a PCI loan, or purchased credit impaired loan that paid off which generated another $700,000 of gain. With respect to expenses, our efficiency ratio was 49.9% for the quarter versus 50.3% in the first quarter of 2015, so generally unchanged. Expenses for the quarter totaled 79.8 million and included $1 million vacation payout accrual expense which is attributable to our core systems conversion. In addition, compensation expense related to our equity incentive plans contributed approximately 300,000 to this quarter's expense total. Our tax rate declined slightly this period due to a New York City tax law change. The change will lower our effective tax rate for the remainder of 2015 but in subsequent years we will raise our effective tax rate from 37% where it is right now to 39%. Last but not least, we repurchased 15 million shares during the quarter bringing total shares repurchased year to date to 18 million. Towards the end of June, approximately 7 million shares were issued out of treasury to fund approved equity incentive awards. On that note, I’d like to turn it back over to Kevin for some concluding remarks before we open up to Q&A.

[Kevin Cummings:]

Thanks, Sean. Over the last few quarters we’ve had a tradition of highlighting an employee who exemplifies the core values of the bank. These values -- core values are a 4Cs which are character, commitment, cooperation and community. This quarter because of all that’s going on at the bank and as the core conversion comes down to crunch time, we will spotlight a team of employees who have shown outstanding commitment to the bank. They have worked on the core conversion with great effort and personal sacrifice. Our core conversion is three weeks away and we are diligently working 24/7 to see it through completion on August 24. This team is led by Dan Harris, our chief technology and operations officer who joined the bank in 2008 after a long career primarily with the UJB, Summit Bank organization. He is an effective leader who leads by example. His project management skills are strong and a key factor in the progress of our core conversion to date. He has assembled a competent team of individuals and although I'm only mentioning a few today who have gone beyond the call to make this project successful to date. A few of these outstanding individuals include Sergio Alonso who joined us from the acquisition of Millennium Bank in 2011. He works with Dan on our technology initiatives. He oversees many of the technical and reporting matters relating to the core conversion and then on his day job he manages our technical support teams throughout the year. Tom Petramoli [ph] is our Senior VP in our cash management business and another UJB, Summit Bank alum. He joined the bank in 2011 and his core conversion responsibilities include the enhancement of our digital channels and cash management product offerings which will help us expand and service both our consumer and middle-market business customers as we move into the future. David Benhay [ph] is our residential loan servicing manager who joined the bank in April 2014 coming over from another regional bank in New Jersey. He has improved the operational workflows and loan servicing and has been instrumental in the testing – the core testing and planned loan automation efforts. Josephine Casale [ph], deposit services manager, she joined the bank as part of our American Bank acquisition in 2009. She leads our team responsible for processing the checks and electronic payments for the bank. She also as part of our core conversion responsibility leads many of the projects and has been a catalyst in revamping the way the bank processes transactions using the new core system for increased efficiencies. And Ed Smith, another Millennium alum joined the bank in October 2010 and he’s leading a team of bankers in an effort to launch our new CRM system and enterprise-wide document imaging system. And last but not least we have Janet Moldum [ph], director of training who joined the bank in 1998. Janet runs our champion program which is designed to develop retail staff in areas of coaching and mentoring to our retail teams during the merger integration processes. She is also responsible for planning and the implementation of all training programs relating to the core conversion and by the end of August will have trained over 1600 employees on our core systems, not her personally but she and her team. These individuals along with so many more are going the extra mile to help improve our technology platform and systems so that Investors Bank can have the tools to service its growing loan and deposit customers. It is an unbelievable challenge but we are well on our way to completing this project in an efficient and an effective manner. It's all about execution whether it's growing the loan portfolio, expanding our retail branch footprint with this major initiative of improving our technology and platform. We are getting it done, we are changing and improving every day. We embrace this journey of continuous improvement and we truly understand that we have to get better and stronger to manage this bank as we grow. It is due to the great efforts of these mentioned individuals and so many more that our bank has been one of the best performing banks in the country over the last 5 to 6 years. Our board and executive management team appreciates these efforts and we hope you as our shareholders also appreciate them. There is great excitement at the bank. Our momentum is strong and we look forward to a great second half of 2015 and beyond. Thank you. And now I would like to turn and open things up for questions.

[Operator:]

[Operator Instructions] Our first question is from Dave Rochester of Deutsche Bank.

[Dave Rochester:]

On the new incentive comp plan, appreciated the detail on what was included this quarter. Can you just talk about how much you expect that particular expense to increase next quarter and then your outlook on the annualized rate you are budgeting at this point?

[Domenick Cama:]

Sure, Dave. Good morning. This is Domenick. We expected the quarterly expense for that plan – those plans will be about $3 million after after-tax.

[Sean Burke:]

So about -- pretax 4.5 million, $5 million.

[Dave Rochester:]

So that’s a little bit less than what you were expecting originally, is that right?

[Domenick Cama:]

Dave, initially we had modeled it using a shorter vesting period. Ultimately we decided on using a longer investing period which allowed us to reduce that quarterly expense.

[Dave Rochester:]

And can you just talk about your expected range for expenses overall next quarter?

[Domenick Cama:]

We expect that expenses will -- the quarterly run rate will probably go to somewhere between $83 million and $84 million. And when you consider that the run rate was just about 78 million, we added 3 million after-tax for the MRPs and we've had some additional comp expense as we continue to add branches and compliance and risk management people.

[Dave Rochester:]

And then switching to capital on the buyback. How are you guys thinking about activity in the back half of the year and is the plan to finish the existing plan by year-end?

[Domenick Cama:]

Dave, along the lines of -- the guidance that we gave on the plan was approximately 10%, and so when you consider that 10% number that’s about 36 million shares over a 12 month period. That was the guidance we gave. I know initially the run rate was a little bit higher, ran at a higher rate, that was reflective of our lower prices as a comparison to tangible book value. As the price has increased and the price to tangible book has increased we have scaled-back what those repurchases are. When I look at the pace at which we’re purchasing shares right now and couple that with the pace at which we bought them in the first – I am sorry in the first and second quarter, ultimately I think will come right around to the same spot. So if you consider the 10% number on 358 million shares, that’s 36 million shares and using a nine month period for 2015 will probably be at around 27 million shares, again assuming that the run rate stays where it is right now. If there is any reduction in the price and there is a price to tangible book reduction we could accelerate the repurchases again.

[Dave Rochester:]

And then just one last one, can you just talk about your outlook on loan growth for the year now given the resi loan sale, are you still anticipating achieving the level you talked about previously?

[Domenick Cama:]

Yeah, actually we were ahead of budget and that allowed us to execute the loan sale. Budgeted number for 2015 was about [1.5 billion] and we were at a pace to achieve about [1.9 billion] in loan growth for 2015. So we expect that loan growth will continue especially in the commercial sector, will continue to remain robust throughout 2015 and allow us to hit our original projections.

[Operator:]

Our next question is from Jared Shaw, Wells Fargo Securities.

[Jared Shaw:]

Just following up on the loan growth question. Do you expect a more residential loan sales or does this take care of everything in terms of how you want to position the portfolio for the rest of the year?

[Domenick Cama:]

I think we’re probably done with any large loan package sales, Jared, in 2015. It was an opportunity for us to reduce our residential portfolio which was part of our strategic plan. I think Sean mentioned that a predominant part of those sales was in 30 year fixed-rate product, so that helps to improve our interest rate risk position. But nonetheless selling $340 million in loans takes a lot of work and at this point I would not consider doing another sale in 2015.

[Jared Shaw:]

And if we could shift to deposits and funding, when you look over the last four quarters you’ve had $1 billion of growth in borrowings and then you talked about the CD incentive – or the CD promotion you put on this quarter, do you think that – should we start to see a shift away from borrowings or using those more as a liability structuring tool, I guess, what’s the trade off between growth in time deposits and the status of borrowings?

[Domenick Cama:]

Ultimately, Jared, we would always prefer to fund the balance sheet with deposits, that's first and foremost. We will use the Home Loan Bank or other structured borrowings as a way to structure interest rate risk friendly transactions. You can do longer-term borrowings as opposed to CDs but ultimately we need to continue to grow deposits. Our CD balances as a percentage of total deposits fell to about 20% in the first quarter of 2015 and we saw a large outflow of those deposits. And while we like the ratio of core deposit to CDs to be up -- the predominant part of our CD composition, now the difference between 75% and 80% is not significant for us. So we sought bringing the CDs in as a way to, number one, stem the loss of the CDs, improve the loan to deposit ratio and also we use the campaign, the promotion as a way to increase our non-interest-bearing checking accounts. Non-interest-bearing checking accounts around here have been hovering around 11% and actually that's an improvement from where they were in the early part of the year. But our objective here is to continue to grow deposits to fund our loan growth and specifically to grow our non-interest-bearing checking accounts as a funding tool. So we are considering doing some more CD business in the latter part of this year. As a matter-of-fact we’re in a campaign right now to stem any outflow of CDs or money markets that we booked in the first quarter of 2015 in our southern market. So we’re going to continue to keep our eye on deposits and use all the tools necessary in order to improve our loan to deposit ratio and to grow our deposits overall.

[Jared Shaw:]

And just finally you spoke a lot about the systems conversion and how that’s going. Could you give us an update on once you are through the systems conversion and we’re sort of at the end of the year and looking into 2016 your thoughts on M&A at that point?

[Domenick Cama:]

Yes, we are interested there. We constantly said through our roadshow and on these earnings calls that once we have been through our core conversion and assimilated that that we would certainly be willing to look at M&A transactions. We have looked at a few that have come our way over the last 3 to 4 months but again because of the core conversion, because of the effort that's going on in order to get that accomplished, frankly we didn’t even have the staff to do any due diligence on those transactions even if we were interested in doing them.

[Operator:]

Our next question is from Christopher Marinac of FIG Partners.

[Christopher Marinac:]

As you continue to have success on the multifamily portfolio, is there ever a point where you have a concentration issue relative to capital? Just kind of curious if you have sole [ph] regulatory runway to continue to grow that?

[Domenick Cama:]

We do. We have runway. As you know the CRE concentration or the CRE guidance as I should say is up 300% to total capital. So having said that though we believe and we presented a case to the regulatory agencies, essentially laying out a theory that we don't believe multifamily loans fall into that CRE category. When you look at the risk profile of multifamily loans, specifically here in New York City market, we believe that they’re very very safe investments and should not be included in the, I will call it, catch all category of commercial real estate. And to date we've been diligent, we track it, we update our statistics and our metrics regarding those loans and to date just look at the performance and really not only here at Investors Bank, look at the performance of multifamily loans across the entire Northeast segment, you'll see that -- we think that we have a pretty good case. So in terms of concentration, yeah, at some point we will get there but again I think if you back out the multifamily loans that you probably will have a lot more room to grow, that particular asset class.

[Christopher Marinac:]

Dom, that’s very very helpful background. And just a quick follow-up for Sean. Is the tax rate 39% applicable into next year as well?

[Domenick Cama:]

Well for 2015 it will remain 37%, so it’s not just this quarter, it’s for the remainder of the year. So it will be 37% but it’s 2016 is where it's going to ramp up to 39%. Unless we find out ways to lower it, but sitting here today that’s what would happen.

[Operator:]

Our next question is from Laurie Hunsicker of Compass Point.

[Laurie Hunsicker:]

I wondered if you could take us back to the restricted stock plans, the 13 million, are you anticipating purchasing as in the open market or have you already done that, are they issued on top of or how are you thinking about that?

[Domenick Cama:]

It’s 13 million, Laurie, it's about 7 million, just under 7 million and we actually used treasury shares to fund those. We did not have to go out and buy them in the open market.

[Laurie Hunsicker:]

So that was the one you’ve actually been awarded 7 million –

[Kevin Cummings:]

We’ve been awarded and they’ve been taken out of treasury and they are outstanding now at the end of the quarter and that’s why you saw our book value per share go down.

[Laurie Hunsicker:]

So I guess some of your 2015 equity incentive plan of 31 million shares, 13 million were total restricted stock. I mean do you have -- what do you plan -- what you'd plan to do with those other 6 million, you would wait until you actually award them and then do the same thing?

[Kevin Cummings:]

Well they will be rewarded prospectively, it’s part of the plan but we issued approximately 70% of both the options and MRPs during the second quarter.

[Laurie Hunsicker:]

I guess my question is, is the 6 million, I think it’s going to go down on top of shares?

[Kevin Cummings:]

No.

[Laurie Hunsicker:]

And then yeah I think you covered expense in David Rochester’s question.

[Domenick Cama:]

As Kevin pointed these shares that were issued now represent about 70% or just under 70% of total shares that were approved by the shareholders. The remaining 30% will be used in the future as ways to compensate employees and provide MRP, new employees stock plans, new employees, new board members and the like.

[Laurie Hunsicker:]

And then just going back to your expenses, can you update us – I mean the de novo branch, the de novo branching that you have laid of doing, I think it was somewhere between 16 to 20 branches this year. So I guess first quarter, you opened three, you closed one, you are at a net of two and then for this quarter you opened four, closed two, so another 2. How are you thinking about the de novo branches, and maybe help us think about how the cost actually will flow-through?

[Domenick Cama:]

Well I don’t know – you said that we closed two, I am not sure we closed two branches. We opened four, but I don't recall closing to, maybe you’re talking about relocations but the expenses to open these new branches run anywhere from a low of about $800,000 to a high of about $1.7 billion and the difference in cost generally is aligned with, do we have to do construction, is it just – is it a current facility that we just have to do a fit out. In terms of expenses, those expenses were amortized over the projected life of the buildings and the branches. So those are capitalized over what term? So the term of the lease which was 15 years.

[Laurie Hunsicker:]

And then can you update us on – as we think about the next three or four quarters, are we still going to see to a cliff of opening three or four per quarter?

[Domenick Cama:]

In 2016 we are still on a pace to open – I am not sure over the three or quarters but it’s certainly 10 to 12 for the year. We continue to make plans to grow into the Queens market and to the Long Island market. We’re also looking at some additional branches in our southern markets being Middlesex and Monmouth and Ocean County. But for the most part these days when I what’s on the drawing board it’s primarily in the New York boroughs and we’re actually considering may be opening a couple of branches in Manhattan. So I would say, Lorie, and the answer to your question that yes the pace of aggressive branch opening will continue.

[Sean Burke:]

And Laurie, I think the question also is well, how is that going to affect expenses as well as -- we feel comfortable with the run that we’ve outlined where we are right now, so plus some of the expenses that are going to come in from the equity incentive plans. So we’re kind of a run rate you, let’s say, 7879 you will have $5 million meal additional quarterly expense coming in from the early incentive plans and that puts you at kind of a run rate of $83 million to $84 million on a quarterly basis.

[Kevin Cummings:]

Because of the core conversion we accelerated some of the hiring in our retail teams for these new branches because we’re so many people out of the branches to train. I mean we had to just train the trainers we probably have 40 people that distance managers and head tellers that are actually training becoming experts in our core to train the rest of the 800+ real stammers. So we did some anticipatory hiring and those people already in the run rate.

[Operator:]

Our next question is from Matthew Kelley of Piper Jaffray.

[Matthew Kelley:]

Maybe just getting back to the deposits a little bit bitter. Is that 1.5% 13 months CD, open a checking account, they got is the one still running with to try to build out those deposits, is that primary –

[Kevin Cummings:]

No, campaign ended first week of July. What we are doing now is using rates of anywhere between 1% and 1.5% to not only money markets were coming due, but also to induce those depositors to bring in additional money? Part for the campaign and the way it works is your money market promotion expired, we foresee to come into the bank because we don’t give checking writing privileges on the money markets. You come into the bank and then we can ask for some additional money in an exchange for additional new money will extend the 1.25% percentage rate.

[Matthew Kelley:]

And maybe a little bit of an update on what you are in the securities portfolio, seeing a little bit of growth there, year to date what types of securities that you are guying and the yields, duration maybe little color?

[Kevin Cummings:]

Matt, no change at all in the securities portfolio. What you see there is just in reaction to the total asset growth. We have a policy in which we keep about 15% of total assets in the form of securities. In terms of what we buy, we buy generally shorter-term securities, CMOs with durations of anywhere between two years to three years and then we also have a limit on shock when interest rate shocks occur and we don't expected the duration to increase above 5.5%. In terms of yields, we’re probably seeing somewhere between 185 in 2% you know as being what the yield is and it’s so low because these bonds are structured so well and are intended not blow up will explode in the event of the 200 basis point increase in rates?

[Matthew Kelley:]

And can you give us a little update on your state of the multifamily market where you are on pricing for you five year, seven year and then there has been a little bit of a mixed message from some of the other competitors in that marketplace about the underwriting craftwork and conditions which you’ve taken that market right now?

[Domenick Cama:]

You had the money -- the rates continue to be aggressive. I think we mentioned -- I mentioned investor meeting not long ago that we actually believe that we led the charge in increasing rates when the 10 sold off about six or eight weeks ago, actually when it began to sell off. So we raised our multifamily rate on five-year product to 3 1/4% from $3.08 at that point. Subsequent to that sell-off in the 10 year treasury we started to see the 10 year rally and we did not lower rates and I think somebody made a comment or there was a note this morning put out that signature bank or one of the our competitors has increased their rates also in this environment. So we feel pretty good about where the rates are, obviously they are low. But nonetheless we think they are stable. The issue that we see and I think this has been echoed throughout the Northeast is you’re seeing some relaxation of standards, someone more, money thanks going to 8% LTV, giving some more I/0 as part of the transaction. We try to stay away from that but nonetheless is the reality of the market as its out there today. I can tell you because I saw it, the note that you put out there is no tool handle multifamily year, especially if it's great multifamily and it’s not even Kevin you are looking at – is not even a 3% on a balance sheet are the M&A.

[Matthew Kelley:]

And then on the M&A discussion, could you maybe size up the level of conversations, the amount of books that investment bankers have you showing you guys today versus what we saw the for the winter and spring, and in terms of understanding the deal flow and kind of the conversations that are happening in the marketplace today versus a couple months ago, what’s that like?

[Sean Burke:]

Yes, the conversations have picked up obviously and more bankers are starting to call as we get closer to being able to do something here. And so we've had discussions and we entertain various ideas and so those conversations have definitely picked up. What that I think of the page with M&A activity actually has been somewhat slow but that said, the conversations that we are having on that front with perspective to opportunities has increased although I would say perhaps maybe not all of those opportunities are actionable.

[Operator:]

Our next question is from Collyn Gilbert of KBW.

[Collyn Gilbert:]

Just to follow up on Matt’s question relating to M&A. You guys have been pretty consistent in saying you minimized technical solutions through a deal. It seems like given the potential supply that, that would mean kind of the smaller institution. Can you just update again on your parameters that you are thinking as it relates to specific targets?

[Kevin Cummings:]

When we look around the market, I mean you know it would not – it would not be at a character for us to do a transaction in which we saw a benefit even if the institutions was smaller. So we could look at an institution that was, says $1 billion in total assets to 2.2, 2.4, 2.5 billion in total assets and even though those are somewhat smaller transactions we look at some of the pricing metrics that are out there for those and we think those are reportable again with the notion and the objective of minimizing book value dilution.

[Collyn Gilbert:]

And then just could you guys talk a little bit about how you are thinking about the reserves, you’ve had some consistent build here. Should we kind of assume that same sort of dollar rate of build as we look forward assuming that there is not a material change in the loan growth rate that you guys had talked about?

[Kevin Cummings:]

Well, it’s just kind of hot item in the accounting rationale. It’s one of those areas where it’s a quarter to quarter look at it, what’s happening is as you move further and further away from 2011 and 2012 our net charge-off history improved significantly. But it's the changing mix of the portfolio of the growth, the unseasoned nature of the portfolio. The growth has been over $6 billion, like I mentioned earlier since the end of 2011 and we want to handle it to continue to handle it in the most prudent manner in order to create a fortress balance sheet here at the bank. So we will try to do the most conservative thing that we can do within the limits of the accounting rules.

[Sean Burke:]

Yes, I would just add to that, Kevin, that the accounting rules for the allowance to set up, it’s backwards looking and that's how it’s set up right now. It doesn’t -- it's not designed to be forward-looking and I think we think about some of the things that we’re doing in the portfolio and the growth that it’s prudent to keep adding to our reserves here but it gets harder and harder to provision as we get some of our charge-off history and some of the asset quality improves because the calculation itself looks at historical charge-off rates, you’re kind of looking at your nonaccrual rates. And so when those continue to improve, it gets harder and harder to put up a reserve.

[Collyn Gilbert:]

And then just on the C&I side, can you guys give a little bit more kind of color as to what your expected growth rate is within that portfolio? Kevin, I know you certainly laid out and Dom too that the outlook for the overall portfolio, but just specifically to that portfolio, do you think you can sustain this 20% linked quarter growth rate or how should we think about that component of the growth?

[Kevin Cummings:]

Well certainly I think in the short run I think we will continue at the current pace through the next quarter. We just booked a very large commercial loan for the tune of $70 million and outsourced on the healthcare side and then participated a big piece of that. So we are still going strong in that area. We have a very strong backlog and we will continue to have that growth. It’s an area where we feel that the bank is filling the void left by the old Summit Bank, Commerzbank, North Fork Bank and it’s really an area where the middle-market is attractive to us and where it brings core deposits along with the relationship and we are expanding our people and continuing to hire people. So it’s the emphasis of the bank right now as we move forward.

[Domenick Cama:]

Hey Collyn, if I can add that, the pipeline there is about 600 million and change and the staff of C&I lenders, just lenders now have increased to 39. And so that I think demonstrates the point that Kevin made about our commitment to growing those C&I balances. Ultimately we believe that it still keeps or retains the smallest percentage on the balance sheet when you think about three -- four major categories

[Collyn Gilbert:]

And just two other really quick questions. What do you expect the gain to be on the portfolio of resi that you guys are going to tell this quarter?

[Domenick Cama:]

It’s going to be low, Collyn, probably around $500,000.

[Collyn Gilbert:]

And then one just final thought, Sean, outlook on the NIM just given kind of the deposit initiatives and what we’re seeing here?

[Sean Burke:]

I think it’s unchanged, I think in prior we were communicating 5 to 7 basis point sort of decline by quarter, and I think that still holds true today. End of Q&A

[Operator:]

That concludes today’s question and answer session. I’d like to turn the conference back over to management for any closing remarks.

[Kevin Cummings:]

Okay, Emily. Thank you very much. First of all I would like to thank everyone for participating on the call today. Investors is at a great position to expand our market share and to grow and enhance our shareholder value. We are very appreciative of the position that we’re in today and we look forward to a great second half in 2015. Thank you and enjoy the rest of your summer.

[Operator:]

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