Sterling Bancorp
Q1 2018 Earnings Call Transcript

Published: 25 Apr 2018

[Operator:]

Good day, and welcome to the Sterling Bancorp Q1 2018 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jack Kopnisky, President and CEO of Sterling Bancorp. Please go ahead, sir.

[Jack Kopnisky:]

Good morning, everyone, and thanks for joining us to present our results for the first quarter of 2018. Joining me on the call is Luis Massiani, our Chief Financial Officer. We have a presentation outlining our results for the quarter on our website which along with the press release provides a ton of details. Instead of going through the presentation, we're going to summarize the quarter and then open the call for questions. We continue to be very pleased with how the company's financial performance has progressed. The financial metrics are very strong and positions us to continue to evolve this high performing model. The quarterly results benefited from the expansion of our model, integration of Astoria, and favorable changes in corporate tax rates. For the first quarter of 2018, our adjusted earnings of $101 million were 143% greater than first quarter 2017, and 16% higher than fourth quarter 2017. Adjusted earnings per share of $0.45 were 45% higher than the same period last year and 15% higher than our recent fourth quarter. Operating metrics were strong in the quarter as adjusted return on average assets was 145 basis points and adjusted return on average tangible common equity was 17.2%. The operating efficiency ratio of 40.3% continues to result from the strong positive operating leverage demonstrated by our operating results and M&A activity. Revenues increased $133 million and expenses increased by $51 million over 2017 quarter one representing operating leverage ratio of 2.7 times. We anticipate our operating metrics will continue to improve throughout the year demonstrating the value of our core operating model, our business diversification, and the opportunistic M&A activities that we enhance the outcomes. Now let me highlight a number of balance sheet and income statement categories and associated activities that will drive continued high levels of performance. First, the taxable equivalent net interest margin for the first quarter was 3.6% in line with our expectations given the change in the tax laws. Excluding the impact of accretion income and adjusting for the change in tax law, the core net interest margin was 315 basis points which was an improvement of four basis points relative to the linked quarter and in line with our forecast. We have benefited from a rate increase and the continued repositioning of the balance sheet. We expect the overall NIM to be in approximately 360 to 365 basis point range and the core NIM to be in the 315 to 320 basis point range for the full-year 2018. Secondly, commercial loan growth relative to the linked quarter was an annualized 4% based on end of period balances and 9.3% based on average balances. Loan yields excluding accretion income increased 14 basis points over the linked quarter. January and February were slow months in terms of net bookings, but the volume picked up significantly in March and pipelines are meaningfully greater than prior year. There's also some seasonality in mortgage warehouse and factoring and payroll that will pick up in future quarters. Additionally we see new CRE lending opportunities in the Metropolitan New York City market to be priced below our targeted ROEs. We have not seen the increases in Fed rates benefiting the relative pricing in this very competitive market. Finally, we completed the acquisition of Advantage Funding on April 2nd, which brings the loan portfolio of approximately $450 million priced at average yields of 7.5%. We are expecting strong growth in this targeted business line over the next several years. Overall, we are confident in the 8% to 10% net loan growth for the year as we will accelerate organic loan growth and are finding many portfolio acquisition targets in the market. Third, deposit growth was an annualized 4%. We continue to maintain a strong base of deposits with the Astoria acquisition and have experienced virtually no runoff. The market has become more aggressive for driving growth in certain types of deposits, high balance money market and CD products have been priced aggressively especially from banks that have high loan to deposit ratios. The core deposit pricing in DDA now savings and base levels of money market and CDs have not changed which points to building a deposit base that reflects a strong mix of core deposits. Our deposit mix continues to be strong with approximately 38% DDA, 14% savings, 36% MMDA, and 12% CDs at a cost of 47 basis points. We continue to be confident in our ability to match net loan growth with deposit growth in 2018 and ultimately drive loan to deposit ratios below 95%. Finally, operating expense levels continue to be better than planned as we have carefully executed our integration program. We have completed the integration of all personnel with the exception of the branch consolidations which will occur on a steady pace through 2019. We have notified seven branches of consolidation and closed one in the first quarter. We anticipate notifying eight additional branches in the second quarter. We have also begun executing our strategy of streamlining our real estate holdings. We have entered into an agreement to sell Astoria’s headquarters building in Lake Success and will continue to reduce our owned and leased locations. We anticipate that over time we can reduce our real estate footprint by over 35% relative to today. At the same time, we continue to add both new relationship managers and risk oriented support staff to our company. We are finding many high quality professionals that are attracted to this model. We expect expenses will be below the $425 million guidance excluding amortization of intangibles for 2018. As I mentioned previously, we continue to improve the financial metrics as the year unfolds. We continue to see meaningful opportunities to grow organically using the team based model in select commercial and consumer segments. We have also seen a significant increase in opportunities in the quarter to acquire commercial finance portfolios and companies. We are very focused on delivering the value that we have traditionally created over the past six plus years of activity. Now let's open the call for questions.

[Operator:]

Thank you. [Operator Instructions]. We will take our first question from Casey Haire from Jefferies. Please go ahead. Your line is open.

[Casey Haire:]

Thanks. Good morning guys. Wanted to start-off on the loan growth outlook, I can appreciate that C&I is a seasonally soft quarter for you as it was last year and it sounds like the pipelines have come up but if I look at that -- at the pattern last year after a slow start it really ramped up in later quarters. Do you expect a 2018 to play out similarly for C&I?

[Jack Kopnisky:]

Yes we do and we'll also supplement it with some of the acquisitions like the Advantage Funding acquisition along the way. So answer is yes.

[Casey Haire:]

Okay. And so and about the deals, I think you said last quarter you were thinking 75

[Jack Kopnisky:]

Yes, I think it's more like two-thirds, one-third. But it is kind of fungible, so one of the things we recognize in the market during the quarter, I’ll give you an example on the CRE -- the CRE side. We actually looked at a 1.05 billion of opportunities of new loan bookings. We ended up booking about 400 million of the 1.05 billion. The 1.01 billion was about 50 basis points less than our targeted yield and probably about 400 basis points less than our targeted return on equity. So we that we're not going to compromise our target returns we will turn to other asset categories. So for example if yield to come up on multifamily and CRE, we will do those types of things to our targeted level and we'll do less of acquisitions. If they stay low and below our targeted metrics and risk adjusted return levels, we will do more. So that's one of the beauties of this model is we have broad diversification in these assets categories and we can pull different levers at different times and we don't have to originate in one category because we can move the capital to other categories.

[Casey Haire:]

Okay, great. And just switching to the deposit growth outlook, you guys obviously sound pretty, pretty confident on funding your loan growth. It's obviously very competitive particularly in the money market arena, the jumbo money market arena that you identified but with an eye on that that NIM guide I mean we're seeing a lot of your local competitors struggle to grow deposits and deliver on NIM guide. So I'm just curious what's underlying your confidence there?

[Jack Kopnisky:]

For one, as I said on the asset side of that, we're confident we can move capital around to get the types of lifts in terms of the yields on loans to drive the numerator part of the NIM and we're also confident in the mix that we have on deposits. So if you look at our mix and it's why each obviously each bank is a little bit different in their mix of deposits. 75% to 80% of our mix was very core, relatively non-interest sensitive, and I think the increase in those deposit cost went up by something like a basis point in the past, the past quarter. It’s really the competitive area for deposits is on high balance money markets and some of the CD sides of this thing. So our relationship approach is yielding good levels of deposit growth, there are some areas where we will play in the money market side and some areas where we would just pass. So our confidence exudes from one, the asset side of the NIM equation and the mixing of the balance sheet and the types of capital we would allocate and also being thoughtful in the way that we are pricing the deposits and looking at what areas where we do price up and which ones where we hold the pricing levels.

[Luis Massiani:]

Yes, Casey the deposit beta was quite strong in the first -- quite low in the first quarter. So if you recall our fourth quarter call comments we had guided to about a 20% to 25% deposit beta it ended up being just under 15% relative to the movement two-year treasury. So from that perspective we -- the deposit composition and the progression to the deposit cost has been a little bit better than we thought. But we hear you loud and clear and we are saying, we are seeing the same things in the market that our competitors are. So the marginal dollar deposit that's coming in the door will drive that deposit beta up and we continue to think that it's going to be about 20% to 25%. The key difference being here that if you maintain a static balance sheet from an earning asset composition perspective from a mix of securities and loans perspective, I think that the pressure on NIM would be more drastic and more severe than what we anticipate it’s going to be in the past we have talked about for every billion dollars of residential mortgages that we replace with something else given the difference in the core yield that is driven off of that residential mortgage relative to the diversified commercial assets and even CRE assets in the marketplace today, you're picking up about 50 to 75 basis points of incremental core loan yield relative to the residential mortgage that runs off. So for every billion dollars we've said before we think that there's a NIM expansion trade there of about eight to 10 basis points that's one of the things that gives us that ongoing balance sheet transition is really what gives us the ability to drive that net interest margin to maintain it and increase it over the course of the year.

[Casey Haire:]

Okay, that makes sense. I'm just -- I mean 24.5 that is a nice you could remix out of that as well with some deposit growth there. All right. Thanks.

[Jack Kopnisky:]

Sure. Thank you.

[Operator:]

And our next question is from Alex Twerdahl from Sandler O'Neill. Please go ahead. Your line is open.

[Alex Twerdahl:]

Just want to drill in a little bit more to the expense guidance and target that you guys laid out here on the slide and then Jack in your prepared remarks saying that expenses will be less than that $425 million which if I'm not mistaken is pretty much unchanged from the guide that you guys put out last quarter, however I believe that we have another $6 million this year that we're expecting from the Advantage deal; is that correct? So where kind of where are you finding the extra expenses to take out, is that in the consolidation that’s not only fully in the numbers or is there something else that we should be thinking of?

[Luis Massiani:]

It's a combination of all the above. I think as we've talked about on in a couple of calls now both third and fourth quarter, the initial estimate that we had put out relative to the Astoria merger, we are finding opportunities to exceed them, we're doing that in a bunch of different areas. One of the key areas being the Jack alluded to in his comments about just having a great opportunity with respective of reducing the real estate footprint that the combined company had today. And that has both a direct impact from just renewed -- a direct impact and indirect impact across the entire organization with a bunch of hidden costs of having to manage a broader real estate footprint than what you need. And then two-fold the -- we're still in the call it fifth or sixth inning of finalizing everything that we are going to do from a systems integration perspective. So what you will see from a progression of expenses is you will see in third and fourth quarter this year and second half you will see specific line items like our data processing expense everything that is related to occupancy and office operations expense will meaningfully decline and will get us to a place where we are going to offset the increase that comes on because of the acquisition of Advantage, we will see enough opportunities to hit that $425 million and potentially exceed it. So we're maintaining that guidance even though yes the Advantage deal brings some OpEx associated with it. And there's also going to be some savings that come off of the Advantaged deal itself. So once we fully integrate them into the run rate annual operating expense of Advantage for the remainder of the year is about $6 million, we will have some opportunities to chip away at that as well over the course of the next three quarters.

[Alex Twerdahl:]

That's great and very helpful. So when just to kind of clarify even further when we see things like the branch consolidations that you guys had just announced and saying eight more in 2Q that's fully incorporated in the $425 million or if we're sitting here in three months that you guys say we've got another X number of branches that we're planning to consolidate over the next quarter and that $425 million potentially go lower?

[Luis Massiani:]

It could potentially go lower but these initial ones that Jack alluded to on his comments those are factored into the $425 million. It will depend on the rate again we've announced 25 to 30 branch closures, that's over the course of 2019 to the extent that we accelerate the remainder other than the ones that Jack has just alluded to now, you would have the opportunity to notice to have a more accelerated decrease in OpEx going forward.

[Alex Twerdahl:]

Okay, that's great. And then just a question on kind of as you look at your funding and I appreciate the comments you had on deposit growth and the outlook there but for borrowing which picked up a bit this quarter, can you just talk about kind of how you plan to use borrowings and how do you strategically layer in different durations and sort of at what rates to kind of augment the deposit strategy?

[Luis Massiani:]

Sure. We take the vast majority of that is all made up of FHLB borrowings. We take -- we stayed short by design and we latter out between the one, two and three year parts of the FHLB curve with a little bit of bias towards the short end. The intention here is to maintain that 95% and target that 95% loan to deposit ratio. So the growth -- the further balance sheet growth -- so the loan in -- the growth in loans will be funded by a combination of deposits and a decrease in the security composition as well. So dollar-for-dollar loan growth will not result -- loan growth will not result in dollar-for-dollar balance sheet growth going forward. You also have to remember that the balance sheet transition itself allows us to utilize the runoff of the residential mortgage book to fund incremental commercial loans as well. So there is a -- it's a bunch of different factors but the intention going forward is to maintain a much more kind of one-to-one ratio from the perspective of balance sheet growth being funded with deposit growth and a reduction in securities.

[Operator:]

And our next question is from Austin Nicholas from Stephens Inc. Please go ahead.

[Austin Nicholas:]

Maybe just taking a look at the provision, can you -- I know there's no balance in the deck in your prepared remarks but can you just give a flavor of the outlook for the provision going forward especially with the addition of Advantage and some of the higher growth coming from that business?

[Luis Massiani:]

Yes, so its 1Q so remember that we are accounting for Advantage as a business combination. So we're going to take a fair value mark on that portfolio. We've taken a fair value mark on that portfolio already upon completion of the deal. So there will not be a meaningful change in the provisioning requirement going forward short-term driven by Advantage as a lot of that will be factored in into the fair value mark into the lifetime loss estimates that we're factoring into the for the portfolio that was acquired. So we maintain the guidance. We had talked about fourth quarter being about $10 million to $12 million. It was a little bit higher than that. The medallion portfolio is obviously the gift that keeps on giving and so therefore a substantial chunk of the charge-offs that we incurred this quarter were related to one of our medallion relationships which we are continuing to make progress on. You set that aside the provision would have been right in line with what we have, we had estimated in the past so the $10 million to $12 million continues to be a good number and I think it's going to be towards the lower end of that range as we move forward through the rest of the year.

[Jack Kopnisky:]

And if you look at our credit metrics, our credit metrics for the most part of all improved and I think the other guidance I would probably give you is that charge-offs should be in the annualized basis kind of 10 to 20 basis point range. So we feel confident in -- we have our arms around this. The overall credit metrics have continued to improve. It's not a pristine time when folks were charging off five basis points on an annualized basis but this is what our expectation is for 2018.

[Operator:]

Our next question is from David Bishop from FIG Partners. Please go ahead.

[David Bishop:]

Hey guys I'm just curious you noted the seasonality in some of the specialty finance segments as it relates to the change in the federal tax law anything playing out there better in line or even worse than expected in terms of what you might expect from a growth perspective in any of those segments related to the change in tax laws.

[Luis Massiani:]

I'd say that. So listen I think the -- to Jack's comments before I think the pipelines of business we feel very strongly that second, third and fourth quarter is going to be quite good. I think that the nature of the kind of small business investment sentiment and what we're hearing from across the board in all of our markets is pretty positive. We are in the pipeline we have a bunch of different kind of lending opportunities that are definitely not just the traditional commercial real estate stuff that you would see but we have across the board in C&I very interesting kind of investment in growth type projects that we're seeing. So that has -- we're not just -- for a very long period of time we were kind of stuck and we were essentially just refinancing market share out of larger players. Think that you're starting to see a little bit of a change their from the perspective of existing clients and new clients also investing for growth in their businesses which has been good to see. Conversely I think that one of -- to Jack's comments before again what we have not seen the kind of the through -- what we've seen I think a greater competitive environment on, which in part I think is driven by changes in tax law has been in pricing for kind of traditional commercial real estate loans. I think that a large component of the -- where you have not seen the benefit and the increase in rate hikes being factored into new origination yields. There is a fact that from a tax perspective an origination does not need to -- an origination is relative to the more attractive of the tax rate at the lower tax rate without having to have the corresponding increase in the rate hike. So that's one of the reasons as to why, to Jack's point before to the extent that we see good and better pricing resulting in the traditional commercial real estate side we will kind of focus on that and we will originate asset there. But the good thing is that we have a ton of other opportunities in the pipelines across the board in asset classes that are floating rate with good credit spreads just -- when risk adjusted returns associated with them. So we will be flexible and we will deploy and allocate capital to the places where we see the better risk adjusted returns.

[Jack Kopnisky:]

Yes, it's a good point. So one of the things we've built the company on is our objective is not to be necessarily bigger. It is to be more profitable. So we look at the returns that we get off of different asset categories and we opt for the margin rather than the volume side of those things. So and that’s -- it’s playing out right now as Luis said in this market where there are some good opportunities for risk adjusted returns. There's certain categories and there are other categories that where a lot of the monoline companies have focused on that are more difficult to get risk adjusted returns. We're not just going to put on volume for the sake of putting on volume. So we want to create a very profitable long-term, high performing company out of the foundation that we have.

[David Bishop:]

Got it. And then as it relates to the story of residential book in terms of runoff I know it can be -- can be choppy I think the runoff was a little bit less than we'd modeled in for the first quarter you're still thinking about between $200 million to $250 million per quarter as 2018 plays out?

[Luis Massiani:]

$150 million to $1 billion for a year that's what we anticipate. I think that a good even in an increasing rate environment a fair amount of the book is shorter-term or shorter duration 15-year and kind of an arm portfolio, so it will cash flow to about $750 million for sure, high-end should be about a $1 billion.

[David Bishop:]

Okay, got it. And then maybe from a team or relationship manager target there any sort of a new area target there in terms of adding to the bench strength either in Long Island or New Jersey across the system.

[Jack Kopnisky:]

Yes, great question. So we in the quarter we added 42 new relationship manager types into the teams and what we're finding is a lot of great professionals that are interested in joining the team. So we added a significant amount of relationship managers over the quarter and we also by the way we were very cognizant and very proactive of building the infrastructure behind them, so we've added another 70 folks from a staff standpoint that supports a lot of -- many of those are in the risk management areas or many of those are in the data areas as we kind of evolve the company we need a increased sophistication in the systems and infrastructure that we have. So we have a good quarter and acquiring strong talent in the market both on the client side and we had a good quarter in acquiring really terrific talent in the support side.

[David Bishop:]

Remind me in terms of the relationship managers what's sort of the runway in terms of them to sort of hit the critical math in terms of loan deposit funding target?

[Luis Massiani:]

Yes, it’s about people take three to six months to start to get up and running but we expect each of the -- we expect each of the teams to produce minimum of $50 million in loans and $50 million in deposits a year and the -- RMs are good components of that as we continue to expand. So those are and we expect the teams or groups of people to come in and breakeven by the end of the first year and start to accrete and really make a great return by the end of the second year into the third year.

[David Bishop:]

One final question number of teams at the end of the quarter where does that stand?

[Jack Kopnisky:]

Good question I think --

[Luis Massiani:]

37, yes.

[Jack Kopnisky:]

Glad you said that.

[David Bishop:]

I'm sorry. What was that?

[Jack Kopnisky:]

David, sorry, 37.

[David Bishop:]

37, yes.

[Jack Kopnisky:]

37. And again we’ve added pretty significantly to the existing teams, you find that in some cases that's more productive than adding new teams. The one area, where we've added back to the questions on deposits the biggest area of expertise that we've added is around treasury management and deposit gathering relationship managers and again we expect to see the fruits of their labor in 90 to 180 days.

[Operator:]

Our next question is from Matthew Breese from Piper Jaffray. Please go ahead.

[Matthew Breese:]

Good morning guys.

[Jack Kopnisky:]

Good morning. How are you doing?

[Matthew Breese:]

Good. Maybe just starting with the loan growth outlook I want to make sure I have the message right and it sounds like given where commercial real estate pricing is the lack of loan betas there the preference is for more inorganic portfolios specialty finance deals versus organic growth; is that the right message?

[Jack Kopnisky:]

No. So we still prefer organic origination. So about two-thirds of our expectation of the 8% to 10% growth net 8% to 10% growth will come organically and about a third of that will come from acquisitions.

[Matthew Breese:]

Right, okay. And then --

[Jack Kopnisky:]

Okay.

[Matthew Breese:]

Yes. Understood. And then you noted that there's more portfolio acquisition potential why is that and how do you feel about getting another one or two deals done this year?

[Jack Kopnisky:]

Yes, it's interesting the last probably six months we've seen a significant uptick in the number of deals coming to market. So one they're coming to market because companies are refining businesses and companies are refining their models. So some of these come out of private equity that have held on to these portfolios of businesses for a period of time and they're basically believing that this is the right time to execute a sale. Some of them are coming out of larger banks that want to focus on certain areas and kind of clean up their balance sheet. So those are the two kind of sources of these portfolios and we are pretty disciplined in the way we praise and look at these things we look at a lot of deals and turn down the vast majority of them because of price or structure. We believe that we can get another deal done by the end of the year. So we think there's enough in the market to be able to accomplish that.

[Matthew Breese:]

Okay, got it. And then the expense commentary I think you said 35% less footprint I think that gets us in the low 80 kind of level for branches. To what extent do you think that keeps the expense growth mitigated through 2018 into 2019 and is it possible we can see expenses sub that $425 million in 2019 as well?

[Luis Massiani:]

Yes. It is possible. That is the intention. So if you can think so as you can get we've talked about this in the past. We have -- the guidance that we have put out does not factor in the long-term ability to run our current retail banking footprint substantially more efficiently not just from what is factored into the numbers is just the pure consolidation activity. It's the closures of redundant facilities. It's kind of the low hanging fruit from that perspective. Longer-term there is the ability to continue to chip away into exactly what we did since 2011 with the Provident Legacy Sterling and legacy as a valley branch networks. If you added those up we would have gotten to 90 branches before we did the Astoria merger we were down to 40 branches. So I'm not suggesting we're going to cut out of 50% of real estate end of the financial centers but there's the ability to think about things differently to run the retail banking footprint more efficiently and to continue to generate a substantial amount of saves and to continue to do what we've done for the past six years which is if you take a portion of that expense saving on the retail side and then on the broader consumer side and you reallocate that into more efficient higher growth, more profitable kind of risk adjusted return businesses on the commercial side.

[Jack Kopnisky:]

And maybe to extend your question a little bit, Matt, we do believe that the efficiency ratio will get below 40%. So it’s we believe that the dynamics of this model enable us to continue to operate as more and more efficiently as we do on the one side again on the numerator side, we have expected higher levels of productivity from folks. And then on the denominator side being able to do things like Luis was talking about maybe taking kind of retail maybe outsource more activities to get trade more volume variable types of expense phases allows us to get below the 40% efficiency ratio.

[Matthew Breese:]

Understood. Okay turning to the margin was -- first was the tax adjustment, the FTE adjustment was that impact in line with your expectations or was it a little bit different? And then two the new core guidance is 315 to 320 but when I factor in Advantage which I think is a bump of roughly five to seven basis points, we guess it seems like by 2Q we will get at or above 320. So just wanted to square the new guidance by 2Q it seems like we will already be at the high end and kind of get your thoughts there?

[Luis Massiani:]

Yes. So your first question, the tax equivalent adjustment was in line but so you go back to the fourth quarter call when we guided to about an eight to 10 basis point adjustment for tax equivalent. Remember that that is for the full-year 2018 because we continue to invest in tax efficient assets on the public sector side and in the municipal security side. So the full-year impact we were anticipating was going to be about eight basis points, this quarter was about five basis points but that's because that five basis points would have continued to increase over the course of the year under the current, under the old tax. So the tax equivalent adjustment change and the impact on the net interest margin is what we thought was going to be for the first quarter. It's just that impact would have been larger over the course of the rest of the year given the growth dynamic that we’re seeing in the tax efficient asset side. Secondly, yes, we have moved that up to 315 to 320. I think Advantage is going to be very helpful to that. But to Jack’s comments before and to my comments I think in response to the question from Casey Haire. We are cognizant on the fact that there are -- that the deposit funding dynamic and that the competitive dynamic in the local markets in which we operate in is pretty aggressive. And so therefore we're being I think that we're taking a cautious approach in the perspective of remember the beta that we had and as I mentioned before was just under 15% in the first quarter. We think that that is going to be higher as we move through the course of the year and as we continue to focus on generating deposit growth. So I think that Advantage will be helpful at the same time, we want to be cautious from the perspective of presenting what we think is the most realistic scenario which is growth on the funding side will come at some cost from a funding pressure perspective. We are very confident that we are able to offset that with things like Advantage as well as just the transitioning of the balance sheet as well as sort of repricing of the short duration assets that we have. But it is a relatively difficult NIM environment going forward.

[Matthew Breese:]

Got it.

[Jack Kopnisky:]

And we’ve learned our lesson not to go too far on the NIM. So we're trying to be extremely thoughtful in this process and not go too far.

[Matthew Breese:]

Right, I totally got it. Along those lines can we maybe talk about the stock performance given some of the fundamentals you guys posted and does that change the way or giving you any ideas on the capital deployment front particularly around share repurchases?

[Jack Kopnisky:]

Not sure how to answer that. We’re frankly we're disappointed in the stock performance in the first quarter obviously we think we've put together a company and through this integration or this acquisition and subsequent integration we think that the financial dynamics of this company are very strong now and they will be very strong in the future. So we've authorization to do repurchases on stock if we so choose and we will always look at things like the dividend, but we believe we've demonstrated that this is a financially growing company that presents very strong returns to investors and is in an environment that as a diverse balance sheet and we have lots of options to continue to grow. So we do look at all those options. We put the capital allocation alternative side by side and look at those all the time. But we think we've created something that hopefully we continue to keep growing and performing at this level or better.

[Luis Massiani:]

Matt said a little bit differently we're pragmatic about the world. To Jack’s point we review everything to the extent that we continue to believe that we have suitable investment opportunities out there be it from an organic loan growth perspective or organic deposit growth perspective or from an acquisition perspective that allows us to achieve 18% and 20% plus ROEs and IRRs on those -- on that growth, we will continue to grow. And if we determine that the environment has changed and that we cannot generate those types of returns, we have full capital flexibility and the ability to go buy back up to 10 million shares which is what we approved in the first quarter in connection with our 10-K. So for now we are not intending to do anything on the share repurchase front but we're also not going to say that we're not going to do it because again to the extent that we don’t find is suitable investment opportunities, we absolutely have the ability to manage capital more -- more flexibly than what we have up until now.

[Operator:]

And our next question is from Collyn Gilbert from KBW. Please go ahead.

[Collyn Gilbert:]

It seems like that would have been a nice place to wrap up the call but nope I got more questions sorry. So okay so starting just curious are you guys breaking out or do you happen to have the deposit beta within the Astoria franchise versus the Legacy Sterling franchise?

[Jack Kopnisky:]

We do have that. We don't share that publicly but I can -- what I will tell you is that the beta on the Astoria on the retail footprint acquired from Astoria has been essentially non-existent up until this.

[Collyn Gilbert:]

Okay. Okay. And then just given a lot of the commentary which I really appreciate in terms of discipline around growth and focus on returns and kind of risk adjusted returns, comments that the pricing that you’re seeing is insufficient enough on the CRE side and all of it, does it change the mix targets for the end of the year, I know you're still thinking of that 8% to 10% loan growth target but how about the mix change?

[Jack Kopnisky:]

I think you will see. I think that you will see that the commercial -- that the growth on the commercial real estate side including multifamily and ADC is not going to be meaningful at all. I don’t think that balances will decrease from an absolute dollar term perspective there either. But you’re not going to see high-single-digit or double or double-digit growth on that side. So the growth will be more weighted towards what I was alluding to before which are kind of these more differentiated C&I both traditional C&I and commercial finance opportunities that we’re seeing across the other business lines which we believe are just more effective. So I do think that at the end of the year you will see a greater proportion of growth being generated and being represented by traditional C&I plus commercial finance and CRE.

[Luis Massiani:]

And it helps our mix, our directive we’re trying to get much more balance on the C&I versus the CRE side. So it’s an area where we want, where we get higher risk adjusted return anyhow but it’s an area that we will continue to put more capital into it.

[Collyn Gilbert:]

Okay, okay that's helpful. And then Luis do you have or you willing to share what the credit mark was on Advantage?

[Luis Massiani:]

That is not public information but it’s not a material number, it’s not something that you are going to see that will move materially any performance into further second quarter or anything like that. But we by design and as we’ve talked about in the past there are couple of portfolios that the folks at Advantage had or couple of sectors that they were -- that they had in their portfolio that we are not hammered with and that we are going to be liquidating and a substantial chunk of the credit market going towards making sure that we don’t have any issues in those portfolios. The vast majority of the book from Advantage has very strong performance with very limited delinquency level, so there is not a big market going on the run rate business that we continue to -- that we will continue to focus on.

[Collyn Gilbert:]

Okay. The sectors that you were not hammered with or that you might pull from what were those within that portfolio?

[Jack Kopnisky:]

There were like -- there are certain areas like Black Cars, fleet black cars things like that and when you start to get into from the end scene less than $100,000 vehicles that’s where there are a little more difficult. So the flip side of it is we believe that because of the funding advantage we bring to this business line, you think the more targeted types of categories are ones that we can really be much more price competitive in the market everything from tractor trailers to two trucks to other types of specialized fundings out there so through manufacturers. So we think this is an opportunity to grow the business in as Luis was saying in very specific types of categories not across the board. So it’s frankly what we have done with almost all the business that we've focused on profitable niches and segments where we’re comfortable on the risk adjusted returns that we’re getting out of those categories.

[Luis Massiani:]

The stuff that we don't like is less than 10% of the portfolio that we acquire, not a big number.

[Collyn Gilbert:]

Okay. Got it. Okay, that's helpful. And then just finally not a big number, but just curious the uptick in the equipment finance net charge-offs in the quarter, what drove that?

[Luis Massiani:]

One loan transaction. Not really indicative of any other exposures that we have in the portfolio. It was a relatively large relationship and it had -- and it drove a large charge-off but the delinquency status and everything else from the performance in the portfolio nothing really to -- this was not a broad-based increase in provisioning or charge-off levels related to equipment. The discreet situation that was just little bit larger in size and what the traditional equipment finance relationship looks like. That’s all.

[Collyn Gilbert:]

Okay, okay and then that’s all I mean do you anticipate, what you did this quarter cleaned it up or if there to be more lingering coming?

[Luis Massiani:]

No, on the equipment side. So when you look at the charge-off, the aggregate charge-off levels for the quarter that were about just over $8.5 million bucks of two-thirds of that were represented by the medallion and by this relationship. So I think that this cleans it up, so we don’t anticipate that we would have a charge-off of that revenue again. Always in credit you don’t know you have an issue until you have an issue, but we don’t anticipate at this point we are not seeing anything in the portfolio that would result in a single $3 million charge-off in the equipment financial portfolio in the following quarters.

[Operator:]

That will conclude today’s question-and-answer session. I’d like to hand the call back to speaker for any additional or closing remarks.

[Jack Kopnisky:]

That’s great. Thanks a lot for following the company and those were great questions, so we appreciate it. Have a great day. Thank you.

[Operator:]

That will conclude today’s conference. Thank you for your participation. Ladies and gentlemen you may now disconnect.