Q3 2020 Investors Bancorp Inc Earnings Call
[music].
Good morning, and welcome to the investors Bancorp third quarter earnings Conference call.
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Well begin this mornings call with the Companys standard forward looking statement disclosure.
On the 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.
Oh jeez and other factors some of which are beyond investor Bancorps control are difficult to predict and which can cause actual results to materially differ from those expressed or forecast in these forward looking statements.
In last Night's press release, the company included its safe Harbor disclosure and refers you to that statement that's.
That document is incorporated into this presentation for a more complete discussion of the certain risks and uncertainties affecting investors Bancorp. Please see the sections entitled risk factors management discussion and analysts of financial conditions and results of operations set forth in investor Bancorps filings with the FCC.
And now I'd like to turn please.
Please note. This event is being recorded and now I would like to turn the conference over to Kevin Cummings, Chairman and CEO of investors Bancorp. Please go ahead.
Thank you Andrea.
Good morning.
Welcome any investors Bancorp third quarter earnings call.
Last night the company reported in its press release and income of 64.3 billion.
25 cents per diluted share the three months ended June Thirtyth 2020.
This compares to 42.6 million or 18 cents per share for the three months ended June thirtyth.
And that's a 2 million or 20 cents per share.
Period ended June Thirtyth 2019.
These results represent a 51% increase in earnings for the second quarter.
24% increase over the third quarter of 2019.
Yes basis, the increase in earnings represent.
50% increase over the linked quarter.
35% increase over the prior year.
But I must say December 30 of 2020 net income totaled 46.4 million or 62 cents per diluted share compared to 46.8 million or 55 cents per share for the nine months ended June Thirtyth I mean.
Third in 2019.
During the second quarter. The company completed its acquisition of gold coast, which added approximately 535 million and total assets.
43 million at Lowe's appointed 90 million in deposits and.
It's seven branch to the New York market and nearly doubled our deposits and that sort of southern counties. We continue to integrate these branches into our systems and opportunities for market expansion is strong.
There was invited to a breakfast meeting in Southampton out on the island with permanent businessman and the feedback was positive regarding the transition of customers from Gulf Coast to investors, we continue to leverage our brand in this market.
Yes, we think it is very attractive due to its demographics concentrations for mid size businesses and density high net worth individuals.
With respect to our brand I'm happy to report that Vestas back was selected by Newsweek a national magazine.
The best Bank in the state of New Jersey, the Best Big Bank in the state of New Jersey [laughter].
Newsweek used a ball criteria to mega banks throughout the country.
Then a private bank in each state.
The banks would have gone to local footprint. They indicated that caused the miss and I want to have to go too far out of their way, but they need to a branch right yeah. They evaluated banks that offer a winning combination.
Oh piece.
It is of interest rates and a broad array of services, including a variety of loans at a high performing mobile labs.
We're very proud of this recognition by a third party and it highlights our commitment to expanding our digital platform.
During the quarter, we expanded and enhance our online account opening well first the bank customers and then next to small business customers and.
Then to new customers.
This account opening platform is fully integrated with our sales force management tool, which fell short tail just to follow up with customers.
The expansion enhancement.
Oh, the online account opening platform is an enterprise wide effort and the foundation.
Oh, they omni wide experience that will be expanded which will lead to significant gains in branch efficiency and improvements.
The customer experience by digitizing, many manual processes and the branches.
We are very happy to receive the recognition for Newsweek, Oh, we will continue to enhance the customer experience and improve our digital platform.
During the third quarter the company recorded a provision for loan losses of 8.3 billion versus $33.3 million in the second quarter 2020, as compared to a credit of two and a half million in the third quarter of 19.
This provision is a direct result of the current forecasts and economic conditions that include the economic impact of the COVID-19, pandemic and the new accounting reserve requirements [noise].
Net charge offs for the quarter ended September Thirtyth, well, just 667000 versus 4.1 billion in the second quarter and one of the half million for the quarter ended September Thirtyth 2019.
Pre provision net revenue was 97.5 million for the three months ended September thirtyth versus $92.1 million for the three months ended June Thirtyth, an increase of 5.4 billion or 6%.
This increase in it and we also had an increase of 29.8 billion.
At September Thirtyth, 20, or 47% compared to the three months ended last year, that's a 47.7% increase over the same period last year.
The bank has spent considerable efforts in evaluating its credit position.
Its focus its efforts on the commercial portfolio.
As disclosed in our second quarter 10-Q.
We reported approximately 2.2 billion in commercial loan the pearls comprised of 447 million in Cnine launch.
Hi, and 3 million in multifamily.
830.
<unk> billion in commercial real estate loans at 830 million in in a commercial real estate loans and 15 billion in construction loans and that's one construction loan.
The second quarter number is down from a total of 3.6 billion earlier in the year.
The banks lending teams continue to be very aggressive reaching out to customers. During this time of great stress and uncertainty unlikely.
Unlike the P. P P loan program.
Look at this the thought process to help our borrowers and customers during a difficult time.
Well right now we are actively reaching out to them to assist them. During this economic distress initiative by local government shutdowns. We continue to spend on time actively communicating with these customers to assess their needs starting this pandemic.
Every month, they we spend time on zone calls in a well known typesetting deciding discussing credits well into the evening hours.
After extensive communication with our borrowers and follow up our lending teams, we have reduced the exposure to deferrals significantly.
Oh I've told the 20th total.
Total request for deferrals totaled 593 million and the commercial loan book. This is comprised of 282 million and seen eyeballs <unk> hundred $88 million in multifamily loans and.
108 million in commercial real estate loans.
[laughter] 15 billion dollar construction.
Yesterday, we updated our review.
Oh $175 million of loans scheduled to commence payment on November 1st.
We anticipate approximately 225 million well return to payment status.
37 million were granted additional deferral and.
At approximately 13 million will need additional information before a final decision is made.
We have another 70 million scheduled to return to payment status on December 1st and.
And if we anticipate the same result system Pepper, we would expect the practice approximately another $50 million reduction and the Pearl balances.
It should be noted that we are in constant communication with our borrowers during this process and there may be other additional deferrals as market conditions are fluid and a lot depends on what the government does in our local markets and the progress made through our journey back to a more normal lifestyle.
In addition, we have 200 million of deferred loan scheduled to return to payment as of January 1st.
And we anticipate going into 2021 with a significantly less exposure.
[noise], if you take a snapshot at our exposure today, 61%.
One trend that has $62 million up to 593 million and deferrals as concentrated in six relationships.
$46 million multifamily relationship of eight wells, which is reaching expected to return to payment next week.
Three hotel relationships totaling 268 million.
Multi family loans, and 25 million in Queens scheduled to return to payment in December.
And then at the payments that you in New Jersey for 23 million scheduled to return to payment in January.
The three hotels, our family generational seasoned operators, well known to the bank and our good customers that a bank well I've heard about support through this crisis.
This industry in the restaurant industry are facing very difficult times, but thanks to the cooperation of the regulators the fed and the accounting profession.
Hello, we are able to help these customers through an unprecedented situation there.
The remaining 20 to 30 million alone the pros at this time in October Twentyth is comprised of 113 loans with an average loan of $2 million.
And it should be noted that 59.
59 of these loans are less than $1 billion in balances outstanding.
The weighted average LTV ever antibiotic eylea portfolio is approximately 53%.
With 14% of the portfolio and lower risk co op loans.
The LTV on the 188 million into paired multifamily loans is approximately 59% pre IDE pandemic.
We have only 19 billion at the parent retail shopping loans, which have an LTV of 54 billion, which one of the larger loans and that group. The 7 million is returning to payment next week.
Overall, we are pleased where we are with respect to assisting our customers to this pandemic today.
It was much uncertainty it in forecasting future events at least and forecasting these results.
And if that's all right.
Well, we will continue to work with our customers to help them through this crisis era.
Our approach has been it is to be proactive in addressing these issues as they will be difficult conversations.
We believe we have taken a conservative approach to our provisions to date as compared to other banks with similar portfolios and the New York, New Jersey markets and are well positioned to weather the storm.
Our allowance for loan losses, the coverage ratio into loans increased 1.37% from 1.28% at June Thirtyth.
Tomorrow, we anticipate the closing of a loan sale for $18 million, which will reduce our NPL to 114 million versus 126.8 billion at June Thirtyth.
Well, we will we anticipate recording a 1.9 million recovery as a result of this disposition of the loan.
With respect to delinquencies eight.
8.8 million up to $13.6 million in commercial 30 days delinquent loans are current as of today.
And the 60 day bucket.
Total commercial delinquent loans 30.6 million of which one relationship which amounts to 25 billion and the CRT portfolio has been approved for extension will be current once the legal work is completed.
Non accrual loans 61.8 million, what 39 basis points after giving effect to the sale previously mentioned and a well collateralized and have limited exposure.
And I've said this day the average loan is approximately $1 million.
Based on our current delinquencies.
The significant progress and reducing our deferred loan balances. In addition to the increase in our loan loss reserves in the past three quarters. We believe we are well positioned to get through this pandemic.
[noise] with respect to the balance sheet.
<unk> decreased 365 billion during the quarter.
Which was attributable mainly to a reduction in mortgage loans of 295 million.
22 million in multifamily loans.
We have slowed the pace of this decline in loans and anticipate some growth in the fourth quarter as we have a robust pipeline and are working diligently to have a strong fourth quarter.
As we continue to feel more comfortable to our exposures due to the academic economic impact we will see nice growth opportunities.
And then to continue continues to stabilize we will look for opportunities to grow loans across all portfolios as opposed to our strategy in 2019 and the beginning of this year well we are more focused on the business segment.
At a more focused on the business lending segment.
This is not a major strategy ship, but one that we consider a very opportunistic.
It was a good quarter for deposits as noninterest bearing deposits increased over 300 million or 10% for the quarter.
Total deposits decreased by $594 million or 7% as we began the process to reduce our cash position, which negatively impacts our margin.
Loan to deposit ratio remained stable at 110% for the quarter.
Cost of deposits declined nine basis points in the quarter and there are still opportunities to decrease funding costs and this year as we run off our excess cash and we execute on a sales leaseback transaction, which will generate approximately 9 million and and again, which will be invested in the early retirement of high cost.
Wholesale liabilities, which result, hopefully will result in an expansion of our margin in the fourth quarter.
With respect to capital the company announced a dividend of 12 cents per share has increased its capital ratios across the board given the impact of the P.P.P. loans increased earnings and a reduction in assets.
We believe we have sufficient capital strong liquidity and a robust credit culture to maintain that dividend and to handle the uncertainty in economic stone and maybe on the horizon.
And actually at this time, we look forward to increasing that dividend by a penny in January as we have done over the past several years.
With respect to buybacks. We currently have 14.6 million shares approved to be purchased having purchased over 1.5 billion since our second step.
We are prudent management of our capital and are excited about the opportunity to reduce resume on buybacks.
Valuating the uncertainty of the election, and the ongoing disruption dependent habit.
We have and continue to discuss this opportunity with our board and our regulators and believe we had a strong position to commence buybacks when things settle down post election in the fourth quarter.
If we look at past calamities like Hurricane Sandy and the 2008, great recession, we have managed this turmoil and have been very opportunistic.
I believe that this management team and with the investments that we've made in our enterprise and credit risk management technology and product development.
We are better prepared today to serve our customers and our communities.
Which will result in stronger returns to our shareholders.
I would like to turn the discussion over to Sean Burke, our CFO for more commentary on the quarter and our results of operation.
Thank you Kevin.
Net income was 64.3 million or 27 cents per share for the three months ended September Thirtyth 2020, an increase of 21.7 million or 51% quarter over quarter and 24% year over year.
Net interest margin increased six basis points to 2.79% in the third quarter with declining cash balances and deposit costs driving the improvement, we expect cash balances and interest cost for the decline in the fourth quarter.
Total noninterest income rebounded nicely from the second quarter and totaled 19.9 million, an increase of 9.8 million quarter over quarter strong swap income mortgage banking activity and wealth and investment product revenues all contributed to the quarter over quarter increase.
Expenses totaled 104.1 million in Q3, an increase of $4 million compared to the three months ended June Thirtyth 2020.
The increase was largely the result of increased incentive compensation and medical expenses.
Included in expenses were approximately $1 million of costs related to the early extinguishment of borrowings in the quarter.
Despite the uptick in expenses, our efficiency ratio improved improved slightly to 51.6% from 52.1% in Q2.
Provision for credit losses was 8.3 million for the third quarter compared to 33.3 million for the second quarter. The decrease was driven by improving current and forecasted economic conditions.
Third quarter loan originations were strong, but not enough to offset the peace Paydowns and payoffs as a result total loan balances decreased 364 million quarter over quarter, primarily driven by residential and multifamily loan categories.
The impact to interest income from declining loan balances was minimized as were able to allow high cost funding to run off in Q3.
Total deposits were down 384 million quarter over quarter non interest bearing deposits were up 305 million or 10% quarter over quarter, our percentage of noninterest bearing deposits to total deposits improved to 18% at September 32020, compared to 14% a year ago.
Asset quality liquidity and capital continue to remain in a strong position.
Non accrual loans represented <unk>, 0.63% of total loans at September Thirtyth 2020, compared to <unk>, 0.59% at June Thirtyth.
Well, our allowance for loan loss for credit losses to loans stood at 1.44% at September Thirtyth.
Our common equity tier one ratio was 13%.
Our loan to deposit ratio was 110% compared to 122% and year end 2019.
Now I'd like to turn it back over to Kevin for concluding remarks, good thanks, Sean.
I imagine the faithful not vehicle you.
We saw some hope and optimism in our communities.
All branches are open at full service a regular hours, except for the recently mandated hot spots in Brooklyn, we.
We are taking all precautions to protect our customers and employees.
We have cold, we have close to 75% of our corporate employees back to the office. It's very good to me to see that healthy and strong willing to return and lead our communities back some Paul of normalcy.
Is it a branch in Southampton for Gulf Coast branch on Saturday and listen to their challenges during this pandemic and their transition to our bank. Our retail teams are engaged and excited to be working and more importantly, helping their customers and our communities through this pandemic past.
Past eight months have not been easy, but we have faced the challenge and continue to get stronger and more adaptable as we navigate the changes from these unprecedented events.
And we get some stabilization in the macroeconomic climate, some cooperation in Trenton, Albany, and Washington, including another stimulus Bill.
Each will then impact our economic model.
We expect and we can finish the year with a great fourth quarter we've.
We've been aggressive in calling on all customers.
The war room type attitude toward monitoring our credit exposures with great teamwork and cooperation from online loan offices, and our credit risk teams.
This crisis is great different from 2008 as the banking industry is stronger and better capital to sustain this economic downturn investors Bank is also stronger and better prepared for these events.
I'm much more optimistic than I was in April for July when there was a lot more uncertainty our medical professionals and health workers have been outstanding and I've learned a lot about the treatment of this virus and we are in a better position to monitor and treat this terrible as Devin.
We had a goal of 10% return on tangible equity for the quarter.
Earnings per share increased 35% to last year after taking additional provisions in the quarter with less net charge offs on balance sheet and capital are strong and we are well positioned to grow as the economy improves.
I'd like to turn this call over to questions Andrew.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using speakerphone, please pick up your handset before addressing the key [noise].
To withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
[noise] and our first question will come from Mark Fitzgibbon of Piper Sandler. Please go ahead.
Guys good morning.
Hey, Mark Hey, Mark.
Kevin just to follow up on the buyback comments that you made with that with the TC race, you know pushing 10% in the stock trading sort of 75% of tangible book value I guess I'm curious why would you still have the buyback in place why wouldn't you.
You're getting on that right now even before the election.
[noise], Mark I think it's Oh way of being prudent as such uncertainty in the market.
We're continuing to evaluate it and I think we're just waiting FX does set us after the election and have some continue discussion with the other constituents and Bob Bailey our regulators.
We did the bank repo.
Repurchase at the end of last year, and you know we want to manage it in a similar to the way we've done since the first step through the second step.
In a prudent manner. So it is you know, it's a wait and see attitude see with have set of markets afterwards and.
Our plan is to continue to buyback.
Sometime in the very very near future.
Hey, Mark is talking about and if I could just add a comment to that.
You know obviously, we recognize that the buying back the stock is a good investment for us and it's something that we want to do we have already had some preliminary discussions with our regulators and without borders and it's you know I remember someone saying to me once you know, it's not a matter of <unk>.
It's a matter of when and so I think as Kevin said in his prepared remarks.
You know things look good that we will resume.
Buying back the stock sometime in the fourth quarter, but we would like to touch we'd like to do a little more analysis on it and have more discussions with the constituents that Kevin mentioned.
Okay, and then secondly, it looks like you still have about $4 billion of borrowings at an average rate at 222, I guess I'm curious how much of those will roll off over the next few quarters and should we expect more prepayments like you did this quarter.
Yeah, Mark actually we don't have any more borrowings coming to this quarter.
We do have about a billion dollars.
Brokered Cds in retail Cds maturing over the quarter at an average cost of about 150 basis points. So that's going to give us some momentum for NIM.
For the end of the fourth quarter. We are also looking at I think Kevin mentioned earlier in his prepared remarks that.
We did sign a contract to do a sale leaseback in which we're expecting to gain up somewhere between seven and $9 million.
And our thinking is that we'll take that money that gain and use it to offset prepay fees on borrowings that are averaging a cost of about 2%.
So you know still and so we'll get some more momentum from that.
But in terms of this quarter the big gain.
Dean to form a brokerage Cds there are no borrowings left to pay off this quarter.
Okay and.
And then Sean I apologize I missed your comments on your expense outlook for Fourq you.
[noise] well that you missed it because I didn't provide much [laughter].
Well, let me rephrase it.
We believe expenses will be similar to Q3.
Okay.
And then lastly, I wondered if you're seeing much of a difference credit performance from your multifamily commercial real estate loans in New York versus New Jersey.
[noise] the mark on collect.
Collection rates you know I think the we continue to see collection rates.
About 85% for multi and about 50% to 60% on CRB, but I did want to put out one piece of information that was it in the in the deck that we put out and.
Specifically about Manhattan, we looked at the deferrals in Manhattan by category and Ltvs about multifamily loans in Manhattan is approximately 54%.
And the job deferred balances in Manhattan.
Lodging category, which is obviously the biggest category that we have a deferment.
Prime at 244 million sit in Manhattan, and the weighted average LTV of those properties is approximately 49%. So those are the two big categories in Manhattan, and I know, there's been a lot of discussion around the industry about the non.
On Manhattan, and what's going on there, but we feel very good about the the LTV situation and the fact that the customers were dealing with have a significant amount of equity in their properties in Manhattan, and we deem it a very low probability that theyre going to walk away from.
These properties.
Thank you.
Our next question comes from Jared Shaw of Wells Fargo Securities. Please go ahead.
Hey, good morning, guys.
Hi, Jared.
It was circling back on on the margin you talked about the run off in the resi book and some opportunities for growth elsewhere should we expect or can we expect to see maybe a permit in loan yields on a quarter over quarter on that on the core book So nice.
Change in mix or should we expect sort of launch let's say roughly.
Roughly where they are yeah, I think you actually see a reduction in loan yields Jared because I mean, if you just look at what the average loan yield was in our residential book.
Quarter over quarter was approximately the same but if you go back a year in our residential book went down almost 40 basis points. So that's ready.
We're continuing to put loans on which is not putting on as many as we were.
And in prior years on the multifamily side, we have now.
Moved out pipeline up significantly on the CRB front.
Our pipeline is about 1.7 billion and the weighted average cost of DCR. Three pipeline is about 390, so that would that will bring down the yield on the CR repo.
You know see an eye is about 800 million.
Yeah, that's a little bit more difficult project, but.
The combination of.
Multi family loans and residential loans continuing to come on the balance sheet.
Well I think has the effect of lowering.
The average yield on loans.
If I may ask Gerry and Sean I, just wanted to add a comment though the trend that really benefiting margin in the third quarter, which are declining cash balance is very low average yields and deposit costs continuing to come down.
We expect that will continue in Q4 and despite maybe some headwind on the loan side, we do expect improvement in margin in Q4.
Similar.
To that we experienced in the third quarter.
Great that's referenced Thats and then just circling back again on the on the credit.
The trends you're talking about those deferred laws, which is which is great are those values at origination.
I guess, what do you what are you seeing in terms of valuation impacts from long term co, but obviously, you're not giving full reappraisals, but.
Are you seeing valuations really get hit because of us and if you did mark those to market what would you guess they look like.
Yeah, I mean, we haven't seen any significant decline in valuations I mean, we look specifically at cap rates and no cap rates continue to be in that 4.5% to 5.5% range. So no significant decline there.
On some of the Cnine properties it it's a little bit more difficult to do because obviously.
Operating income has been impacted and.
Trying to put a valuation on a hotel for example, it's operating business.
It's difficult right now so.
You know I think specifically, though in the commercial real estate in multifamily sector.
While we have seen a tick up in cap rates. It has not been significant and it's not actually what I expected it to be a you know it's just it stayed pretty stable.
Okay, I don't think we see like a panic in the market people are not going to daus, giving back the keys.
I think there's still.
Confidence and the market, we don't see a panning out they're dealing with the hotel operators they are generational owners.
One in particular has put up a six months of payments and in escrow.
A large exposure, but the properties multi node.
Number two properties and I think.
We're working with borrowers.
Borrowers, it's a small group like I said, 61% 360 plus billion is in six relationships and we know these customers very well and.
I think it's.
Yeah, we feel much more confident.
Then we were sitting here six months ago.
Okay, great. Thanks, and then just finally for me as we look at the allowance level if.
If we make the assumption that the macro model doesn't change the memory kind of ball doesn't change is this a good high watermark for the for the allowance of those you start.
Dealing with some of those you know remain or loans that.
Sure on deferral or don't return to payment.
If there was a charge off is there should we just expect that provision or allowances out of Britain, we can see a have.
Have your future decline is as long as a result.
I think it's a big if but you know we understand you forecasted conditions improve or remain similar then yes, I would agree with your statement.
Jared, but also keep in mind that loan volume and loan production and loan balances also impact that so we've seen declining loan balances and if that if the tide work to turn there and we would see more production it could lead to increased provision as it relates to loan volume.
Great. Thanks, a lot.
Hey, Jared that reminds me of a question I used to get when I was with the board and 1990 192, when the audit committees used to ask me if the the allowance is adequate I sit here today, it is but god only knows in the future [laughter]. Thanks.
Our next question comes from Stephen do Wong of RBC capital markets. Please go ahead.
Hi, good morning, guys.
Hi.
Just on the Manhattan.
Very close I, just want to confirm if I heard that right. That's primarily just the multifamily the logic that you guys spoke about.
Yeah, well I think we put a deck out.
Last night or this morning, but if you look at Manhattan men.
Manhattan has total deferment of 313 million.
And the composition of that is 243 million lodging fit.
58 million in multifamily.
And then 10 million CRD and a million and Cnine.
All right perfect no thats the net debt was really really helpful.
And then just on the buyback the rig.
Remaining capacity they have.
That's about roughly 150 120 million so that's a little more than 50% of a year's earnings.
Yeah, assuming that you go through that and the next few quarters I guess you looking beyond that would you be open to starting another buyback program next year.
And of course, you know, we always look is to buy at the buyback as an effective way to manage our capital and obviously, if it makes sense to buy back stock and we've run out of.
Authorization of course, we would go back to the board and ask them to reauthorize an additional allotment.
Great and just along those lines.
Is there a target capital level that you would like to be above.
[noise] Yeah, I mean, you know it again you are asking me that question in the middle of a pandemic. You know if you had asked me say two years ago I might have said you know, 8.5% and these days, it's more like 9.5%. So you know it just depends on where we are.
In particular point cycle.
But it's it's difficult to say that in all situations. This is where I would be very happy.
Understood.
Okay, and then you made a comment about the pipeline fourth quarter looking good or is are there any particular segments that you're more optimistic about in the fourth quarter.
[noise], Yeah, and health care is is having a good quarter.
See you know I book, we think we're going to close about 500 million in the fourth quarter that.
I spoke to our chief lending officer. This morning about that and multifamily is opened up a little bit we have approximately $250 million or do you see an i. loans in the pipeline and.
I should mention that despite the continued reduction in multifamily loans that is incurred quarter over quarter.
This month, we have finally stopped second leading so.
Were actually flat for the month.
Oh, that's great news.
And then just last question for me your noninterest bearing deposits grew three wells. This quarter can you just give us some color like what drove the growth.
Yes, Steve we.
Yeah, we obviously, we had some PPP money in there that continued to come in we had also we put out a team of bankers business bankers that we talked about last year and those folks have started to to reap some benefits.
We're doing more see Eni lending we are doing more non it we're doing more treasury management and those two factors are having the the effect of bringing more noninterest bearing deposits and so you know it's been our strategy to continue to transition the bank from a traditional three.
Yes to a commercial bank and I think we're finally, starting to see some benefit from those strategic decisions.
Good to hear thank you.
Our next question comes from Matthew Breese of Stephens, Inc. Please go ahead.
Good morning.
And Matt I appreciate the color on the on the near term margin.
Just just considering the average balance sheet and the opportunity to continue to reprice the Cds.
There's obviously room on the bottom Tron, and then average new loan yields don't sound terribly off from where they are now.
You know as we as we look into next year and yet you deploy the cash where could we see the margin to expand to where do you see that plateau mark.
[noise] well you know, we we are going to reap the benefits of a continued repricing of both borrowings and deposits and so there is a tailwind there and we believe that the benefit.
There's still a lot of benefit there not only in Q4, but looking out into 2021, Matt So I.
I think you know where you would start to maybe Peter out.
You know running out of that tailwind probably the second half of 2021 is where you can see some trail off there, but you know we could we could have 20 more basis points to go here I mean, ideally we would like to see something in the 3% range that may be a little bit of a stretch, but you know I think that the.
Critical for Us and you know I'm, not saying that we're going to get there, but that's the target that we have in mind.
And if I could just into sean's comment. So youre, obviously, you get the benefit as he described on the deposit side, but how continued remix seat of the asset side of the balance sheet is going to continue to provide benefit to us.
Seeing yields on Cnine loans of 50, 50, 50 basis points to five eight above where multifamily and Syria coming in so you know as we continued to focus on the Cnine front.
That will help to to add to NIM also.
Excellent I appreciate that.
You mentioned several points of the pipeline that sound relatively low relatively strong.
Looking into the fourth quarter and beginnings of 2021, how do you feel about net loan growth prospects can we can we expand gross loans from Europe.
Well you know.
I think that net loan growth will be better as we head into 21, I think that as I said earlier on the multifamily front.
[music].
You know I think that we've stopped at leading a we're looking at ways to stop the bleeding on the residential side, where you know where we are we're dropping there and probably 60 to 70 million a month. Despite the activity that we have in that portfolio and were looking at now.
You know I should add the comment that it was a strategic decision to start to slow down residential balances on our balance sheet. However, when the pandemic came along.
You know that.
Presented an opportunity for us with wider spreads having said all of that I think Matt it would depend on raising if I can get ready to stabilize we should see growth in 2021, we know we're going through the budget process right now and.
Well I am not trying to give guidance at all here, we are projecting growth in 2021.
And that project hasn't been approved yet, but we are looking at ways to to continue to grow the loans in 2021, because again as Sean described earlier steam is going to run out of just based on the getting rid of the cash balances and we need to start to January.
Growth to continue to end to NIM.
Understood. Okay last one for me.
In your prepared remarks, you mentioned that you're getting 50% to 60% recollection on the commercial real estate asset class.
What are the components within that what is it for office versus retail and hotels.
You mentioned also mentioned, 85% rent collection multifamily what does that New York versus New Jersey.
[laughter].
Matt I don't have that breakdown, you know I would say that.
No New Jersey is probably doing a little bit better than New York.
All in all of the categories.
But I don't have a specific I don't have the numbers to support.
You know you question, so, but if you'd like you know I can look up that information and we can we can send that out to you.
Sure we'd appreciate it that's all I had thank you very much.
Our next question comes from Laurie Hunsicker of Compass point. Please go ahead.
[music].
Yeah. Thanks, good morning.
Morning.
Well, it's a great and I'm I'm, probably missing it's always I just need your help finance so that of the 7.256 billion a multifamily it looks like kind of warned I bring this isn't unique to settle.
What I find unless I'm not reading a top level is the 188 million that you have in multiple formally refer all.
What how much of that is actually in New York.
That.
Of $58 million in Manhattan.
Okay. Okay. Yeah, I'm, sorry, you gave that number earlier and I just I couldn't find my wife, Okay.
So.
Got 46 million of multifamily loans that you mentioned that are returning to payment status. Next week is is that coming out of the New York bucket or is that New Jersey bucket.
That's coming out of the new you are a bucket mainly.
Out of Manhattan like in the Bronx, and other boroughs.
Okay. That's great and then just a quick quick accounting question for you saw that the one 9 million recovery that you're gonna brush on the nonperforming loan disposition.
Morale is that hitting your topline your net interest income or is that going into non interest income.
So that would be in a provision.
Provisions after they have the allowance of a recovery that will be like that.
Yes recovery now okay.
Thank you that's that's all I had I appreciate the detail.
[noise] [noise]. Our next question comes from Collyn Gilbert of KBW. Please go ahead.
Thanks, Good morning, guys.
Alan just one final question for me Dom and you kind of touched on it but just wanted to get your thoughts on the mortgage banking outlook you Dom you kind of indicated your appetite for perhaps portfolioing more resi production, but just broadly how we should be thinking about that because obviously that was a huge huge number.
For this quarter, Yeah, I mean, you know, it's it's been a great business, maybe some of the spreads that we've seen on.
Mortgage banking have been.
Pretty remarkable I mean, this morning, and just going through our rate meeting you know selling loans to Fannie Mae attune to win three quarters, we're reaping a price of one two and three quarters. So to the extent that we can continue to generate.
Business loans to sale to Fannie, we're going to continue to do that and actually.
You know one of the questions. We had this morning was should we lower the rate and take less price from Fannie and the consensus was that we want to maintain the quality of the underwriting process in the closing process and we felt that we could be.
Adding too much pressure to the group. So I, that's a long winded answer Collin, but I think you're going to continue to see more noninterest income as we go through next quarter and the early part of 2021.
Because that business is really hitting on all cylinders.
Okay. Okay. That's helpful. And then just like the the corresponding expense to that I know you had indicated that this quarter's expenses were up because of incentive comp is is there a big number they're a big delta in there for what I'm, the mortgage commissions would be as well.
It's not a huge delta, but it is part of it so the compensation a big a bigger piece of it quite honestly is the retail incentives and we've had very good.
Low cost deposits and noninterest bearing deposit growth that weve incentivized, our people to do to generate so that in large part is driving higher incentive comp.
The economy the commission on the.
Sale of mortgage loans is netted in the gain on sale okay.
Okay got it okay. Thank you very much that's all I had.
Thanks Collyn.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thanks, Jeff.
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