Investors Bancorp, Inc. (ISBC) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.26.13 | About: Investors Bancorp, (ISBC)

Investors Bancorp, Inc. (NASDAQ:ISBC)

Q2 2013 Earnings Call

July 26, 2013 11:00 am ET

Executives

Thomas F. Splaine - Chief Financial Officer, Senior Vice President, Chief Financial Officer of Investors Savings Bank, Senior Vice President of Investors Savings Bank and Director of Financial Reporting for Investors Savings Bank

Kevin D. Cummings - Chief Executive Officer, President, Director, Chief Executive Officer of Investors Savings Bank, President of Investors Savings Bank and Director of Investors Savings Bank

Domenick A. Cama - Chief Operating Officer, Senior Executive Vice President, Director, Chief Operating Officer of Investors Savings Bank and Director of Investors Savings Bank

Gregg J. Wagner - Chief Executive officer, President, Director, Member of Executive Committee, Chief Executive officer of Brooklyn Federal Savings Bank, Chief Executive officer of Bfs Bancorp Mhc, President of Brooklyn Federal Savings Bank, President of Bfs Bancorp Mhc and Director of Brooklyn Federal Savings Bank

Analysts

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

Mark C. DeVries - Barclays Capital, Research Division

Operator

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

Thomas F. Splaine

Thank you, Emily. Good morning, everyone, and thank you for joining us today.

I’m Thomas Splaine, the Senior Vice President and Chief Financial Officer, and we’ll begin this morning’s call with a standard forward-looking statement disclosure.

On this call, representatives of Investors Bancorp may make some forward-looking statements with respect to our financial position, our results of operations, business and prospects.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Investors Bancorp’s control and are difficult to predict and can cause our actual results to materially differ from those expressed or forecasted in these forward-looking statements.

In our press release and in our earnings release, we have included our Safe Harbor disclosure. We refer you to that statement, and these documents are incorporated into this presentation.

For a more complete discussion of certain risks and uncertainties affecting Investors Bancorp, please see the section entitled risk factors, management’s discussion and analysis of financial conditions and results of operations set forth in Investors Bancorp’s filings with the SEC.

And now I’d like to turn the call over to our President and Chief Executive Officer, Kevin Cummings; and Senior Executive Vice President and Chief Operating Officer, Domenick Cama.

Kevin D. Cummings

Thanks, Tom, and good morning. Investors Bank had another strong quarter as we posted record earnings in our 16th consecutive quarter of core earnings excluding merger expenses exceeding 15% or better year-over-year. We are pleased to report earnings of $28.1 million for the 3 months ended June 30, compared to net income of $24 million in 2012. On an EPS basis, second quarter earnings are $0.26 a share versus $0.22 in 2012 and $0.25 in the prior quarter -- in the first quarter of this year. Our 2013 second quarter results translate to an increase of 18% in EPS and 17% increase in net income. Our return on equity and return on tangible equity exceeded 10% and 11%, respectively. The headline for the quarter is our loan origination and growth for the year -- for the 6 months, loans for the first time exceed $11 billion and have increased 4.3% for the quarter and have increased 19% year-over-year. Year to date, loans are up $615 million or 5.9%. Commercial loans now make up 53% of our portfolio, which is a big difference from where we started our transformation of our business plan. At December 2007, loans approximated $4 billion with approximately $380 million in commercial loans or 10% of total loans. And in 2007, at the end of that year, the largest piece of our commercial portfolio was construction at $250 million. Today, we have a much more balanced commercial portfolio with $3.3 billion in multi-family, $1.8 billion in CRE income-producing properties, and only $238 million in construction. So the mix is much better and more balanced. I'm pleased to report we have some traction on the business lending side. Our business lending totals about $531 million and this business lending includes commercial mortgages that are owner occupied and rely on business income and their cash flows from business activities to repay the loan. Our business lending is an area where we continue to place an emphasis. We now have a staff of 20 lenders serving the North Jersey, New York metro market and have relocated and moved people to our southern market in anticipation of our Roma transaction. We named Mark Noto as Senior VP of the Metro New York business lending group and Robert Ravashier [ph] as the Senior VP for the New Jersey South business group. Both are seasoned bankers with Mark starting his career at NatWest a few years ago and Robert started with and came up through the UJV [ph] Organization. So they're seasoned bankers with a lot of business experience. Our commercial real estate group continues to perform very well as year-to-date originations exceed $900 million, and we continue to be very busy in this area of our business. With long-term rates rising and refi slowing down, hopefully we will see some relief of the pressure on our net interest margin. Our margin held up though in the quarter, held up well, as it stood at 3.35% versus 3.36% in the first quarter. We recorded about $3.6 million in prepayment fees in the second quarter versus $3.1 million in the first quarter of this year. Our credit quality continues to improve, especially in this quarter and we continue to maintain a conservative view with respect to our allowance for loan losses. Our provisions for the quarter are $13.7 million and it exceeded net charge-offs by $4.8 million and reflects the growth -- which reflects the growth of our loan portfolio for the quarter. Our charge-offs in this quarter were principally in the residential area where we took $9.3 million in total charge-offs. During the quarter, we tested the market and sold the package of nonperforming residential loans with a book balance of $15 million, and we took an additional write-off of approximately $5 million due to this accelerated sale. As you know, the residential foreclosure process in our market in principally New Jersey, is a very long process and takes up to 3 years to complete. Our delinquency trend in the residential portfolio for non-accrual loans is 1.38% and continues to be performing well despite a tough economy and employment market here in our market area. The economy is still fragile and continues to grind along. Our underwriting and overall performance in this residential portfolio remains strong. The impact of Sandy has been quiet so far, and we have less than $2 million in loans, 60 or 90 days past due, relating to the impact of the storm. On the commercial side, we have only $42.5 million in non-accrual loans or 38 basis points of total commercial loans. If we include performing TDRs of $11.5 million in this group, total NPLs are approximately 49 basis points. In this total of $54 million in nonperforming commercial loans, $25.2 million is current and performing under the terms of the loan agreement, which represents 47% of the total. As we look at this bucket of loans, I just want to let you know where it's come from: 60% of these nonperforming loans were originated prior to the financial crisis, prior to 2008. 20% were acquired in acquisitions and the remaining 20% were originated post 1/1/2009, mainly in 2009. At this time, our 2 largest NPAs, one a land loan for $10 million has a letter of intent for sale of the property, which would take us out whole and the other relationship is a $9.3 million commercial mortgage and commercial business loans, which is current and the business outlook for that company is improving. Overall, we are very happy with our trends and credit quality at this time and at this point in the economic cycle. Our commercial delinquencies in the 30, 60 day bucket are almost 0 and totaled $300,000. Our team of lenders spearheaded by Rich Spengler, our Chief Lending Officer, Joe Orefice, Head of Commercial Real Estate and Tom Stackhouse, our Chief Credit Officer, along with their team and lenders and credit analysts have done a very good job of managing and growing this business during a very difficult economy and business environment. I'm very proud of this team and their accomplishments as it continues to build a commercial bank. On the retail side, we funded a good portion of our loan growth this quarter with borrowings as we continue to change the mix of our retail deposits from CDs to core deposits. Currently, core deposits represent over 68% of our total deposits. We opened up a new branch in Brooklyn on Ocean Avenue during the quarter, and we'll have our grand opening probably later this year, after the summer holidays. We're also upgrading our branches here in New Jersey and improving our franchise with new locations, moving locations in the [indiscernible] market and also in Brick. With respect to the New York market, we expect to open 3 more branches and bring our total franchise in New York to 25 branches. You must remember that if you think we've gone from 3 branches in 2010 with the acquisition of Millennium and by the end of this year, we'll have 25 branches in the New York market. I think when we look at the different things going on in the area in New Jersey, the biggest focus right now is expanding business relationships and retail relationships in the Roma and GCF markets, our 2 previously announced acquisitions. We believe this area, as we become more involved in the market, has a tremendous potential as there are no banks at our size in this region. It is a different market from New York City, North Jersey market but we believe with our business and retail teams, we can do very well with our brand and energy in that market. Now with respect to the Roma acquisition, we are still awaiting a Federal Reserve Board action on our application. We have received approvals from the New Jersey Department of Banking and the FDIC in June. The FDIC is our primary Federal regulator for Investors Bank and as we mentioned on our last call, there was a community protest to the Roma transaction. And recently, the same group also filed a protest for the GCF transaction that we announced in April. It is not unusual that these matters result in a longer review process at the Federal Reserve. We very much respect this process that the Fed must undertake, but all of us here at the bank are anxious to get these deals completed and as quickly as possible. We are hopeful that the Federal Reserve action will come in August for the Roma transaction and in this regard, I'd like to point out that we are not aware of any issues before the Fed that were not also before the FDIC, which has approved the transaction. We are prepared to close the Roma transaction immediately following receipt of Fed approval. Once the Roma deal is closed, we can then move forward with our plans to raise additional capital through a second step. In summary, we continue to stay focused on the execution of our strategic business plan to become the premier commercial banking franchise in the New York -- Metro New York, New Jersey marketplace. Upon completion of our 2 pending acquisitions, we will have 130 plus branch franchise from the suburbs of Philadelphia to the boroughs of New York and Long Island. We have leveraged our capital to 7.4%. Our ROE is over 10% year-to-date, and we are paying a dividend. Our experience over the last 7 years as an MHC has positioned us to execute hopefully a successful second step transaction. We will continue to manage the company using our 3 levers: prudent organic growth; smart acquisitions that do not dilute tangible book value; and stock buybacks and dividends. Our track record and history will serve us well as we move to our next phase as a 100% public company. We look forward with great excitement to the next 12 to 24 months. We have many opportunities ahead of as and we will have the capital to execute on our plans to be a major regional force in the New York, New Jersey market. I'd like to thank all of you for your support and thank our employees for their dedication and hard work. It is a very exciting time at the bank and after 10 years at the bank, our future and prospects are even better today than when I started in 2003. It is an honor and a privilege to work and to serve with such a great team of employees and staff here at Investors and the future looks good. So I'd like to thank you, and I'll open it up for questions now.

Question-and-Answer Session

Operator

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

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Just on the second step plan, just so kind of we're all clear. You'd be comfortable pricing that you're bringing a deal to market based off of June 30 type numbers and then having a prospectus showing the pending Roma acquisition, I guess, based [ph] on top of that? Is that how it will be presented?

Kevin D. Cummings

Yes.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Okay, got you. And then turning to the lending business, can you just talk about the types of changes that you saw in the marketplace for multifamily commercial real estate pricing and maybe where you stand right now relative to the marketplace on those fronts?

Domenick A. Cama

It's Domenick. Obviously, what we saw during the quarter was a significant increase in the loan book, and we think it's primarily due to the fact that people who were on the fence in terms of when to borrow saw the increase in rates and decided that it was a good time to get in before rates went up any further. In terms of what we saw on pricing, we saw 5-year rates increase from 2 7/8% to 3% going back to the middle of the first quarter to now, on the 5-year side, approximately 3.5% is where we see the market.

Kevin D. Cummings

On multifamily.

Domenick A. Cama

And that's on multifamily.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Got it. Okay, that's helpful. And then one last question, as you build out your business in New York, some higher tax jurisdictions, what do you think your tax rate is going to shake out next year?

Thomas F. Splaine

Next year, what we're looking at Matt is that -- we're probably right now we're running in right around 36%. So even going forward this year, we're looking at the tax rate inching up. And once we do -- once we do the merger with Roma, we'll have some nondeductible expenses there. So we're going to be pushing the tax rate up later on this year. I think on a more normalized basis, we're probably -- maybe next year up in that 36.5% to 37%.

Operator

Our next question comes from Mark Fitzgibbon of Sandler O'Neill.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

You had double-digit growth in fees and service charges in the second quarter versus the first quarter. I wondered if you could share with us what really drove that increase?

Domenick A. Cama

The commercial business continues to grow here. And as we put on more commercial accounts, we take them through formal analysis and that has helped to increase those fees.

Thomas F. Splaine

The other thing that's going through there, Mark, this is Tom. We had 2 items this quarter which one, we had some commercial real estate fees that we were taking on customers that didn't close on their loans, that was about $400,000. And in addition to that, we had mortgage servicing rights. We got to release a prior setup reserve about $550,000 on that due to the rise in rates, the value of the mortgage servicing rates have increased again.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then secondly, I don't think in the release you had anywhere the size of the loan pipeline, and if you could share with us also the complexion of it and maybe the average rate on the commercial real estate and multifamily stuff?

Domenick A. Cama

Yes, the pipeline right now is about $1.3 billion and about 50% of it is in multifamily. And then about 25% of it is in what we call mixed use, which has a commercial component to it in addition to multifamily, and the remaining portion of it is in pure commercial. Office, retail, warehouse, those kinds of property types.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

And then what would you say the average rate looked like, commitment rate on say, multifamily and then the mixed use stuff?

Domenick A. Cama

On the multifamily stuff, we're looking at about a 3.5% and the mixed-use, about 3.70% and then everything on the commercial space is north of 4%, between 4 1/8% and 4 1/4%.

Mark T. Fitzgibbon - Sandler O'Neill + Partners, L.P., Research Division

Lastly, I wondered if you could share with us your thoughts for the margin for the back half of this year?

Domenick A. Cama

The margin for the third quarter, Kevin mentioned the increase in rates taking some pressure off the net interest margin but we still think -- and this is without any prepayment fees, but obviously with the rise in rates, we think prepayment fees are going to decline somewhat. But at this point, we're projecting a 3 basis point decline in the net interest margin.

Operator

Our next question is from Collyn Gilbert of KBW.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

You covered some of this but can you just give a little bit more color on the types of C&I loans that you're seeing and where that growth is coming from?

Domenick A. Cama

Collyn, on the C&I side, we're doing -- we've hired a team of lenders who specialize in medical facilities, doctors. So we're seeing some growth there, mostly middle market companies of all types, manufacturing companies, but primarily, the big push has been in the medical space.

[indiscernible] activity, Collyn. we're out there in the market and it's a broad-based process and it's tied in very closely with our retail expansion too.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, that's helpful. And then just -- and again if you covered it, I apologize. Parts of the -- parts that I missed. But just how you're thinking about the mortgage banking line and then the offset on your appetite for resi mortgages in the portfolio. Can you just talk a little bit about those 2 business lines and the outlook that you have for each of those?

Domenick A. Cama

Sure. On the mortgage banking line, we still -- it is a piece of our business. We own a mortgage company here and they have been very, very good contributors to our bottom line. At the same time, we've also discounted whatever contributions that they could make to our bottom line because of the fact that we know that, that business is volatile and it's subject to significant swings in income when interest rates change. And as an example, last year, the mortgage company contributed about $20 million to our bottom line and when we did our budget this year, we actually cut that number in half so as not to depend or not to have mortgage banking income as a significant contributor to our business. In terms of the future for the mortgage company, again, it is our retail arm. It is the distribution point for loans. However, the refi business has slowed down significantly. The split between refi business and purchase business has gone from, at the beginning of the year, refis were at 73%, purchases at 27% to currently, refis being at about 37% and purchases at 62%. What that means is that less business is being sold into the secondary market and more of it is coming on to the portfolio of the bank, and that means less income for the mortgage company, although more assets for the company at higher rates. So I'm not sure if I answered your question, Collyn, in terms of our outlook there, but the mortgage business is obviously becoming a smaller part of the overall balance sheet with residential mortgages comprising about 45% of total loans at this point.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, that's helpful. So what you're portfolio-ing, though, is it fixed-rate? I've heard some of the other banks talk about seeing greater demand for ARM products, so are you seeing that as well or is it mostly fixed-rate that you're putting on the books?

Domenick A. Cama

No. We continue to be book residential loans at a ratio of about 65% fixed-rate, 35% ARMs. It's gone down a little bit, fixed-rate has gone down a little bit with the increase in rates recently. But the overall portfolio is structured at about, again, between 60% and 65% on the resi and 40% on the ARMs.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay and then just one last question on the securities book. Tom, could you just give us some color as to the strategy there? And also to what that's spitting off in cash flows on a monthly basis? And do you still anticipate sort of using some of that liquidity to fund loans, which helps to stabilize that earning asset yield a little bit?

Thomas F. Splaine

Right. When we look at our securities portfolio as we've stated in the past, we really look at those securities portfolio as a liquidity source for us and the overall engine of the bank continues to be at the loan portfolio. So where our portfolio stands right now is down around in the 12% or 13% of total assets is a very good spot. We don't see a lot of big change going on there in terms of the size and what it contributes to the balance sheet. In terms of the mix, we continue to look at mortgage-backed securities and CMOs that have very tight structures where the cash flows of the structures comes very early in the stream in order to produce liquidity for us. On a go-forward basis, this quarter we moved a chunk of our available-for-sale portfolio into health and maturity. When we took the valuation of the portfolio, we determined that some of the securities that we had in there, we don't really have the intention to really sell on a go-forward basis and use it for additional liquidity. So we made the decision to slide $500 million worth of product over to HTM and avoid any potential reduction in capital based upon market rate changes on a go-forward basis.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And what is the yield on what you moved over, the blended yield?

Thomas F. Splaine

I have it here for you. The yield we get off the portfolio is about 160 basis points on stuff that we're moving.

About -- on a book yield basis, it's probably around 2%.

Domenick A. Cama

Collyn, the days of moving cash flows out of the bond portfolio to fund loans is long gone. The securities portfolio is basically, we maintain it, as Tom said, as a source of liquidity and we try to target a percentage of total assets and that percentage is somewhere between 11% and 13%.

Operator

Our next question is from Rick Weiss of Boenning and Scattergood.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

I was wondering if you could give a little bit of color on any steps that you're taking today to prepare for operating in the parts of New Jersey where Roma is?

Domenick A. Cama

Yes, I think Kevin mentioned earlier in the call that we've taken a number of steps. The first thing we did was we moved 3 senior retail deposit people into the market. So right now, we have 1 of our Senior Vice Presidents and Regional Managers -- a former Regional Manager here -- down in the Roma market along with 2 market managers. So we did that and that was an attempt to start to familiarize ourselves with the market, start to get familiar with the people and start to interject the Investors' way of doing things down in that market. We also hired a gentleman named Tim Touhey, who was a former President of the National Association of Home Builders, to be a leader, a team leader in that Roma market and with his primary purpose being the cultivation of commercial real estate relationships. We also moved a Senior Vice President, now C&I lending group, a gentleman by the name of Robert Ravashier [ph] and one of his team leaders, Erik Larsen, into that market also to begin to call on Roma and RomAsia customers. It was -- we felt it was a critical point, given that the Roma and Gateway acquisitions are in essentially a different market for us. They're both Philadelphia geographic markets as far as we're concerned despite the fact that they're both headquartered in New Jersey. So we felt that it was important to start to develop our culture down there and also to learn more about their culture and what drives that market. We've spent quite a bit of time down in the market. We believe that we can be pretty successful down there. The lack of competition, I mean, there is some competition obviously. TD Bank is a big player there given the fact that Commerce was based in Cherry Hill. But other than TD and some Wells Fargo and PNC branches, we think that we can have a good -- a significant impact in that market.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

And that's both on the lending and deposit side where you expect to have that?

Domenick A. Cama

Yes.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

And It seems like this deal has been dragging on for quite a while now. Are the Roma personnel still sticking around? Is there attrition issues that you have to worry about?

Gregg J. Wagner

Yes. I mean obviously, whenever you have a situation that has some level of uncertainty in it, people get antsy. The biggest turnover, believe it or not, that we saw down in the Roma market, was in the teller ranks. We saw some tellers leave and we've had some people here and there leave. But so far, everybody's been pretty comfortable with us being down in the area and the level of communication that we've had with them, I think, has helped to keep everybody pretty stable.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

Okay, great. And last question is when do they report earnings? Do you know?

Domenick A. Cama

I don't believe that they actually report earnings. I think they report them in conjunction with releasing their Q.

Operator

Our next question is from Mark DeVries of Barclays.

Mark C. DeVries - Barclays Capital, Research Division

First, I got a follow-up question on your residential mortgage business. Given the steepening of the curve that we've seen in recent months and more importantly, the significant widening of spreads for residential mortgages. Could you just talk about -- assuming I understand you've been deliberately looking to shrink the size of that business as a percentage of your total balance sheet. But just kind of thoughts on that as an asset class going forward?

Domenick A. Cama

We think it's going to continue to shrink, Mark. Our purpose there is to -- our purpose here is to continue to evolve into a full-service commercial bank. And so while we believe that the residential asset class will always be here, we can see it shrinking to about 40% of total loans.

Mark C. DeVries - Barclays Capital, Research Division

And my next question is, just interested in getting your updated thoughts on how you expect to put the capital to work following second step, given the opportunities you're seeing in M&A and also to grow your loan book.

Domenick A. Cama

I think initially, Mark, our plan is to be conservative in terms of growing the company, meaning that we'll continue to use organic loan growth right after the conversion to start to lever the capital. In terms of M&A business, we feel that we're not going to be in the M&A market for some time after the conversion, after the IP, after the second step, simply because if we want to use stock in any transaction, we don't believe that the multiple on our stock would have grown to a level that we could use it without significantly diluting book value. So we call it being in the penalty box here. We'll probably be in that penalty box as far as M&A is concerned for a period of 18 to 24 months post the second step. Now having said that, I think we feel pretty comfortable. And I think overall, the market would feel pretty comfortable with that given that if you look at our history and what we did in the first 7 years following our initial IPO and where we raised about $525 million, it's taken us 7 years but we believe we did it in a good, pragmatic, conservative way in order to lever the capital front. At that point about 17%, to today just under about 7 50.

Mark C. DeVries - Barclays Capital, Research Division

Okay, got it. And just bringing it back to residential mortgage again. Would you at all consider, given the liquidity in the agency MBS market at least temporarily putting some money to work there just to limit some of the dilution following second step?

Domenick A. Cama

Maybe. It will depend on the steepness of the curve at that point but we're also looking at different ways to restructure our balance sheet. Obviously, we do have a good commercial loan engine and that's driving a significant amount of commercial loans here. And so when we're looking at the continued growth in commercial loans, we may park some money in the MBS market temporarily, but it will be with the intention of securities having good structured cash flow so that we can use the security cash flow to fund our continued commercial loan growth.

Operator

Our next question is from Christopher Marinek [ph] of [indiscernible] Partners.

Unknown Analyst

I was curious on as you model higher interest rates for Alco [ph] purposes, how sticky will deposits be for you both now and as well as combined with Roma if and when rates move?

Domenick A. Cama

Well, we have transitioned our deposit base to be more core and so that in and of itself will make deposits a little more sticky. I think Kevin mentioned early on that the core deposit to non-core deposit ratio was 68% to 32%. What we've seen is that on core deposits, we use a separate modeling firm to look at the average life of those deposits and while we've seen a decline over the last few years, we still see the number at being somewhere around 5 -- an average life of 5 to 6 years.

Kevin D. Cummings

And, Chris, we've made a concerted effort here to get off what we call the CD cocaine, the certificate of deposits and bring in more core customers. And that's why you're seeing that it's almost this transitioning of our funding moving from core to -- moving to core deposits from the CDs. In 2007, at the end of 2007, 75% of our deposits were CDs and this has been -- so we haven't been chasing that Hudson-City-like money with interest rates. And we've been very -- we've moved our -- 10 years ago, we would look at what Hudson City was paying and if we wanted deposits, we'd be 10 basis points higher, if we didn't want it, we'd be 10 basis below them. So we're off that now. It's more bank like, commercial bank like, our pricing and it's been a process and a lot of energy has gone into the culture of our retail bank, a lot of training and it's hard work, it's really where the competition and the franchise value is created and it's a work in process and we continue to work very hard at it.

Operator

Our next question is a follow-up from Matthew Kelley of Sterne Agee.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Yes, do you have a -- a quick follow-up then. One, do you have a pro-forma expense number with GCF and Roma now that those are so close, where that's going to shake out on the expense line?

Thomas F. Splaine

Matt, we looked at it and as we look at it, we haven't pro-forma-ed in anything for GCF in terms of expenses. What we were looking for was -- our run rate right now is about $57 million and the way we look at it is about $12.5 million for Roma. So -- and probably about another $300,000 for GCF I guess, if we look at it that way. But it's -- there's going to be some expense saves coming out of Roma and we were figuring that to be about 30%. So as we look forward normalized rate, once we get back and out to 2014, we're probably be looking at around an all-in $65 million number, somewhere in that ballpark.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Got you. And then with the Roma deal potentially closing after the second step announcement or the S-1 filing, is there any change to the way that the shares issued to their MHC will be valued? I know that had a pretty low dollar amount, does that change in any way? Given the timing...

Domenick A. Cama

No.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Just given this might be the last time we hear from you on earnings call before the second step announcement, could you just remind us again on kind of your philosophy on pricing one of these deals, which are obviously pretty sizable, and lessons learned from the past and just the way that you think about how to bring one of these deals to market?

Domenick A. Cama

Matt, in terms of valuation, is that what you're asking?

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Yes.

Domenick A. Cama

Yes. I mean, we've been very conservative in the way we've considered valuation. I've been even recently been out on the road talking about valuations being at that 95% to 100%. Now I know that given the recent increase in valuations, we've seen some numbers as high as 105. The one concern that I have with that level is that with the second step, it is a 6-month process and from the time of announcement to the time of the close, there are a whole number of events that can occur. It's -- I often say that this is not like a shelf offering where you can get it ready and then when valuations are perfect, you go out and you issue and you hit those bids. This is different, it's a 6-month process. So I think there is -- there does deserve to be some discount built into current valuations to determine where our deal may be priced. Now, I hope I'm wrong and the numbers are a little bit higher but at the same time, we want to be conservative here. And also, the way we look at it is we would rather err on the side of being conservative and being lower valuation because we want to make sure that we leave some room for new investors to benefit also in the deal.

Operator

Having no further questions, this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Kevin D. Cummings

Okay. And thank you for participating today. The management team here is very committed to creating shareholders' value, and we thank you for your participation and wish you a very nice day and enjoy the rest of the summer. And hopefully, we'll have some announcements soon, okay? Thank you very much.

Operator

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

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