Investors Bancorp's (ISBC) CEO Kevin Cummings on Q2 2014 Results - Earnings Call Transcript

Jul.25.14 | About: Investors Bancorp, (ISBC)

Investors Bancorp, Inc (NASDAQ:ISBC)

Q2 2014 Earnings Conference Call

July 25, 2014, 11:00 AM ET

Executives

Thomas Splaine - Senior Vice President and Chief Financial Officer

Kevin Cummings - President and Chief Executive Officer

Domenick Cama - Senior Executive Vice President and Chief Operating Officer

Analysts

Matthew Kelley - Sterne, Agee

Rick Weiss - Boenning & Scattergood

Mark Fitzgibbon - Sandler O'Neill

Collyn Gilbert - KBW

Christopher Marinac - FIG Partners LLC

Laurie Hunsicker - Compass Point

David Darst - Guggenheim Securities

Operator

Good morning, and welcome to the Investors Bancorp second quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Thomas Splaine Jr., Senior Vice President and CFO. Please go ahead.

Thomas Splaine

Thanks Andrew. And good morning, everyone, and thanks for calling in today. I'm Thomas Splaine, Senior Vice President and Chief Financial Officer. And we'll begin this morning's phone call with a 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 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 then these documents are incorporated in today's presentation. For a more complete discussion of certain risks and uncertainties affecting Investors Bancorp, please see the section entitled Risk Factors and management discussion and analysis of financial condition 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 Cummings

Thanks, Tom, and good morning. I'd like to welcome everyone to today's earnings call, as it is a historic event, as it is our first earnings release post second step as a fully public company. We had a good run, as an MHC, using that structure in four of our eight acquisitions since June of 2008, and we are very happy with the results of our capital raise in the second quarter, which brought in close to $2.2 billion in new capital to the bank.

Today, we are the largest regional bank headquartered in New Jersey, with a franchise that spans from the Philadelphia suburbs and South Jersey to North Jersey and the New York, Long Island marketplace. It is a great market with many attractive opportunities.

We have a strong balance sheet with excess capital to deploy, and we look forward to doing many of these strategies that we use during our MHC tenure. And just to repeat them for all of you again, it's organic growth, smart acquisitions that did not do tangible book value, stock buybacks, when permitted by regulatory guideline and cash dividends.

I'm happy to report that we announced our quarterly dividend of $0.04 a share. This represents an increase from the prior quarter, given the effect of the exchange ratio in the second step of 2.55x. For our long-term shareholders, this equates to a 100% increase from the $0.05 dividend that we paid in the first quarter.

For the quarter, net income was $15.2 million, which included one-time expenses related to our second step of $33 million or $20.2 million net of tax. These items included our charitable contribution for the Investors Foundation of $20 million and the acceleration vesting of stock options and restricted stock for approximately $13 million.

Without these items, net income was $35.4 million for the quarter and $69.9 million for the six months ended June 30. These results represent a 26% increase over the prior year for both the quarter and year-to-date.

Our net interest margin was 3.28% for the quarter versus 3.36% in the first quarter and 3.34% for the quarter in 2013. This decrease in margin is attributed to our increase in securities during the quarter and an increase in our cash and cash equivalents as a result of the second step. In addition, we paid down short-term borrowings in the amount of $945 million, which resulted in a higher yield on our borrowings for the quarter.

Prepayment penalties were $4.8 million in this quarter versus $3.6 million in 2013, and $4.1 million in the first quarter of 2014. This increase in fees had a positive impact on the margin versus the first quarter and last year.

Our asset quality remains strong with non-accrual loans at 78 basis points of loans and total non-performing loans at just about 1% of loans. Our non-performing loans are broken down in residential at about $93 million and commercial at $47 million. We saw a mild increase in our CRE non-performing loans as two loans from prior acquisitions moved into the 90-day delinquent bucket for about $8.3 million.

With the remaining loans in the CRE category being mainly comprised our ROMA/GCF loans originations with an average balance of less than $200,000. So we don't have a concern about that pool of loan. In the construction portfolio, we are on track to receive the principal payments in full on a $10 million non-accrual loan, hopefully in the third quarter.

On the residential front, it continues to be a slow process here in New Jersey with respect to foreclosures. It takes almost three years to go through that process, but once we get the properties, we've done a good job of marketing the asset to sell them.

We had our fifth consecutive quarter of gains on sale of ORE with a $332,000 gain in the second quarter on sales of ORE. Our allowance coverage ratio to non-accrual loans was 171% and our allowance to total loans is 1.34%.

With respect to expenses, excluding those second step expenses, our efficiency ratio was 54.6% in 2014 versus 50% in 2013. This reflects our continued investment in our compliance, risk management and commercial CNI business, plus the additional expenses from operating the GCF Bank system, which we recently converted in June to our system.

We also opened up a new branch in the quarter in Brooklyn, in Brighton Beach, and that branch has almost $28 million in deposits at the end of June. We also completed major renovations for our deal branch and completed the relocation of our Spring Lake branch to a new location across the street, down in the Spring Lake, which has a drive-up now.

For the quarter, deposits were down, and that reflected a run-off of approximately $285 million in the CDs portfolio, but core deposits increased to $140 million. Our loan-to-deposit ratio was 124% at June 30, but with the excess liquidity, due to the second step proceed and our plans for our deposit campaign in the ROMA franchise in the third and fourth quarters, we are not concerned with this run-off of CD balances.

The second quarter was a little bit difficult for our retail team, as they had to spent significant time in late April and early May, working the phones, to get the deposits moved out for the second step. There were many issues and distractions, but we faced the challenge and got things done when it needed to get done.

Loan growth was the highlight in the quarter and was approximately $349 million for the quarter, of which almost $357 million was in commercial loans. Commercial loan portfolio is now 55% of total loans, and we continue to transition the balance sheet to a regional commercial bank. This commercial loan growth represents 4.8% for the linked-quarter and annualized it's almost 20%.

Competition is heating up in our markets, but our CRE and business teams continue to make progress in building their loan books. But more importantly, they continue to build on our reputation and our brand in the marketplace.

Year-over-year, our commercial loans are up $1.75 billion, which represents a 30% increase in loans. We have managed this growth, while maintaining a strong credit culture, as our total non-accrual loans are 24 basis points on the commercial portfolio and our total non-performing loans, which includes accruing TDRs is approximately 62 basis points.

During the quarter, we had net charge-offs of $2.6 million with a provision of $8 million for the quarter. With our capital reserves and our strong allowance coverage, I feel comfortable to say that Investors has a fortress balance sheet. But having said that, be careful what you wish for, we have a lot of work to do to leverage that capital and to continue to improve our ROE, which for the quarter and to the one-time expenses was 5.29% and on a tangible equity was 5.5%. So overall, it was a great quarter and we're very pleased with the results.

And one of the things I've done in the last couple of quarters, we began a tradition of recognizing one of our employees, as an unsung hero, who has done an outstanding job for us and has embraced our core values of character, commitment, cooperation and community.

We have so many people here at the bank, working on mergers, for systems conversions, new products and services, plus the normal day jobs, running the day-to-day activities of a $17.5 billion bank. This quarter's unsung hero is Jeanette Muldoon, our Vice President and Training Coordinator in the Culture and Development Group.

Jeanette stepped up this past quarter and supervised our stock conversion center, working with our project team and KBW to manage a $1.3 billion community depositor offering. It was one of the largest depositor offerings in the history of the thrift industry, and she did an outstanding job, leading her team, leading by example, and she is a mentor and a great role model to all those who had the privilege to work with her.

She is a team player, who makes a difference everyday at the bank. I thank Jeanette and all of our employees for their extraordinary efforts to make Investors a special place to work.

With the team that we have in place at Investors, we are well-positioned to leverage this new capital and to continue to grow in a safe and sound manner. We've had a great run as an MHC. But as I stated on the Roadshow, it's half time at Investors and we need to have a great second half.

The most insignificant statistic in football, I'll have to say soccer because of the World Cup, or a basketball game is the score at half time.

We are excited about our future and we will execute on our plans and our vision to be the premier local regional bank serving the New York, New Jersey markets.

I thank you for your time. And I will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Matthew Kelley of Sterne, Agee.

Matthew Kelley - Sterne, Agee

I was wondering if you can give us an update on where you are for the 5-1 and 7-1 multifamily pricing. And then what type of loan growth do you think we can expect out of the commercial real estate, CRE and the multifamily segments over the next year?

Domenick Cama

It's Domenick. On the seven-year multifamily is currently priced at 3.5% and the five-year is currently price at 3.125%. In terms of growth, again, we are projecting a $1.9 billion in growth for the year. And this quarter fell a little short. As Kevin pointed out April was a slower month because of some of the Jewish holidays, but we're still on our target. We're projecting that we will still be at a $1.9 billion for 2014.

Matthew Kelley - Sterne, Agee

And then with the proceeds coming on, where do you see the margin shaking out over the next quarter or two?

Domenick Cama

We see the margin probably comprising of somewhere between 8 basis points to 10 basis points, Matt. We have some pressure on the margin, obviously, the fact that we put on $700 million in securities during the quarter with an average yield of about 1.9%. This next quarter now, we'll have a full quarter of that impact.

And then, I mentioned in, the fact that loans are coming on at lower yields, we'll certainly have a dampening affect on it. Also, we met with some of the lender yesterday, who anecdotally said that they believe that prepays are going to begin to slow. And as you know, we run our prepayment income through our yield line.

And this quarter, for example, prepays accounted for approximately 12 basis points in yield. Also, for the quarter we expect that the deposit cost may increase slightly, as our loan-to-deposit ratio ticked up for the quarter and we're planning some deposit campaigns down in these southern New Jersey market.

Matthew Kelley - Sterne, Agee

And then just to be clear the 8 basis points to 10 basis points, is that for the third quarter or for the second half of the year?

Kevin Cummings

It's for the third quarter.

Matthew Kelley - Sterne, Agee

And last question, do you see any ability to bring down your loan loss reserve levels from, I think they're at 1.53 on originated loans. Is that going to stay stable or might that be able to come down a bit over the next year?

Domenick Cama

We want to keep it as stable as possible. Recognize that we have a growing loan portfolio, we're in some new business segments, and we're still relatively careful about those loans coming on. Obviously, that's countered by the fact that our credit profile continues to improve. And being at 1% doesn't speak well for continuing to add reserves to our allowance.

Kevin Cummings

That's a difficult question, Matt, with the accounting. It's an issue with the accounting, but we're going to be as conservative as possible going forward.

Operator

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

Rick Weiss - Boenning & Scattergood

I was wondering if you could talk a little bit about asset liability strategy and your feeling about interest rate risk. Is it different now that you're fully converted versus being a mutual holding company?

Domenick Cama

No, Rick, it really isn't. I know there was some philosophies out there that say that we should be willing to take on some more interest rate risk because of the fact that we have 20% intangible common. Truthfully, we don't run the company that way. We manage the company to improve our interest rate risk position. And even though, we are currently liability sensitive, as we have been historically. We feel that our interest rate risk position has improved significantly over the last few years.

When you look at it, like for example, when you look at what we report in our Q, you're only looking at what we report or what the impact would be of an increasing rate over a shortened period of time. The fact is that our interest rate risk position NII, net interest income, improves immensely from post-two years, but below five-year.

So my point is that net interest income recovers quickly, it covers quicker than it has in the past, because now 55% of our loans are in multifamily commercial real estate in shorter average-life loans than they were when we first started as a public company in 2005.

Rick Weiss - Boenning & Scattergood

So like even though like in the March quarter, I guess you reported it as liability sensitive. And some times that gets skewed a little bit by the models. And I guess what does your gut tell you? Would you like interest rates to go up? Would that improve the earnings?

Domenick Cama

No. Obviously, no, with us its interest rates -- really when you talk about interest rates going up, it's a matter of the shape of the yield curve. So if interest rates -- if the yield curve flattens that has a dampening affect on NII, but if interest rates should go up in tandem, that is if the yield curve retains its steepness, we're indifferent to the level of interest rates at that point, just given the fact that we're a spread lender, right. We're lending at one point on the curve and borrowing at the other.

Kevin Cummings

And a lot of the times, Rick, the models don't reflect the growth of putting more assets on at a higher rate too.

Operator

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

Mark Fitzgibbon - Sandler O'Neill

I wondered if you could share with us what the loan pipeline was at quarter end. And maybe give us a sense of the complexion and the weighted average rate of it.

Domenick Cama

The pipeline has creeped up over the past months. It's about a $1.2 billion. And of the $1.2 billion about 58% of the pipeline is in multifamily loans and then the remainder is in mixed-use, retail and office. In terms of coupon, the multifamily is carrying a weighted average rate of about 3.50%. And the other products are slightly higher than that somewhere between 3.75% and 4%.

Mark Fitzgibbon - Sandler O'Neill

Secondly, I wondered if you could help us think through operating expenses for the back half of this year or just try get us the sense, is sort of $79 million a good run rate do you think?

Domenick Cama

Yes. We're targeting somewhere between $78 million to $80 million. We had some pick up of one-time expenses -- we'll have some pick up of one-time expenses going forward. But the increased focused on the conversion in August of 2015 and the increase in business lending and risk management personnel will take the non-interest expense line item up a little bit.

Mark Fitzgibbon - Sandler O'Neill

And then last question I had was on the dividend payout ratio. You're sort of 40% payout ratio now, obviously have a lot of excess capital. How are you thinking about that payout ratio going forward?

Domenick Cama

Well, we think we're in a better place than we were when we were on the Roadshow. When we were on the Roadshow, we were projecting that we would use a dividend payout ratio of somewhere between 20% to 30%. Ultimately, we came to 40%, because we heard what a lot of shareholders said to us, we do have a lot of capital, the impact on the capital between $0.03 and $0.04 was minimal.

But we think that 40% is a good starting point for us. It's a conservative way to start to watch our net income line grow. And as we continue to grow net income line and become more confident with where that number is going to go, we believe that we'll continue to use dividends as a way to manage capital.

Kevin Cummings

And Mark, we'll refine that once we get to start the buybacks too. So we've been evaluating it and its part of the overall strategy of our equity management.

Operator

The next question comes from Collyn Gilbert of KBW.

Collyn Gilbert - KBW

Just a question on the fee side of the business. Are there any initiatives that you guys have in place or kind of what's your outlook to really improve that line, I mean at such a low level now, and just thinking about the expense creep that you're talking about and trying to control that or improve operating leverage. Just trying to understand maybe what you see some of the potential drivers are of that line?

Domenick Cama

What we see is an increase -- we'll be increasing our cash management fees when once we get on our new core processing system. We expect that we'll be in a better position to collect some fees. Obviously, in our case, that non-interest income line has been impacted by our mortgage company. And the fact that fee income from the mortgage company has declined over the last few quarters.

But from a broader perspective, Collyn, one of the things that we talked about here is once we completed the second step, that we would look for real opportunities on the fee income side, where we would buy different types businesses, maybe an insurance brokerage firm or money market management firm, some company that would generate non-interest income.

We're all over the board there. And I'm not sure where we're going to go along those lines. But right now, our focus is to make better use of our business customers and be able to improve the fee structure in that line of business.

Collyn Gilbert - KBW

And then, just back to expenses. You had said, $78 million to $80 million, and how do you see that migrating as the conversion, I mean I know that's not happening for another year, but just trying to understand, is there going to continue to be a creep up in expenses or are you trying to keep that efficiency ratio at a certain level? But just wondering how well that expense base can actually be controlled as we look out over the next year or year-and-a-half?

Domenick Cama

That's a very good question, Collyn. We expect that we'll have some creep up in that number through 2015, as we do a number of things. One is continue to invest in the infrastructure of the company as we grow, prepare for the core conversion, which entails a hiring a number of consultants, and training people to help us get to that point. But once the conversion happens in August of 2015, we're expecting a pick up of approximately $3 million as projected by our operations group along those lines.

Now, again, that's offset by the fact that we continue to invest in our C&I business, our business lending people and our risk management people, which is something that we think we need to do as a result of the increased regulatory scrutiny on institutions of our size. If you had to use a number, if I had to target a number in terms of efficiency ratio going forward, I'd expect it to be somewhere around that 55% level.

Collyn Gilbert - KBW

And then just one final question. What's the share count that you guys are using to calculate your book value? We are struggling with that

Thomas Splaine

The way we calculated book value per share, Collyn, is we're using the number of shares right off the face of the balance sheet, 358,269,000. But we also back out of that equation the unallocated ESOP shares to come down to 344 million shares. And the reason we do that is basically the unallocated ESOP shares are being -- there's a $95 million reduction in equity for those. It's just the way we've always calculated book value per share. If we're going to have the unallocated shares down in equity, we have to back them out of share count as well.

Operator

The next question comes from Christopher Marinac of FIG Partners LLC.

Christopher Marinac - FIG Partners LLC

Just a follow-up on Rick's question about the ALCO. As you look at the portfolio, I guess some of the past disclosures on the portion of loans that are maturing beyond five years, would we see that change over time, again, now that the capital is in place?

Domenick Cama

Yes. There is, Chris, an initiative here to continue the transition away from residential lending, mortgage lending and focusing more on commercial lending. Right now, we still have about $6 billion on the balance sheet in terms of residential loans. And of that $6 billion, about 40% is in 30-year fixed rate.

Anything below 30-year because of the shorter average life like the 15-year product, the 10-year product, we kind of lump along with ARM products. So as we move forward, just a natural byproduct of reducing the residential loan portfolio will be a reduction in that 30-year number. I think right now it's probably around $2.5 billion.

Christopher Marinac - FIG Partners LLC

And then Domenick, even if we broke out just the commercial loans and looked at the five-year and over bucket, would that commercial piece exclusively sort of evolve as well?

Domenick Cama

No, we're not playing that game, Chris. If I look, I can tell you that of the pipeline right now about 54% of that $1.2 billion that I talked about before is in five-year product.

Christopher Marinac - FIG Partners LLC

And I guess last question sort of related just has to do with the loan-to-deposit ratio. Do you envision that heading lower in the next year or 18 months?

Domenick Cama

We are working at it. Our loan engine is pretty strong and deposits have not caught up with loans. And so I can say this to you that, right now we expect that the loan-to-deposit ratio is going to creep up just a little bit more as we go through 2014. But one of the reasons why we're preparing for a deposit campaign in what was the former Roma and GCF market, is to introduce investors to that market in a big way and also to help us stem the tide of that loan-to-deposit ratio.

Operator

The next question comes from Laurie Hunsicker of Compass Point.

Laurie Hunsicker - Compass Point

Tom, to you, I just wanted to ask on, on the commercial real estate non-accrual loan increase, the two loans you picked up from prior acquisitions you said totaled $8 million?

Thomas Splaine

Yes.

Laurie Hunsicker - Compass Point

It went non-accruing? Okay. And so the residual of the increase was --

Thomas Splaine

One for to $6.2 million and one for just little over $2 million.

Laurie Hunsicker - Compass Point

And so then I guess the residual than of the increase, the other $2 million, was that a newly originated loan?

Thomas Splaine

No. That was a whole bunch of small-dollar loans, with no loan being over $200,000, but mainly from acquisitions.

Laurie Hunsicker - Compass Point

And obviously your loan pipeline is really strong. On the interest-only side of it, how much would you say interest-only loans are going to be in your pipeline, and how much was interest-only in terms of what came on in this last quarter?

Domenick Cama

Yes. Laurie, this is Domenick. Interest-only loans are something that they are getting wider acclaim out in the market. And more banks are offering them. We try to limit what we offer in terms of interest-only. I think right now -- and don't quote me on this, we can get this number, but I think we're about 14% of the multifamily portfolio within IO business. We tried to limit it to one and two year IO, but it's becoming more difficult because not only our bank's competing on rate, they're also competing on this new structure -- not new structure, but one that's more widely acclaimed these days.

Laurie Hunsicker - Compass Point

And Kevin, to you, just two questions. First, great comments on your dividend payout ratio. Can you comment a little bit on buyback, I know the regs right now stated, you've got to await a year, but there was some thought of potential early buybacks. Can you comment on your thoughts on that?

Kevin Cummings

We recently, Domenick and I went down to the Federal Reserve and met with them in person down in Washington. And I casually, I didn't ask, make a request, but I will -- we plan on making a request to have an acceleration of the one-year rule to six months. I have no feel for whether -- there was reaction. I kind of said it off the cuff. But we will petition the Fed for a six-month approval for the buybacks. But like everything else, I've got no feel for whether that will be approved or not.

Laurie Hunsicker - Compass Point

And then one last thought. On the last call, regarding acquisitions, you stated that probably it would be 18 months before you look to do anything, can you comment? Is your acquisition appetite about the same? Have things changed? How are you seeing it?

Kevin Cummings

Well, certainly things have not changed. We're focused on the core conversion and that will be completed in August of next year. And at that time, probably any time after that, the third or fourth quarter of that time we will probably be well-positioned to do an acquisition during that period of time.

Operator

The next question comes from David Darst of Guggenheim Securities.

David Darst - Guggenheim Securities

Why not go ahead and use, say, $300 million or $400 million of additional securities to go ahead and bring down the loan-to-deposit ratio ahead of deposit campaigns?

Kevin Cummings

How would adding securities bring down the loan-to-deposit ratio?

David Darst - Guggenheim Securities

To fund loan growth.

Thomas Splaine

Sell securities.

Kevin Cummings

Sell securities.

David Darst - Guggenheim Securities

Absolutely.

Domenick Cama

Let me understand this, sell securities to fund loan growth.

Thomas Splaine

Well, if the loan portfolio would still go up and your deposits still on a move, so it doesn't really have an impact. It's a funding mechanism of the loan portfolio, but for this metric it doesn't really impact the loan-to-deposit ratio itself.

Domenick Cama

And David, one of the other issues we faced, obviously, is we just raised all this capital. I don't want to be in a position, where I'm shrinking the balance sheet at this point in time, because I am giving up income in the short-term. Now, we are looking at some other strategies. But structurally, the best way to resolve the issue is to continue to grow deposits.

David Darst - Guggenheim Securities

And then what about hiring some --

Kevin Cummings

Last year, our loan-to-deposit ratio creeped up and we pulled some levers, did a deposit campaign in the fourth quarter of last year. And if you go back and we really brought it down at the end of the fourth quarter of last year and the first quarter of 2014. So we will manage it. We have some levers to pull. We have broker deposits. We haven't really pulled that lever yet.

Our policy has us 10% of assets. And there are a lot of things that we can manage to manage that number if it becomes a bigger issue. We talked to our regulators about it. There hasn't been any -- I mean it's a topic that we talk to them about it, because we want them to be fully aware and be totally transparent with them and move it forward. And we feel pretty comfortable with our game plan going forward.

David Darst - Guggenheim Securities

And then what about hiring teams or doing any specialty lending or anything to shorten the duration of the loan portfolio prior to being able to do a whole bank or a business acquisition?

Domenick Cama

Yes. That is the strategy. We continue to hire a business. I'm not going to use the word teams, because that's a term that's used with another bank in the area. But we are continuing to grow our C&I lending business. I'm happy to report that we've budgeted about $350 million in growth for that segment of the portfolio and year-to-date we've already grown $250 million. So we are way ahead of budget there.

And the purpose of that whole segment is to bring down the average life of the loans in our balance sheet, because if those loans are primarily loans that are repricing on a one-month basis or a three-month basis or had fixed terms of five years or less.

David Darst - Guggenheim Securities

And that's all end-market core C&I, rather than specialty lending or --

Domenick Cama

Yes. Now, that is end-market. And even our specialty lending groups, we have a medical lending team and an asset based lending team in place, even those businesses are regional here there in New York and New Jersey. We don't run any national businesses here.

Operator

The next question comes from Matthew Kelley of Sterne, Agee.

Matthew Kelley - Sterne, Agee

Just one follow-up on the securities portfolio. From the $2.55 billion balance at the end of the quarter, will that drift down over time and use some of the natural cash flows to finance loan growth or does that grow at all or any additional purchases?

Domenick Cama

Yes, that will probably start to drift down to flat. If we have loan growth, we'll start to use the securities portfolio. We've targeted our securities portfolio to be about 13% of the balance sheet, and because of the cash we increased that percentage. So we have some room for the securities to come down, but not that much.

Operator

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

Kevin Cummings

Well, this is an historic event. Our first conference call, earnings call as a fully public company. I would like to thank all our new shareholders and our old shareholders for your commitment to us, for your investment in us and your confidence in us.

And I thank you for buying into one of the most successful thrift offerings in the history of the thrift industry. I wish you all a good summer, and enjoy the rest of the day. And thank you very much for participating on this call. Have a great day.

Operator

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

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