Customers Bancorp's (CUBI) CEO Jay Sidhu on Q1 2016 Results - Earnings Call Transcript

| About: Customers Bancorp (CUBI)

Customers Bancorp, Inc. (NYSE:CUBI)

Q1 2016 Earnings Call

April 14, 2016 5:00 PM ET

Executives

Matthew Selinger - IR, Three Part Advisors

Jay Sidhu - Chairman and Chief Executive Officer

Robert Wahlman - Chief Financial Officer

Analysts

Bob Ramsey - FBR

Joseph Gladue - Merion Capital Group

Kelly Motta – KBW

Frank Schiraldi - Sandler O’Neill

Operator

Good afternoon, and welcome to the 2016 First Quarter Customers Bank Incorporated Earnings Conference Call. Today's conference is being recorded. At this time, I'll turn the conference over to Matthew Selinger. Please go ahead.

Matthew Selinger

Thank you, Jessica. Thank you everyone and good afternoon. This is Matthew Selinger from Three Part Advisors, and we are the IR form of record here with Customers Bancorp.

Welcome again to Customers Bancorp's first quarter 2016 earnings call. The earnings release was issued today after the close and is posted on the company's website at www.customersbank.com. Representing the company on the call today are Jay Sidhu, Chairman and Chief Executive Officer; and Bob Wahlman, Chief Financial Officer.

Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially, including the risk that results are different than currently anticipated. Please note that these forward-looking statements speak only as of the date of this call and undertake no obligation to update these forward-looking statements in light of new information or future events, except in the extent required by applicable securities laws.

Please refer to our SEC filings, including our report on the form 10-K and also the 10-Q for more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC, by visiting the Investor Relations section of our website.

At this time, it is my pleasure to introduce Jay Sidhu, Customers Bancorp’s Chief Executive Officer. Jay?

Jay Sidhu

Good, thank you very much Matt and good afternoon ladies and gentlemen. Welcome to Customers Bancorp first quarter 2016 call. Joining me over here today in Pennsylvania also our Dick Ehst, the President of Customers, Bob Wahlman, our Chief Financial Officer, as well as Steve Issa, our Chief Lending Officer.

Customers Bancorp or CUBI as we call it is very pleased to report another strong quarter. This quarter was perhaps one of our cleanest quarters compared to the last couple of quarters. Other than a $1.2 million special reserve that we set aside for a potential or a possible regulatory charges in the sometime in the future, or and some related legal expenses that might go with it, this quarter was absolutely clean.

We ended up at about $9 billion in assets and as you know, we have only 21 sales offices. Our deposit growth was strong, much stronger, they’ve end up by about $635 million and in terms of the composition [indiscernible] were flat, money market accounts went up by about $500 million during the quarter and demand deposits was up by about $135 million during the quarter. Hence our average brand size went up to from $330 million at the end of the year to about $380 million in deposits per branch. Our cost of funds went up about three basis points due to the Fed increase.

On the lending side, it was another strong quarter for us. Commercial real estate went up only about a $100 million because that is not a major focus of our company. The major focus of the company is C&I, C&I loans are broken into C&I for the manufacturing service industries and the normal community banking activities and special C&I services to the privately held mortgage companies.

So our C&I loans dues privately held mortgage companies that was went up by about $300 million on March 31. Our average balances for the fourth quarter in our mortgage warehouse were for the first quarter were almost right on top of our average balances for fourth quarter 2015, that’s the nature of the business and so that’s why looking ahead you got to look at when I comment on capitals you go to keep that in mind at looking at our capital planning strategies.

In terms of multi-family, part of our strategy is that if we expect mortgage warehouse businesses to fluctuate we have a consistency of balancing that with some multi-family growth. And they were up about $300 million on an average in the first quarter compared to the fourth quarter last year.

So as you know, the net income was up 17.5%. Our EPS was up 16% and about 16.5%, our return on common equity was almost 13% and our tangible book value per share increased by about 12.5% and our return on assets was about 85 basis points.

So now I’d like to invite Bob Wahlman, our CFO to go over details in financial and after Bob it’s done. I’ll come back and talk about our expectations for the future and also comment to you on various aspects of our business as well as the economy as such, and of course, BankMobile Technologies. So, Bob?

Robert Wahlman

Thank you, Jay, and good afternoon everyone. As Jay described to you, customers is very pleased to report a great start to 2016, a start that’s very consistent and in line with the earnings guidance that we had previously provided for 2016 of $2.40 to $2.50 per share. Also as Jay noted in the first quarter, Customers net income to common shareholders was $16.4 million or $0.57 per share. In comparison, the first quarter of 2015 net income to common shareholders was $14 million or $0.49 per share. So, first quarter 2016 net income to customer shareholders was up approximately 17% over a year ago on growth in top line revenue of approximately 22%.

So looking behind the net income number into the drivers of Customers performance, I think it’s important to focus on the following matters; first, Customers income producing assets and cash total $8.9 billion of a $9 billion balance sheet, so there is only a $100 million that we have for receivables and other non-income generating assets. Secondly, the principle driver to Customers growth and profitability was the growth in income producing loan balances. Customers continue to see strong demand with multi-family and commercial loans, including loans to mortgage bankers to finance their inventories.

Q1 2016 to Q1 2015 average loan balances were up $1.5 billion. Multi-family loans made up the bulk of that at $933 million, commercial loans were up average balances $564 million and loans to mortgage banking company were up $276 million. That loan growth was funded largely with growth in deposits which was up $1.4 billion and capital which was up $133 million. Within deposits, average deposit loan balances Q1 2016 compared to Q1 2015 were up $753 million for money market deposits, $561 million for certificates of deposits and $102 million for demand deposits, of which $69 million were non-interest during demand deposits.

That was the primary driver for Customers growth with an increasing average loan balances. However, Customers net interest margin for Q1 2016 was also up at 2.87% that is up four basis points from the prior quarter, although was down two basis from a year ago, and is up 14 basis points from the NIM low of 2.73% in Q2 of 2015.

The net interest margin was helped in Q1 2016 by increase in the yields on a variable rate loan products, particularly the mortgage warehouse loan portfolio rates increased nearly 25 basis points totaled the quarter. We gave some of that money back because that portfolio which is short-term and variable in nature is also funded by short-term borrowings which also increased, but it’s not a 100% funded by that so we ended up with a net increase.

Net interest margin would help with these from early prepayment of penalties totaling just $1.1 million in Q1 2016 or about 3.5 basis points in yield and prepayment penalties on our last quarter were $976,000 and were about $600,000 in Q1 of 2015.

So non-interest – moving on to the balance sheet - to the income statement, non-interest income in Q1 2016 was $5.5 million and it was claimed and did not contain any unusual items and did not include any gains on sales in multi-family loans. We did not sell any multi-family loans in Q1 of 2016. Q1 2016 non-interest income was not significantly different from non-interest income in Q1 2015 of $5.7 million.

Non-interest expense totaled $33.9 million in Q1 2016 were up $6.4 million or 23% from the Q1 2015 amount, of $27 million. The increase in non-interest expense came from a number of different areas as we are [indiscernible] bank and as we said, as the bank grows we are going to be increasing additional cost to meet our obligations in service side customers. So salaries and benefits were up $3.4 million, salaries and benefits constitute about 50% of our total expenses and makes up about 50% of this increase, a little more than that. FDIC insurance assessments and regulatory fees were up $0.7 million or $700,000 and professional services were up $700,000.

Customers as I said before, is noted that these expense increases result from cost incurred to run a growing business, as our business increase it does take more people, it does take more office space and our cost will increase accordingly. And the regulatory related cost are largely due just with the size of the balance sheet, but these things are what we consider to be normal cost increases. We do think it’s important to compare the 23% increase in operating expenses of $6.4 million in Q1 compared to a year ago to the 27% increase in loan balance and the 22% increase in revenues of $14.7 million over that same time period.

Moving on to the provision for loan losses. The provision for loan losses of customers totaled $2 million for Q1 2016, down approximately $1 million from Q1 2015. The Q1 2016 provision included an amount for growth in the loan portfolio, net of qualitative factors of $800,000 and impairment estimates on specific loans reviewed of $1.4 million. And then we had better than expected performance on loans purchase at a significant discount that is the old SOPO 3-3 loans of $300,000 so those loans were collecting on better than we had previously estimated.

Asset quality continues to be very strong at Customers as we continue to adhere to the underwriting standard as we first put in place subsequent to the new ownership taking control of the bank back in 2009. Non-performing loans were only 20 basis points of total loans outstanding at March 31, 2016, roughly flat compared to March 31, 2015 of 19 basis points. Looking at that 20 basis points, approximately 11 basis points is non-performing loans and virtually all of our ROE assets results from problem loans that we acquired in FBI assisted or other strategic bank acquisitions made back in the 2010 and 2011 time period. So, only 9 basis points results from loans that are originated or purchased by Customers outside of these problem bank acquisitions since 2009, so Customers is very pleased to continue loan performance yields of this portfolio.

Looking quickly at the sequential quarter performance, Customers Q1 2016 performance is measured by earnings of $16.4 million and $0.57 per share is very comparable to net income of $16.8 million and $0.58 per share for Q4 2015. Comparing Q1 2016 to Q4 2015, net interest income increased $4.2 million over quarter-over-quarter as the average loan balances increased by approximately $600 million and net interest margin widened quarter-over-quarter by four basis points. Again margin widened because of the benefit received from the interest rate increase in December largely from our mortgage warehouse loan portfolio.

Non-interest income was down $3.9 million to $5.5 million because of the unusual positive events we enjoyed in the fourth quarter that were not repeated in Q1 2016, particularly we received the $2.4 million non-tax bearing payment on our bank on life insurance policy. We had loans in the fourth quarter, the gains on loan sales and multi-family loans of $500,000 versus none in Q1 2016 and we received one time swap premium gain on back-to-back swap of $800,000 in Q4 2015 and we had none in 2016.

Non-interest expense increased $2.1 million in Q1 2016 compared to Q4 2015. Salaries and benefits was a principle drivers of that increase, but much of this that increase that we saw in that area relating to such things as you often time see in Q1 such as the increase in [indiscernible] taxes as everyone who had reached their maximum in 2015 and hadn’t been paying any [indiscernible] taxes at the end of that year, now it’s subject to the [indiscernible] taxes, there is the bonus accrual chew up and a variety of things like this, but all the things that led to that increase were planned and were considered in our earnings forecast.

So other than salaries and benefits, the increases and decreases and expenses were largely offset with notably the decrease in professional and services down $1 million as a number of one time projects, special projects that we had ongoing in the fourth quarter were wrapped up and we no longer have those that expenditure for those outside resources. And we did end up – but that was offset by a like accrual in Q1 for a couple of legal matters.

And then finally, the provision for loan losses decreased $4.2 million in Q1 2016 compared to Q4 2015, largely attributable to that $3 million provision recorded in the fourth quarter, the fallen reserve for the project and loan that was first described to you during the second quarter earnings release. That loan is fully reserved and is fully charged off at this point in time and we continue to our efforts to collect on the loan so we can only have a positive effect in the future at some point in time down the road.

So Jay, that concludes my comments on financial overview for the first quarter, and I’ll be happy to answer any questions at the conclusion of our remarks here.

Jay Sidhu

Okay, thank you very much Bob.

Let me just comment a little bit on the few items. Starting with the banking strategy first, as you know, our deposit growth over the last five years with absolutely no acquisitions has averaged about 40% a year compounded annual growth rate. And our DDAs are up about 51% a year at cagier. And our total deposits for branch over the last five years dip down from about $112 million of branch and they were 6.5 years ago as low as $40 million a branch and today they are $380 million a branch.

So we – how have we been doing it? And on the lending side, our cagier approximately 47% and five years ago 75% to 80% of all our loans were mortgage warehouse and today they’re about 20%, 23%.

And that all results from our core strategy of what we call the single point of contact strategy that I’m sure you heard from a few other high performing institutions. That strategy is very much what we also call high tough supported with high-tech where you hire bankers, private bankers we call them, who are at least 15 years of experience. You combine them with bankers or the people who have an experience in selling personal banking services and you have a client only make one call to the bank. And you have decision makers help the clients with all their business banking services, their consumer banking services and any other non-credit services. So these are very experienced teams that provide exceptional services that are supported with top notch technology and we compensate these teams with risk based incentive compensation plans.

So as a result of this, 95% of all our revenues are coming from business segments. Those business segments are banking the privately held businesses makeup about 40% of our portfolio. Banking high net worth families we concentrate pretty much almost exclusively on the multi-family portfolio of these high net worth families, that made up at March 31 about another 40% of our portfolio. And the normal commercial real estate that you find at majority of the banks that made up only 15% of the portfolio and our consumer loan portfolio was only about 5%.

Now let me comment on each one of these loan portfolios and where do we see things going ahead forward. So in our C&I private and commercial banking which is served by the various teams, we added about three or four teams in the last four months and those teams are often running and we expect a good performance from those teams. You have to put a lot of business on in the C&I business because you have the normal from the good companies that you’re doing a lot of business with.

So, these teams we execute on our single point of context. We have these teams located in New England and they’re both in Boston, they’re in New Hampshire as well as in providence in New England. These teams are in New York, in New York we have teams located in Manhattan, we have teams located also on the Long Island and we are looking at teams in other areas of New York. And then we have specialized team also of SBA lenders that we’ve recruited very, very experienced and they are located in all our markets and including New England where we have now recruited a team of SBA lenders.

In New England we have a team which we call special – or equipment finance team. They’re also pleasing that team serves our business customers throughout our franchise as does the SBA team serve our clients throughout our entire franchise. At the end of March, we had more in deposits from the business segment than we had loans. We had $3.3 billion in deposits from the commercial segment and we had $3.1 billion in loans from these commercial segment.

In terms of our – the next business segment and that happens to be the multi-family segment, that one is predominantly New York, we decided to give you a little bit more flavor on that segment because lots of people are raising some questions about the multi-family business, but New York multi-family is very, very unique. And our average loan size is $4 million to $6 million and as I mentioned to you, it’s pretty much that we lend to high net worth families rather than REITS or two other types of private equity funds or those kind of developers because most of our borrowers do not even have an elevator in the buildings that we are financing.

Our annual debt service coverage ratio is almost 140%, our loan to value ratio is 70% or less and our loans - we stress each and every loan for cap rates went up and by about 1% to 2% [indiscernible] and from 1.5 to 3 percentage point increase in interest rates over a three year period which we believe is possible so that when the loans do come up for renewal that those customers can still be able to afford them, and if not, to be required from all of those customers personal guarantees.

All these properties are inspected prior to the loans being granted and they are obviously monitored by an independent group of our portfolio managers and all our credit is centralized and all our credit officers in every single area of our business report to our Chief Credit Officer Tom Jastrem and who is very, very experienced. No wonder our customers have not seen any 30 day or more delinquency in any – from any one of our multi-family loans at all this year.

Now, talking about the mortgage warehouse business a little bit, the yield curve went flat as you know this quarter. Our expectations were that we would see about $200 million average outstanding is to be about $200 million lower which is normal seasonal deductions in that portfolio. And instead of those $200 million lower, we saw a $200 million higher balances, but not on an average basis, actually $300 million higher balances on an average like I said, they were only $10 million more than what they were in the fourth quarter.

So the bottom line is, our net income was not materially impacted at all by the mortgage warehouse business but our capital was materially impacted at March 31 by the mortgage warehouse business.

Let me talk about capital while we’re on it. So recognizing that we were expecting the yield curve to sort of get flattish, we took some steps in January and raised a $25 million of preferred. So our Tier 1 equity to average tangible assets even though you saw a surge in the mortgage warehouse business on the last business day of the first quarter that remained flat at 7.15% which is our Tier 1 equity to average tangible assets. But our common equity to average tangible assets did drop from 6.37% at fourth quarter down to 6.17% and that was not something, that is not something that we want to see continue and we’re going to take steps by controlling our asset growth to make sure that this trend reversers. We do not intend to issue any common equity at all, I say that once again, but we will manage our balance sheet to take our common equity to asset ratios up.

Our tangible book value per share went up to over $19 and so that continues to show that we have over the years actually had a 13% average annual compounded growth rate over the last five years intangible book value per share, without ever having issued equity about book value. So it’s’ all as a result of our – doing the fundamentals and producing earnings. So you should expect our capital ratios to continue to start to change and they will be going up since starting the second half of the year, so over the next 18 to 24 months you should not expect more than 5% or so average annual growth rate and deposit in assets because we intend to stay about – at about $10 billion, below the $10 billion in assets as such and build a stronger balance sheet and get to a 1% ROE and still with higher capital ratios show above average ROE, that is our priority for the next two years because we believe the shareholders will gain the most by us executing this strategy, as such specially in times that are live somewhat uncertain.

So let me comment on the economy that we’ll be hearing from all our customers, and we are at meeting yesterday, talking to all our lenders, what we are hearing from them is that they are somewhat cautious, they don’t believe it’s affecting significantly their businesses but they are bare fold as to what does the market see that they don’t see. And so that’s why they are cautious and our business customers have become more cautious about making capital investments.

Number two, we heard clearly from every one of our lenders that there is a discussion taking place among all our business customers as to what will might be the outcome of the elections and what it might do to the monitory and physical policies and the overall market’s sentiment and that’s another reason why we believe that you’re not going to see a very strong growth in our economy that is our view, for based upon what our customers seeing even in the second half of this year.

So we are to being very prudent about it, we’ve approached asset quality since 2009 that we got involved in this company and it’s something which is very critical at a time when nobody was even asking us any questions about credit quality, we’ve been making loans as if the economy is going to be weaker tomorrow. We think that’s prudent and definitely right now we are operating in that kind of a start.

So you should not expect any negative impact or negative surprises to the best of our ability we will have, even if we have here and there some non-performing loans we believe you should not see significant charge offs coming from us, and that’s why in this quarter even though our non-performing loans went up by about $4 million we don’t expect any charge offs coming out of that at all.

Let me talk a little bit about BankMobile now. So BankMobile, the growth of the customer accounts is continues to exist. We have over 100,000 checking account customers today. By the end of this quarter we’ll have 2.1 million checking account customers banking with BankMobile, they are principally all millennials, and that obviously significant growth will come as a result of our closing the deal with higher ones disbursement business and we are very focused on continuing to build out BankMobile, this is a huge opportunity for us to really take advantage of the platform and to make these customers for life.

So that is the future opportunity and we will continue to be focused on taking advantage of it. In the next six months we hope to attract between 500,000 to 600,000 new millennial students to become our customers, they will have a check-in account with us. We have taken some very significant time to work with our colleagues who will be joining us from our [indiscernible] to come up with business strategies. And so we hope to discuss with you in a lot more detail our strategies and introduce to you our management team also that’ll be running the BankMobile on June 3 when we have our Analyst Day for 2016. That Analyst Day will be held at New York Stock Exchange offices on June 3, so we remained very bullish on the future of BankMobile.

So with that, Jess, I’ll ask you to open it up for any questions that anybody may have.

Question-and-Answer Session

Operator

Absolutely. [Operator Instructions] And we’ll first go to Bob Ramsey with FBR.

Bob Ramsey

Hi there, good afternoon.

Jay Sidhu

Hi Bob.

Robert Wahlman

Hello Bob, how are you?

Bob Ramsey

Hey, good thank you. So, I guess the first question I have for you, I appreciated the loan growth guidance that sort of expect something like 5% annualized growth over the next year. So how should we think about deposit growth, you had very good deposit growth this quarter, I know you touched on that at your comments, maybe I need more color on what really drove that this quarter. And I’m assuming that the deposit growth will stay much stronger than loan growth and I guess we should expect the loan to deposit ratio to sort of trend lower over the next year?

Jay Sidhu

That is absolutely correct Bob, I think you should expect our deposit growth on an average to remain similar to what you saw in the first quarter. And that also is that if at a certain day 18 months or two years from now, we do choose to divest BankMobile technologies that’ll take some deposits out of CUBI so that we intend to kind of build a much stronger deposit balance sheet so that Customers Bancorp itself doesn’t have a weaker balance sheet or weaker deposit base by the time we are ready to execute on that.

Bob Ramsey

Okay, that’s helpful. And then any more color on sort of what really drove the loan growth this quarter?

Jay Sidhu

We decided – yes Bob, we decided as a strategy that there is a seasonality to our business of the mortgage warehouse business. So, with the Fed increase in rates there was some uncertainty in the market place, the average – we saw average yields of 3.4% in the high quality multi-family business that we could put on our balance sheet. And based upon our market position we decided to take advantage of that and really built a very strong pipeline at a time when many of our competitors were sitting on the side line, wondering what the Fed was going to do and what that might - impact it might have on the rates of multi-family.

So then we were expecting like I said earlier, our mortgage warehouse business perhaps to be down by $200 million. So, looking ahead in the second quarter you should expect us to have some nominal continued growth in multi-family but not to the same extent you saw in the first quarter. But I wouldn’t be surprised, this yield curve - consumer is very smart and this yield curve is being, is really driving a lot of volume of refinancing, adjustable rate mortgage loan especially into 7 year and 15 year fixed rate loans. We are seeing a huge increase in that business, which obviously our clients are looking for credit lines from us so that goes very well for our second quarter profitability.

And that’s why bottom line is that, we may not be able to show you significantly better capital numbers in the second quarter but you will start to see our capital, especially the tangible common equity to average tangible assets start to go up more so in the second half. And on an average you’ll start to see the loan growth being greater than 5% in certain of our core businesses and less than 5% perhaps based upon our estimate significantly less than 5% in the mortgage warehouse business.

Bob Ramsey

Okay. Do you have the Tier 1 risk based capital ratio and total risk based capital ratio for the first quarter handy by any chance?

Robert Wahlman

Bob, we don’t – we haven’t – we have preliminary numbers Bob, but nothing that we published at this point in time, that’s consistent with our past practices we wait until we issue the call reports.

Jay Sidhu

But they were all pretty much consistent – Bob, you can see that our Tier 1 equity was 7.15 that we raised some, so they were all…

Robert Wahlman

They’re generally consistent with last quarters.

Bob Ramsey

Okay, okay.

Jay Sidhu

But you can call us before the call report Bob, we’ll give them to you as soon as we’ve done.

Bob Ramsey

Okay. Last question, I’ll hand it off to someone else, but any sort of preview you can provide for the upcoming Analyst Day in New York? I’m curious how much of the focus is going to be on BankMobile and what should we be looking for?

Jay Sidhu

Sure Bob, that’s going to be minimum 50-50 but if possible it might be 60%, 70% BankMobile and the rest would be on the rest of Customers bank, because there are more questions and there are more – lots of our shareholders are really looking forward to what it might mean for BankMobile technologies divestiture because right now last year there was a seven point some million dollar expense zero valuation given to us by our shareholders, and we are getting a lot of questions about BankMobile. So in response to that it’s probably going to be 60% or 70% BankMobile and the rest will be commercial – the rest will be the commercial banking operations of Customers bank.

Bob Ramsey

Great, all right, looking forward to it. Thank you guys.

Jay Sidhu

You’re welcome.

Operator

And we’ll go to Joe Gladue from Merion Capital Group.

Jay Sidhu

Hi Joe.

Joseph Gladue

Yeah, good afternoon. Yeah, I’ve just had one question, you did mention – you’ve added some changes in the last three or four months but wondered what the outlook for the rest of the year is as far as additional more teams.

Jay Sidhu

Joe, we’ve added approximately 14, 15 or so folks in the last six months in our various teams and we’re going to pause. The best opportunities are right after you get those bonuses or those kind of things so there is a lot of hiring that takes places between February and March and we did our share. And so you shouldn’t expect any other significant increases in our teams, but we are expecting reasonably strong growth in C&I business but not a huge based upon what we are seeing in the market place.

And we will be looking at simply doing fundamentals and having a much stronger balance sheet for the next year or two and you should expect like I said earlier, us to get close to 1% to ROE within this 18 months to two year period.

Joseph Gladue

All right, thank you.

Operator

[Operator Instructions] We’ll now go to Kelly Motta from KBW.

Kelly Motta

Hi, this is Kelly Motta on for Chris McGratty, thanks for taking my question.

Jay Sidhu

Sure.

Kelly Motta

So your loan growth is particularly strong in Q1, partly impacted by no loan sales. Can you describe what your near term outlook is for loan sales, particularly with respect to managing your overall capital levels?

Jay Sidhu

Sure. Kelly, we will do loan sales whenever we feel there is an opportunity for us to get a nice good price for it because we are not in the business of multi-family, it’s not a mortgage banking operation, it is a business that we are in for holding them in portfolios.

So in the first quarter we didn’t do any loan sales because there was somewhat of uncertainty in the marketplace as to the valuation of these multi-family portfolios but you shouldn’t be surprised if we do a loan sale of multi-family in the second quarter. And then going forward, we are seeing payoffs and prepayments add up to somewhere between $150 million or so a quarter of multi-family loans and so if we do book more significantly more than that it’s probably because like you said so correctly that we see opportunities for loan sales and we are very focused on improving our capital ratios without sacrificing earnings growth.

Kelly Motta

Okay, thank you.

Operator

And it appears there are no further questions. I’ll turn the conference back over to our presenters for any additional or closing remarks. Actually I apologize, it looks like we do have a question now coming in. Frank from Sandler O’Neill, please go ahead.

Frank Schiraldi

Hi, it’s Frank Schiraldi, how are you guys?

Jay Sidhu

Good Frank, how are you?

Frank Schiraldi

Good, thanks. Just wanted to ask about BankMobile, the 100,000 accounts plus I think it is that you have, is there any color you can give on percentage of those accounts that are direct deposit, what’s driving those accounts, are they in part reflect graduates coming from higher one deposits, if you could just give any color there? Thanks.

Jay Sidhu

I think all of the above, we are attracting the graduates, we are doing a lot of testing on various approaches that work. We have a bank mobilist program which is at non-higher one colleges and universities who are bringing in a lot of these customers to us. And – but all I can say to you is that direct BankMobile to consumer is not a frictionless process and indirect BankMobile through someone else whether it’s affinity group or whether it’s colleges and universities, whether BankMobile those kind of things are much more effective that we are finding and much more cost effective and a better quality of a customer that we are finding.

We will be talking a whole lot more about this Frank on June 3.

Frank Schiraldi

Okay, so do you have that handy just the direct deposit number or is that something you guys will give out at the Analyst Day?

Jay Sidhu

We’ll give it out in the Analyst Day, and we’ll also share with you what our goals are at the Analyst Day.

Frank Schiraldi

Okay, great. And then just on the growth in deposits, I see obviously a big chunk was in money market. Jay, you said that that was reflective of that came from your commercial customers primarily…

Jay Sidhu

Yes, all of it, almost all of it, 98% came from commercial customers.

Frank Schiraldi

Okay, and what’s the yield – the average yield on the – just curious, on the deposits coming on the books in the quarter?

Jay Sidhu

Our average cost of funds for the – on deposits for the quarter went up by about three basis points. Bob, do you have it broken down by different categories?

Robert Wahlman

Yeah I do, I can tell you on – I can’t answer this question specifically in terms of those specific assets…

Jay Sidhu

Money market deposits, if there is…

Robert Wahlman

But I think these are different but money market deposits are 58 basis points Frank, and these are coming on in that 50 to – generally in that price range.

Frank Schiraldi

Okay great, that’s helpful. And then just finally, on multi-family, just in terms of competition in New York, we’ve heard a lot about it sort of heating up and in terms of pricing and terms and heard a bit about offerings coming in with interest only initial term sometimes for multiyear periods. Just wondering if you can talk about the competition in multi-family specifically in New York and how you guys approach that, what you’re willing to do on the IO side?

Jay Sidhu

We are not willing to do any of the things that you heard from your competitors Frank, and we just make that clear. And there is nothing new about competition, this is – as banks woke up in the last two years to say, my god we got to start generating more revenues, how do we do it. And then they all sort of realized, the ones who are generating revenues are the banks who happen to be doing a lot of New York multi-family and you’ve seen a lot of new entrance in the market place and the only way that they believe they can compete with us and with signature and with New York community is by price.

Well, I can tell you this, this is not just the price sensitive market, this is very much of a relationship business, even though it’s done through brokers predominately it is entirely a relationship business and we are not going to be playing the price game with any of our competitors, even if it means we have to stay out of the market. We have never made a multi-family loan below three and a quarter, we told you our average yield and the business we put on in the first quarter was 3.4%.

Frank Schiraldi

Okay.

Jay Sidhu

And in Ohio, no five years, no 10 years. So, I told you it’s not a commodity.

Frank Schiraldi

Okay. So competition hasn’t necessarily guys, it’s just been fierce all along and hasn’t necessarily changed and to your point the relationship is important.

Jay Sidhu

Yeah, and if it changes we will change our business focus too rather than just match up.

Frank Schiraldi

Okay, thank you.

Jay Sidhu

Thank you, Frank. Anybody else Jessica?

Operator

It appears there are no further questions.

Jay Sidhu

Okay, well thank you very much. And in summary, I would just like to once again state that we made public our goals for 2016 to be between $240 million to $250 million in operating core earnings per share and we are right on target and seeing no reason to change that guidance that we’ve given to you.

So thank you very much for dialing in and please give us a call if you have any other questions, but otherwise we hope to see many of you and your clients on June 3 in New York. Thank you.

Operator

This concludes today’s presentation. Thank you for your participation.

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