Investors Bancorp's (ISBC) CEO Kevin Cummings on Q1 2016 Results - Earnings Call Transcript

| About: Investors Bancorp, (ISBC)

Investors Bancorp, Inc. (NASDAQ:ISBC)

Q1 2016 Earnings Conference Call

April 28, 2016 09:00 ET

Executives

Kevin Cummings - President and Chief Executive Officer

Sean Burke - Chief Financial Officer

Domenick Cama - Chief Operating Officer

Analysts

Mark Fitzgibbon - Sandler O’Neill

Jared Shaw - Wells Fargo Securities

Laurie Hunsicker - Compass Point

Collyn Gilbert - KBW

Dave Bishop - FIG Partners

Matthew Kelley - Piper Jaffray

Operator

Good morning and welcome to the ISBC First Quarter Earnings Conference Call 2016. [Operator Instructions] Please note this event is being recorded.

We will begin this morning’s call with the company’s standard forward-looking statements disclosure. On this call, representatives of Investors Bancorp Inc. may make some forward-looking statements with respect to its financial position, results of operations and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Investors Bancorp’s control and are difficult to predict, which can cause actual results to materially differ from those expressed or forecast in these forward-looking statements.

In last night’s press release, the company has included its Safe Harbor disclosure and refers you to that statement. This document is incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the section entitled Risk Factors, management discussion and analysis of financial conditions and results of operations set forth in Investors Bancorp’s filings with the SEC.

And now, I would like to turn the call over to Kevin Cummings, President and CEO of Investors Bancorp.

Kevin Cummings

Thank you for that introduction and good morning and welcome to the First Quarter Investors Bancorp 2016 Earnings Call. The company and the bank had a solid first quarter to kick off the year after a strong finish – a record finish to 2015. Earnings for the quarter were $43.6 million, which is a 4% increase over the first quarter of 2015 and flat to our core earnings in the fourth quarter of last year.

On an EPS basis, our earnings were $0.14 a share, which translates into a 17% increase over 2015 earnings of $0.12 a share. This EPS results reflect our stock buybacks for the quarter, where we purchased over 12 million shares at an average price of $11.54. At the end of this quarter, we had approximately 9 million shares remaining in our second repurchase plan. And as a result, we improved our third share repurchase plan for another 10% or approximately 31 million shares. This new program will commence on the completion of the second plan sometime later in the second quarter. In addition, the company also announced a quarterly dividend of $0.06 a share, which is a 20% increase over the quarterly dividend as for the same period last year. As you may recall, the company is committed to leveraging its second step proceeds in May of 2014 in a prudent manner. That’s organic growth, stock buybacks, dividends and acquisitions that are strategic and that create value for our franchise, our customers and most importantly, our shareholders.

Since our second step in May of 2014, we have leveraged our tangible capital from 19.66% to under 15% at 14.75% at the end of the quarter. We have increased our assets from $17.5 billion to over $21.2 billion today and our loans have increased from $13.9 billion to over $17 billion. Deposits have also shown significant growth going from $11.2 billion growing $3 billion to $14.2 billion and that is all without an acquisition over that 7-quarter period. Since our second step, we have grown $3.7 billion or 21% and leveraged our capital down by close to 500 basis points. We have accomplished this growth, while improving our ROE, maintaining our efficiency ratio and improving asset quality, plus we have made significant investments.

We made investments in our technology platform through our core conversion in last year, in last August, expansion of our retail franchise by opening 13 new branches and continued investment in our enterprise risk management as we grow and add staff to meet the requirements of the regulatory requirements. In the last 15 months, we have hired a new CFO, General Counsel, Chief Risk Officer, Chief Information Security Officer, and just recently in March, we hired the former partner of a big foreign accounting firm to enhance and improve our internal audit processes. We also continue to invest in our lending teams as we are opening – as we have opened a new loan production office in Melville, Long Island.

For the quarter, our net interest income increased 7% year-over-year and our margin remains flat to the previous quarter at 3.05%. Our commercial loans grew just 3.1% for the quarter, but 23% over the last 12 months. Our pipeline remained strong and our first quarter growth is down a bit due to a strong fourth quarter surge and some softness in the multifamily sector. As many of you know, this sector has come under some scrutiny lately with regard to competition and regulatory review. We continue to remain cautious in our underwriting and risk management. We have approximately 1,800 loans in our multifamily portfolio, with an average loan of just over $3.5 million and close to 58% of these properties are on buildings with loans less than $10 million. 52% of this portfolio is in New York, 23% in New Jersey and 14% in Pennsylvania. Our New York exposure is $3.4 billion, with 38% of that in Brooklyn, 33% in Manhattan and about 10% in Queens.

Our underwriting standards have remained consistent despite increased competition and our multifamily credit quality remains strong. There are just three loans in the nonperforming category at 90 days delinquent for just under $3 million and no loans 60 days delinquent. In the 30-day category, we see no major issues as all, but one loan was brought current in April and the majority of those items were a result of escrow payments with taxes on these properties.

Overall, our credit metrics remained strong, with only 17 basis points of commercial loan non-accrual loans and 19 basis points of total nonperforming loans in the commercial portfolio, which includes $3.5 million of performing TDRs. During the period, we provided $5 million to our provision for loan losses as our allowance now stands at 1.26% and has a coverage to non-accrual loans of over 200% and then we have had charge-offs of $6.9 million for the quarter principally in the residential and the C&I portfolios. One relationship relating to those charge-offs is in our medical and lending group and we expect this recovery on that loan later in the year.

Overall, we continue to manage our growth in the loan portfolio in a prudent manner and we will continue to be vigilant in our assessment of our credit exposure in light of the competition in our markets and regulatory expectations. On the deposit retail side of the bank, deposits were up $138 million or 1% from $1,231 million and up 1.8% or 15% from same time last year. Of course, the deposits were flat compared to the fourth quarter and up 9 basis points the first quarter of last year. We opened 11 branches over the last 15 months, including 3 in the first quarter of this year. Average deposits for the 8 branches opened in 2015 were $215 million, with an average cost of funds of 60 basis points in the first quarter, which is lower than our overall cost of funds of 67 basis points at March 31, 2016. We continue to execute well in our de novo branch strategy.

We just recently opened another branch in Howell in Monmouth County this past week and we have 10 branches scheduled for opening in the remainder of the year. While opening these 11 branches in the past 15 months, we have kept our headcount in the overall branch system flat in order to manage our expenses and headcount. In addition, our average occupancy cost for these new branches approximated $80,000 on average for the first quarter of 2016. We are seeing increased competition on both the deposits and loan front, but we continue to expand our franchise and enhance our product offering. The competition is fierce, but we will continue to work hard and develop our businesses and move forward.

And at that time now, I would like to turn it over to Sean to give some more color on the P&L items and other items in the financials.

Sean Burke

Thanks, Kevin. Despite slower market conditions typically characteristic of the first quarter, our loan portfolio increased $262 million to $17.2 billion quarter-over-quarter. That represents 6% growth on an annualized basis. As Kevin mentioned, our pipeline of loans at March 31, stood at a robust $2.6 billion. Despite – our deposits grew $138 million to $14.2 billion, the growth been driven primarily by core deposits. Asset quality, metrics remain strong with most metrics continuing to improve. Non-accruals to total loans were 0.61% at March 31, down from 0.68% at year end. Our allowance to total loan ratio is 1.26 at the end of the quarter.

Shifting gears to the income statement, net income for the quarter was $43.6 million or $0.14 per diluted share. Net interest income rose 2.5% quarter-over-quarter or 10% annualized, driven by loan growth and a stable net interest margin of 3.05%. Prepayment penalty income totaled $4.7 million for the quarter versus $4.5 million in the fourth quarter of 2015. Provision for loan loss totaled $5 million, consistent with the fourth quarter of 2015. Non-interest income totaled $8.7 million, unchanged from the fourth quarter of 2015. Included in the first quarter, however, are security gains of $1.4 million which are offset by $200,000 of losses on OREO dispositions.

Non-interest expenses totaled $87.1 million, an increase of $1.5 million from the fourth quarter of 2015. The increase was primarily driven by comp and benefits resulting from headcount additions and annual merit increases. Our effective tax rate was 38.7% for the first quarter, which is in line with our expectations. We continue to leverage our capital through share repurchases. We purchased 12.2 million shares during the quarter bringing total shares repurchased to 43.7 million and also announced the approval of our third repurchase program to commence upon the completion of our current program.

On that note, I would like to turn it back over to Kevin for some concluding remarks before we open it up for Q&A.

Kevin Cummings

Good. Thanks Sean. This year will be a transaction – transitional year for investors as we see various opportunities including M&A opportunities and continue our prudent growth. M&A will be an important tool for us in the future as we grow and leverage our excess capital. As mentioned, many times on previous calls, we will do transactions that enhance shareholder value, have reasonable earn backs on the both static and crossover methods and provides strategic and franchise expansion for the bank. The math is the driver here, but also the potential of the target and what we can do with it is also a major consideration. One just has to look at our last eight acquisitions since 2008, as they are good history to measure our views and execution capabilities in the M&A space.

As we continue to execute our strategic plan, we will not venture away from our core business, instead we will continue to invest in technology, risk management and our people and our teams. We will continue to be the leading full service community bank serving the New York, New Jersey Metro area. We will remain true to our values, our core values and our mission. We as Investors are unique bank, a different bank that wants to make a difference with our employees, our customers and the communities that we serve. If we take care of all these constituencies, hope you our shareholders will be rewarded. I want to thank you for your continued interest and investment in our company.

And now, I would like to open up the call to questions. Thank you.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Fitzgibbon of Sandler O’Neill. Please go ahead.

Mark Fitzgibbon

Hey guys, good morning.

Kevin Cummings

Good morning. Couple of things for the second quarter, Sean you had mentioned last quarter, you thought $87 million was a pretty good run rate for expenses, does that take into account all of the 10 branches that you plan to open in the back half of the year?

Sean Burke

It does, Mark. It does take into account all the branches that we intend to open. That said though, what I will caution that we are seeing it trend a little higher and as we are making investments in infrastructure. And we are seeing some of his competition to attract and retain some of the employees that we are bringing on. So I do think that there is potential for that to inch up a bit here in coming quarters.

Mark Fitzgibbon

Okay. And then secondly, I think you mentioned your pipeline is $2.6 billion, I wondered if you could share with us what the complexion of that looks like and maybe an average yield?

Domenick Cama

Hey. Good morning Mark, it’s Domenick. The average yield on the CRE pipeline is about 3.75% and on the C&I pipeline, it’s just a touch higher than that – just under 4%.

Mark Fitzgibbon

Okay. And the mix of the pipeline is – what does that look like?

Domenick Cama

It’s two-thirds CRE and one-third C&I.

Mark Fitzgibbon

Okay. And then I think in the past you guys have given guidance for this year of total loan growth around $1.5 billion, do you still feel comfortable with that based on volumes in 1Q?

Domenick Cama

Yes. I think so, I mean actually, our original plans for 2016 were to do about $1.8 billion in new production, but we have ratcheted it down a little bit. Just the first quarter had a 6% annualized growth, obviously there has been some concern in the market about the whole multifamily market in New York. And just overall, we are seeing ourselves lose a few more deals than we normally would have lost. So we will stay with the $1.5 billion, we think that’s still achievable, but that is down actually from where we originally projected we would finish the year.

Mark Fitzgibbon

Thank you.

Kevin Cummings

You’re welcome.

Operator

The next question comes from Jared Shaw of Wells Fargo Securities. Please go ahead.

Jared Shaw

Hi, good morning.

Kevin Cummings

Hi Jared.

Jared Shaw

Just following up on Mark’s loan question, when you talk about the yield and the mix on CRE, does that include the multifamily or is that just the line for CRE?

Kevin Cummings

No, that is – that includes multifamily and at the CRE a little bit.

Domenick Cama

Jared, just I had – I do have the numbers at my fingertips in terms of that pipeline, the breakdown. So multifamily makes up about 34% of the pipeline, C&I 26% of the pipeline, CRE 24% and the remainder residential and so the pipeline was $2.6 billion.

Jared Shaw

Okay, great. Thanks. And then just on your discussion on the multifamily, what are you seeing in terms of competitive side of things in the New York market, is it as competitive as we have seen in the last few quarters, are you seeing anyone stepping back or just more of the color that you are seeing on the status of that?

Kevin Cummings

I mean, it remains competitive. There is no question that it remains competitive despite the fact that there have been some institutions that have publicly either been forced out of the market or have pulled out on their own. The fact is that we continue to see deals that are not structured well going to other financial institutions. Just a statistic that I will share with you, our own IO portfolio that is our loans that we offer interest-only periods at late – a year ago, that portfolio was about 14% of our overall CRE portfolio. Today, it’s just about 8%. And just anecdotally, I can tell you that over the last 3 months, we have lost approximately $250 million in potential loan business because of the fact that we would not offer IO as long IO term as some of our competitors would. So that I think is going to continue throughout the year. There have been some institutions out there who have said, multifamily is fine for them and there are no problems. We are going to remain diligent in our underwriting. We are going to watch it carefully because of this concern not only our own concern economically what’s happening in the New York market, but because of the regulatory concern also. We would be foolish not to pay attention to that type of scrutiny, both from the regulators and economically.

Jared Shaw

Great, thanks. That’s good color. And then on the deposit side, we keep seeing the loan to deposit ratio tick up a little bit here, barring on M&A opportunity that would maybe bring in more deposits, whether the – any update on any strategy on the deposit side and where we could expect to see that loan-to-deposit ratio organically moving?

Domenick Cama

Yes. I mean, that the loan-to-deposit ratio, Jared, picked up, yes, ever so slightly and really it was due to some outflow deposits – seasonal outflow from our municipal portfolio. But the truth is that we have about $850 million maturing in the second quarter that is maturing as a result of promotion that we ran last year and the weighted average cost on that money is about 125 basis points. So, we are actually trying to divide the strategy right now. I am hoping that we can shave about 25 basis points off that maturing money as we go into the second quarter, but obviously we are going to be watching the run-off in that portfolio pretty closely. All that said that could have the effect of actually increasing our loan-to-deposit ratio to some degree, but I don’t see it really moving much further up than where it is right now.

Jared Shaw

Okay, thank you.

Operator

Our next question comes from Laurie Hunsicker of Compass Point. Please go ahead.

Laurie Hunsicker

Yes, thanks. Hi, good morning. I wondered if we could just go back to your deposits, the $215 million that you took it in the 8 branches in 2015, so that’s putting it around numbers $27 million per branch. Is that breakeven or what is the level on breakeven?

Domenick Cama

The breakeven, Laurie, is somewhere between $40 million to $50 million, that’s the breakeven.

Laurie Hunsicker

Okay. And then how do you weigh a de novo versus mirroring that with an acquisition strategy, how do you approach that?

Domenick Cama

We look at both as tools in our strategy or pillars of our strategy in that. We are going to continue to look at M&A, but also build market that we want to grow into. Right now, we are growing out in the New York market of the 10 branches that were scheduled to open over the next few months about 6 of them are in New York. So, we are going to move in that direction. But – certainly, we like M&A, because M&A can bring up big load of branches in one full swoop, but we have to also look at what dilution that may cause and then versus the cost of building.

Sean Burke

We can’t sit and wait for an M&A trend. We don’t control the M&A environment. So, banks are not brought and sold and waiting for an M&A transaction and not doing things on the de novo strategy or the organic side is not prudent. So again, it’s a balance of the four levers. And I think we have been executing and looking at opportunities that come our way. And when they come our way, we look at them pretty closely.

Laurie Hunsicker

Okay. And so obviously that puts you – you will be at 14 branches this year which is exactly what you laid out at the beginning. What are your de novo plans for next year?

Kevin Cummings

Next year, we are looking at 7 branches for next year.

Laurie Hunsicker

7 branches, okay. And so just back to Mark’s original question on the expenses, as we kind of bleed through if we are thinking about the non-interest expense line sort of in a full year picture for 2016, is $355 million is that give or take what likely it will look like and maybe inching higher as you continue to add those?

Kevin Cummings

I think so, Laurie. I think that’s I think the in ZIP code plus or minus a couple of million dollars, one way or the other here, but honestly I think that’s right in the strike zone.

Laurie Hunsicker

Okay, great. And then obviously, your asset quality is very high, your reserves to loans that was coming down a little bit. How do you think about your loan loss provision and covering charge-offs? Is that something that we will start seeing the provision match charge-offs or is this approach solely by growth or what are your targets there?

Kevin Cummings

Well, there is no target, Laurie. The way it works is the math is the math. So, in terms of our allowance calculation and it comes up with what it comes up with the reason why charge-offs succeeded provision quite honestly is the improvement in a lot of our nonperforming ratios. That factors into the allowance calculation if you look at sort of half historical charge-off, charge-offs, you look at some of our nonperforming asset ratios and asset quality ratios. The fact that those are improving help drives down what’s needed on the allowance side. And therefore provision versus charge-offs is really just mathematical. So, it is what it is from that perspective, but you did pickup on – this is, I believe the first quarter which we have seen that actually happened to us where provision did not cover charge-offs.

Laurie Hunsicker

Okay. And so obviously, it’s mathematical, but going forward we probably would expect provision would come close to matching charge-offs?

Kevin Cummings

No, again, I think – I don’t think we have – I mean, I don’t think we have that luxury of being able to do it that way.

Domenick Cama

The judgment in this process is becoming, because the evolution of the accounting and the review by our external accounting firms, it’s changing. And the amount of judgment, that we have always been very prudent. If you look at our – we started commercial lending, I think we had $4 billion portfolio, we had 20 basis points, $8 million at the beginning of their financial crisis. And we have built our allowance up to over $200 million today. So where it was certainly a proponent at the beginning as conservative as possible, but that ability to move to swing in the reserve, it’s kind of becoming much more of a mathematical process. But I think if I was sitting here today with our – looking at our budgeted provisions and what we have been seeing as figure charge-offs, I would expect the provisions to exceed our charge-offs, but we can’t – it’s not in my control anymore.

Laurie Hunsicker

Okay. Okay, great. And just one last question and I leave it there. As you approach M&A, obviously, we love seeing the buybacks and certainly I love to hear more color on how you view buyback versus M&A, but can you share with us just a refresh view in terms of where you are with how much tangible book dilution you will take with an acquisition? What is your max threshold there? And then when you talk about the parameters of 3, 5 years to earn back which method are you using as you lay those out? And is 3 to 5 years still sort of the outside working limit of what you think? And certainly, I am very sensitive to the deals that you did as the mutual holding company, they were fabulous. You really, you really – you did a great job, but the mutual avenue is no longer. And so as we think about this current existing M&A market and where you are trading I guess can you just share with us the refreshed or refresh view on dilution? Thanks.

Kevin Cummings

Laurie, I don’t think we have ever given guidance on the actual amount of dilution and I know that I have seen a piece that you put out to that we quoted 3%. I want to say that – that’s not correct. We have never said 3%. We have always said that we would judge a deal based on the earn-back. And I think that you correctly pointed out was somewhere between 3 to 5 years and that is the number that we will use to determine if a deal is a good one, that is does the deal earn back within 3 to 5 year period.

Laurie Hunsicker

And so along those lines, do you use the static method or the crossover method or the earnings per share accretion method? I mean, they are very, very different you can drive the difference is how do you approach that when you talk about the 3 to 5 year?

Kevin Cummings

Certainly, we recognized several methods. We look at both aesthetic and the crossover method. And while we understand the simplicity of using the static method, certainly, the limitations there that you are only using 1 years of work that potential income to help justify the dilution in a deal. And so it’s important to look at several methods, so that you can judge, you can think about a transaction strategically and what it will add to the bottom line. So, my answer to you is that we use both methods. We look at both methods static and the crossover method as a way to judge whether we should be doing a transaction.

Laurie Hunsicker

Right, that’s helpful. And then just to go back to your parameters on tangible book dilution. So, there is not a hurdle where you would say, no, we won’t do that. In other words, do you find a great fit that’s 15% dilutive, it’s 20% dilutive that would still be a deal you would potentially entertain if you got the earn back on the other side or how do you think about that?

Kevin Cummings

Yes. Because it’s two, you can’t just look at one part of the equation. The tangible book value dilution is just one number, but the earnings accretion is the other number. And you have to look at them together. And it’s that ratio that gives you the earn-back. So when you have the potential to expand. Again, one part is math, the other part like I said here before, the strategic value. And that’s where the earnings accretion comes in. And the two of them together is how we evaluate the transaction.

Laurie Hunsicker

Great. Thank you very much for taking my question.

Operator

Our next question comes from Collyn Gilbert of KBW. Please go ahead.

Collyn Gilbert

Thanks. Good morning gentlemen. Just a couple questions, first on the fee income side, specifically mortgage banking, Sean can you just talk about the variance there, this quarter I assuming has to do with an MSR write-down, but then what your expectations are for that business going forward?

Sean Burke

Yes. Actually Collyn, it’s not an MSR write down. That’s not what’s driving that. What’s driving the difference there in kind of mortgage banking for us is the fact that we are selling less the Fannie and Freddie and retaining more of that production. So that was really the difference that’s going on in this quarter. Also I think you had a little bit of a slower month from a mortgage banking prospective, our slower quarter, I should say. We are kind of getting in the heart of the home buying season. So we would expect some pickup there. And in terms of the mix between what we retain and what we sell through agencies, really is more of a pricing decisions and so it depends on pricing of Fannie and Freddie and what they are willing to buy and the margins around that. But really the decline was the result of us retaining more versus selling to Fannie and Freddie.

Collyn Gilbert

Okay. Do you look at that more on quarter-by-quarter basis, given where you said in terms of pricing and volume or do you try to manage that business more on a year-over-year, I guess because if we were to analyze the number this quarter it would be quite a big drop off from ‘15, so just trying to think about how you are thinking about it kind of bigger picture?

Sean Burke

Yes. We do manage it on a quarter-to-quarter basis. We do see the number, they were two, Collyn and we want to ensure that we are delivering in terms of our targets and what we are – our expectations are with respect to fee income. So what is lower, we do expect to see that trend up in the next quarter in terms of our run rate for fee income. We do have a little bit of noise I guess in this quarter, but I have kind of looked at it and can safely say that kind of $8 million is a good core run rate. And I don’t expect there to be much variance in terms of where we were running right now, maybe the components of it may look a little different from what you see in the quarter. But we should be close to the number that we are producing on an aggregate basis right now.

Collyn Gilbert

Okay, that’s helpful.

Kevin Cummings

Collyn, if I can just add. On the mortgage, on the residential mortgage side, one of the things we are also looking at closely is we have had a significant drop off in residential loans as a percentage of the total portfolio. And we are looking at that as an alternative to maybe some reduced production in the commercial or the multifamily sector. And so, we are considering pricing that would allow us to bring more production on to the balance sheet. So that would have the effect of lowering mortgage banking revenue. But I wanted to also add that the bank is in the midst of a revenue enhancement project, in which we are looking at all aspects of our fee income including our deposit products and the fee income that comes from those products and looking at ways to enhance that income. I don’t know how impactful that’s going to be for 2016, because the project just got underway about a month ago, but it’s something that we hope will enhance fee income going into 2017.

Collyn Gilbert

Okay, that’s very helpful. And then sort of tying into that and just in terms of balance sheet strategies, how are you guys thinking about the NIM trending from here, I mean I guess the loan yield was more stable this quarter than I would have anticipated, perhaps it’s just a function maybe of the mix, but are you – how are you seeing that I guess specifically the kind of loan yield line trending?

Kevin Cummings

Yes. I mean obviously, it’s dependent on rate and rates have kind of haven’t behaved as we expected kind of going into – into the year. So we benefited from that quite honestly where you have seen other banks as well where you have a shift in the short end of the curve, but deposits necessarily haven’t re-priced up there. So I think we are benefiting from that. But in terms of going through the remainder of the year I think we are still sticking to our guidance of a full year margin for 2016 in the 3% area.

Collyn Gilbert

Okay, that’s helpful. And then just back Dom, to the thought of perhaps replacing some of the CRE multifamily production with resi production, is the thought that to try to match the yields so that you would whatever you sort of put on balance sheet on the resi side would try to match whatever yields you would have gotten on multifamily?

Domenick Cama

No, not really, because we don’t look at it that way because there are different risks associated with it. So we don’t look at it that way. Really, we are looking at as is that it’s fallen below what we expected it to be as a percentage of the total portfolio. I think it’s falling to about 32%, which is a little low. I would like to see it start to creep up a little bit. And so we are just looking to be a little more diversified in the loans that we put on to the balance sheet, now that we have gotten the balance sheet to a pretty good spot. We still have some – we still have some work to do on the C&I side and we want to start – we want that to increase also as a percentage of total loans. But I wouldn’t say that we are trying to match yield in anyway. We are just trying to grow the balance sheet in as prudent way as possible.

Collyn Gilbert

Okay, that’s helpful. And Sean, just back to the 3% on the NIM, can you just remind us what your rate assumptions are in that forecast?

Sean Burke

Yes. We have got a rate increase that we are projecting in June of ‘16 and then one in December of ‘16, 25 basis points each.

Collyn Gilbert

Okay. And if we don’t – the impact of not getting those hikes would be what, do you know off-hand?

Sean Burke

To be fair, it’s probably not far off from what are providing in terms of guidance there. So I don’t expect it even if we didn’t get it I am not so sure the number would change.

Collyn Gilbert

Got it. Okay, that’s helpful. And then just kind of a bigger picture sort of strategic question, if we start to see either through economic streams, competitive streams whatever the case might be just slowing opportunity – just slower loan growth, how does that change the way you guys think about M&A, is it the type of thing where you take on less loan growth and just be patient with it and that’s fine or do you think you would be more active to sort of supplement with smaller filling deals here and there, just trying to understand how you think about this capital deployment strategy, if we should start to see economy that really starts to slowdown here a bit?

Kevin Cummings

Our Chairman, my predecessor, Bob Cashill says you have to take what the market gives you. And as deals come along, we will look at them very closely and take advantage of the opportunities that come our way. We are not going to push the envelope on the lending side. And as Dominic mentioned earlier, actually these are interest only, which is with our regulator is a bigger issue here. We have scaled back that type of lending and then only doing certain low leverage type transactions. So when you look at that, the market will give us what we can on the organic side, where we are in the market, we are committed to what we are doing here. And then as M&A situations come along, I think will be – we are on everyone’s list and we get – we look at every deal. And we will make our decisions accordingly.

Domenick Cama

And then Collyn, sorry.

Collyn Gilbert

Second time I think Dom.

Domenick Cama

I am sorry.

Collyn Gilbert

Go ahead.

Domenick Cama

Certainly, M&A is very attractive to us because of the fact that it provides more volume in one full swoop versus the organic route. And not that the organic route is something that we will give up, but as our number gets bigger, it has less and less of an impact on a percentage basis than doing M&A. I think the benefit here is that, while the whole market has seen a shift in the way banks are looking at these CRE loans, there are some smaller banks that are probably faster or getting ready to put their hand up and say, hey we have had enough of this. And so we think that will benefit us and we want to be patient there. So your synopsis earlier in the question where you said, would you be willing to forgo loan growth and pursue M&A, I think that’s a pretty good synopsis the way we would look at it.

Collyn Gilbert

Okay, that’s very helpful. Thank you, guys.

Operator

Our next question comes from Dave Bishop of FIG Partners. Please go ahead.

Dave Bishop

Hi, good morning gentlemen. Kevin, in terms of the expense outlook and as you look at sort of big picture in some of the systems and processes, obviously there has been some end market peers so that is sort of tighten the belt a little bit invest more money as it relates to risk management surrounding commercial real estate, do you guys feel pretty good about the systems in place, the risk management process overall, as you enter what’s obviously going to be a heightened theory exam or focus by the regulators?

Kevin Cummings

No. I mean we have to get better. Our growth – we basically doubled in size from – at the beginning of 2008 to 2011. And then 2011 till now we have doubled in size again. And that growth worries the regulatory power to be. And we are in – we have our resident regulated now, there are two people from the FDIC and one from State of New Jersey. And that environment the game has been changed and the bar has been raised. So the things we did as $10 billion bank are not one that basically has grown to a $30 billion, $35 billion bank. We need – that’s why we made the continued investments a new Chief Risk Officer, a new General Counsel, new CFO, Chief Information Security Officer, all those good things are investments that we have made over the last 15 months to 18 months. And that environment you have to say ever so diligent because the government is our partner here and we have to manage our risk accordingly and that will be – that bar always continues to be raised. And I am not – we are complaining about because it’s through the industry. And hopefully that creates more opportunity for us as other people raise their hand and say hey this is not fun anymore. We have the capital to sustain those type of investments and we see as an opportunity for growth in the M&A space.

Dave Bishop

Got it. So just that overall, high risk environment maybe it doesn’t sound like you change your appetite possibly acquiring, I guess the CRE heavy bank within the footprint or within your targeted footprint?

Kevin Cummings

No. But we are going to – we are investing in risk management infrastructure. I think that’s the message is that we are continuing to make those investments because we need to be positioned to continue to grow the company and that’s where we need to bid.

Dave Bishop

Got it. Thanks.

Operator

Our next question comes from Matthew Kelley of Piper Jaffray. Please go ahead.

Matthew Kelley

Yes. Hi guys. I was wondering maybe we can get back to the C&I build out and what you have done so far and give us a sense of what percentage of your goal in terms of the next couple of years you are in staffing and by products and building out the C&I platform, I assume you are going to want that to be a bigger piece of the pie as you grow to a $20 billion, $22 billion type of loan portfolio. And to get there, you need pretty big infrastructure underwriting originators, lending teams, maybe help us understand where you are today and where you need to be in that process?

Kevin Cummings

Matt, I think we are where we want to be right now without C&I lending teams. We have 40 full-time – this is nothing to do with CRE, this is just C&I. We have 40 full-time C&I lenders on teams out there in the market originating C&I loans. We would probably have open reqs for I am going to say, three to five more people. But essentially, we built up this team over the last few years, 2 years and its cost a lot of money. And we want to start to see the benefit of that C&I – of that investment come into the C&I portfolio. As I mentioned earlier, we have about $1.6 billion if you count on owner occupied real estate in the portfolio that’s just about 10% of our overall loans. We would like that to grow to somewhere between 15% to 18% of loans. So I feel pretty good about the teams that we have out there and the fact that I think they are going to start to play returns back to us over the next few years.

Matthew Kelley

Okay, that makes sense. And then maybe on the multifamily pricing, did you see any improvement during the first quarter in pricing and spreads or is it still kind of holding in the 330 type range on new originations for conventional regulated type of collateral?

Kevin Cummings

It was holding very well throughout the entire first quarter. And then just last week or two weeks ago, we saw it start to come down. But it held for the first quarter pretty well. We were very happy with it. And then we felt some – we started to see some competitors drop their rate, as I said as early as two weeks ago.

Matthew Kelley

Got it, alright. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Kevin Cummings

Okay. Thank you. I appreciate your participation today. We are off to a good start, 2016 has its challenges, the economy, the election year and all those good things, but I think we are well positioned with our capital base and also the energy that our team brings to the game everyday. I look forward to the rest of the year and we are well positioned to execute our strategic plan. I want to thank you all for participating. Have a good weekend. And we will talk to you soon. Thank you.

Operator

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

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