Investors Bancorp Inc (ISBC) Q3 2020 Earnings Call Transcript

Image source: The Motley Fool. Investors Bancorp Inc (NASDAQ:ISBC)Q3 2020 Earnings CallOct 29, 2020, 11:00 a.m. ET Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks: Operator Good morning, and welcome to the Investors Bancorp’s third quarter earnings conference call. [Operator Instructions] We’ll begin this morning’s call with the company’s standard […]

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Investors Bancorp Inc (NASDAQ:ISBC)
Q3 2020 Earnings Call
Oct 29, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Investors Bancorp’s third quarter earnings conference call. [Operator Instructions] We’ll begin this morning’s call with the company’s standard forward-looking statement 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, are difficult to predict and which can cause actual results to materially differ from those expressed or forecast in these forward-looking statements. In last night’s press release, the company included its safe harbor disclosure and refers you to that statement.

That document is incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the sections entitled Risk Factors, Management Discussion and Analysis of Financial Conditions and Results of Operations set forth in Investor Bancorp’s filings with the SEC. And now I’d like to turn — please note, this event is being recorded.

And now I would like to turn the conference over to Kevin Cummings, Chairman and CEO of Investors Bancorp. Please go ahead.

Kevin CummingsChairman And Chief Executive Officer

Thank you, Andrea, and good morning. Welcome to the Investors Bancorp’s third quarter earnings call. Last night, the company reported in its press release net income of $64.3 million or $0.25 per diluted share for three months ended June 30, 2020 September 30, 2020]. This compares to $42.6 million or $0.18 per share for the three months ended June 30 and $52 million or $0.20 per share for the three month period ended June 30, 2019. These results represent a 51% increase in earnings from the second quarter and a 24% increase over the third quarter of 2019. On an EPS basis, the increase in earnings represent 50% increase over the linked quarter and a 35% increase over the prior year. For the nine months ended September 30, 2020, net income totaled $146.4 million or $0.62 per diluted share compared to $146.8 million or $0.55 per share for the nine months ended June 30 — I mean September 30, 2019. During the second quarter, the company completed its acquisition of Gold Coast, which added approximately $535 million in total assets, $443 million in loans and $490 million in deposits. It added seven branches to the New York market and nearly doubled our deposits in Nassau and Suffolk Counties.

We continue to integrate these branches into our systems, and opportunities for market expansion is strong. Last Saturday, I was invited to a breakfast meeting in Southampton out on the island with prominent businessmen, and the feedback was positive regarding the transition of customers from Gold Coast to Investors. We continue to leverage our brand in this market because we think it is very attractive due to its demographics, concentration of small and midsized businesses and density of high net worth individuals. With respect to our brand, I am happy to report that Investors Bank was selected by Newsweek, a national magazine, as the best bank in the state of New Jersey — the best big bank in the state of New Jersey. Newsweek used a broad criteria to measure banks throughout the country and identified a bank in each state. They looked for banks with a broad local footprint, and they indicated that customers do not want to have to go too far out of their way when they need to — a branch or an ATM. They evaluated banks that offer a winning combination of low fees, competitive interest rates and a broad array of services, including a variety of loans and a high-performing mobile app. We are very proud of this recognition by a third party, and it highlights our commitment to expanding our digital platform. During the quarter, we expanded and enhanced our online account opening platform, first to bank customers and then next to small business customers and then to new customers. This account opening platform is fully integrated with our Salesforce management tool, which facilitates the follow-up with customers. The expansion enhancement of the online account opening platform is an enterprisewide effort and the foundation of an omniwide experience that will be expanded, which will lead to significant gains in branch efficiency and improvements in the customer experience by digitizing many manual processes in the branches. We are very happy to receive the recognition from Newsweek, but we will continue to enhance the customer experience and improve our digital platform. During the third quarter, the company recorded a provision for loan losses of $8.3 million versus $33.3 million in the second quarter of 2020 as compared to a credit of $2.5 million in the third quarter of ’19. This provision is a direct result of the current and forecasted economic conditions that include the economic impact of the COVID-19 pandemic and the new accounting requirements. Net charge-offs for the quarter ended September 30 were just $667,000 versus $4.1 million in the second quarter and $1.5 million for the quarter ended September 30, 2019. Pre-provision net revenue was $97.5 million for the three months ended September 30 versus $92.1 million for the three months ended June 30, an increase of $5.4 million or 6%. And this — and we also had an increase of $29.8 million at September 30, ’20 or 47% compared to the three months ended last year. That’s a 47.7% increase over the same period last year.

The bank has spent considerable efforts in evaluating its credit position and has focused its efforts on the commercial portfolio. As disclosed in our second quarter 10-Q, the company reported approximately $2.2 billion in commercial loan deferrals, comprised of $447 million in C&I loans, $903 million in multifamily, $830 billion in commercial real estate loans and — $830 million in commercial real estate loans and $15 million in construction loans, and that’s one construction loan. This second quarter number is down from a total of $3.6 billion earlier in the year. The bank’s lending teams continue to be very aggressive, reaching out to customers during this time of great stress and uncertainty. And like the PPP loan program, we look at this deferral process to help our borrowers and customers during a difficult time. We are actively reaching out to them to assist them during this economic distress initiated by local government shutdowns. We continue to spend our time actively communicating with these customers to assess their needs during this pandemic. Every Wednesday, we spend time on Zoom calls in a war room-type setting, discussing credits well into the evening hours. After extensive communication with our borrowers and follow up on our lending teams, we have reduced the exposure to deferrals significantly. At October 20, total request for deferrals totaled $593 million in the commercial loan book.

This is comprised of $282 million in C&I loans, $188 million in multifamily loans and $108 million in commercial real estate loans and a $15 million construction loan. Yesterday, we updated our review of $175 million of loans scheduled to commence payment on November 1, and we anticipate approximately $125 million will return to payment status. $37 million were granted an additional deferral, and approximately $13 million will need additional information before a final decision is made. We have another $70 million scheduled to return to payment status on December 1. And if we anticipate the same results as November, we would expect approximately another $50 million reduction in deferral balances. It should be noted that we are in constant communication with our borrowers during this process, and there may be other additional deferrals as market conditions are fluid. And a lot depends on what the government does in our local markets and the progress made to our journey back to a more normal lifestyle. In addition, we have $200 million in deferred loans scheduled to return to payment as of January 1, and we anticipate going into 2021 with a significantly less exposure. If you take a snapshot at our exposure today, 61% or $362 million of the $593 million in deferrals is concentrated in six relationships: a $46 million multifamily relationship of eight loans, which is expected to return to payment next week; three hotel relationships totaling $268 million; one multifamily loan for $25 million in Queens scheduled to return to payment in December; and an entertainment venue in New Jersey for $23 million scheduled to return to payment in January. The three hotels are family generational seasoned operators who are known to the bank and are good customers in the bank who have earned our support through this crisis.

This industry and the restaurant industry are facing very difficult times, but thanks to the cooperation of the regulators, the Fed and the accounting profession, we are able to help these customers through an unprecedented situation. The remaining $230 million in loan deferrals at this time on October 20 is comprised of 113 loans with an average loan of $2 million, and it should be noted that 59 of these loans are less than $1 million in balances outstanding. The weighted average LTV of our entire multifamily portfolio is approximately 53%, with 14% of the portfolio in lower-risk co-op loans. The LTV on the $188 million in deferred multifamily loans is approximately 59% pre-pandemic. We have only $19 million in deferred retail shopping loans, which have an LTV of $54 million, of which one of the larger loans in that group for $7 million is returning to payment next week. Overall, we are pleased where we are with respect to assisting our customers through this pandemic today. There is much uncertainty in forecasting future events, and forecasting these results and events are almost impossible, but we will continue to work with our customers to help them through this crisis. Our approach has been and is to be proactive in addressing these issues as there will be difficult conversations. We believe we have taken a conservative approach to our provisions to date as compared to other banks with similar portfolios in the New York/New Jersey markets and are well positioned to weather this storm. Our allowance for loan losses, the coverage ratio to loans increased to 1.37% from 1.28% at June 30.

Tomorrow, we anticipate the closing of a loan sale for $18 million, which will reduce our NPLs to $114 million versus $126.8 million at June 30. We anticipate recording a $1.9 million recovery as a result of this disposition of the loan. With respect to delinquencies, $8.8 million of the $13.6 million in commercial 30-day delinquent loans are current as of today. In the 60-day bucket, total commercial delinquent loans are $30.6 million, of which one relationship which amounts to $25 million in the CRE portfolio has been approved for extension and will be current once the legal work is completed. Nonaccrual loans were $61.8 million or 39 basis points after giving effect to the sale previously mentioned and are well collateralized and have limited exposure. And at this stage, the average loan is approximately $1 million. Based on our current delinquencies and the significant progress in reducing our deferred loan balances, in addition to the increase in our loan loss reserves in the past three quarters, we believe we are well positioned to get through this pandemic. With respect to the balance sheet, loans decreased $365 million during the quarter, which was attributable mainly to a reduction in mortgage loans of $295 million and $122 million in multifamily loans.

We have slowed the pace of this decline in loans and anticipate some growth in the fourth quarter as we have a robust pipeline and are working diligently to have a strong fourth quarter. As we continue to feel more comfortable to our exposures due to the pandemic’s economic impact, we will seize growth opportunities. And as it continues to stabilize, we will look for opportunities to grow our loans across all portfolios as opposed to our strategy in 2019 and the beginning of this year, where we are more focused on the business segment — more focused on the business lending segment. This is not a major strategy shift but one that we consider very opportunistic. It was a good quarter for deposits as noninterest-bearing deposits increased over $300 million or 10% for the quarter. Total deposits decreased $594 million or 7% as we begin the process to reduce our cash position, which negatively impacts our margin. Our loan-to-deposit ratio remained stable at 110% for the quarter. Cost of deposits declined nine basis points in the quarter. And there are still opportunities to decrease funding costs in this year as we run off our excess cash and we execute on a sales leaseback transaction, which will generate approximately $9 million in a gain, which will be invested in the early retirement of higher-cost wholesale liabilities, which result — hopefully will result in an expansion of our margin in the fourth quarter.

With respect to capital, the company announced a dividend of $0.12 per share and has increased its capital ratios across the board given the impact of the PPP loans, increased earnings and a reduction in assets. We believe we have sufficient capital, strong liquidity and a robust credit culture to maintain that dividend and to handle the uncertainty and economic storm that may be on the horizon. And actually, at this time, we look forward to increasing that dividend by $0.01 in January, as we have done over the past several years. With respect to buybacks, we currently have 14.6 million shares approved to be purchased, having purchased over $1.5 billion since our second step. We are prudent in our management of our capital and are excited about the opportunity to resume our buybacks. We are evaluating the uncertainty of the election and the ongoing disruption of the pandemic. We have and continue to discuss this opportunity with our Board and our regulators and believe we are in a strong position to commence buybacks when things settle down post election in the fourth quarter.

If we look at past calamities like Hurricane Sandy and the 2008 Great Recession, we have managed this turmoil and have been very opportunistic. I believe with this management team and with the investments that we have made in our enterprise and credit risk management, technology and product and development, we are better prepared today to serve our customers and our communities, which will result in stronger returns to our shareholders. Now I’d like to turn the discussion over to Sean Burke, our CFO, for more commentary on the quarter and our results of operation.

P. Sean BurkeExecutive Vice President And Chief Financial Officer

Thank you, Kevin. Net income was $64.3 million or $0.27 per share for the three months ended September 30, 2020, an increase of $21.7 million or 51% quarter-over-quarter and 24% year-over-year. Net interest margin increased six basis points to 2.79% in the third quarter, with declining cash balances and deposit costs driving the improvement. We expect cash balances and interest cost to further decline in the fourth quarter. Total noninterest income rebounded nicely from the second quarter and totaled $19.9 million, an increase of $9.8 million quarter-over-quarter. Strong swap income, mortgage banking activity and wealth and investment product revenues all contributed to the quarter-over-quarter increase. Expenses totaled $104.1 million in Q3, an increase of $4 million compared to the three months ended June 30, 2020. The increase was largely the result of increased incentive compensation and medical expenses. Included in expenses were approximately $1 million of costs related to the early extinguishment of borrowings in the quarter. Despite the uptick in expenses, our efficiency ratio improved slightly to 51.6% from 52.1% in Q2. Provision for credit losses was $8.3 million for the third quarter compared to $33.3 million for the second quarter.

The decrease was driven by improving current and forecasted economic conditions. Third quarter loan originations were strong but not enough to offset the paydowns and payoffs. As a result, total loan balances decreased $364 million quarter-over-quarter, primarily driven by residential and multifamily loan categories. The impact to interest income from declining loan balances was minimized as we’re able to allow high-cost funding to run off in Q3. While total deposits were down $384 million quarter-over-quarter, noninterest-bearing deposits were up $305 million or 10% quarter-over-quarter. Our percentage of noninterest-bearing deposits to total deposits improved to 18% at September 30, 2020, compared to 14% a year ago. Asset quality, liquidity and capital continue to remain in a strong position. Nonaccrual loans represented 0.63% of total loans at September 30, 2020, compared to 0.59% at June 30, while our allowance for loan — for credit losses to loans stood at 1.44% at September 30. Our common equity Tier one ratio was 13%. Our loan-to-deposit ratio was 110% compared to 122% at year-end 2019. Now I’d like to turn it back over to Kevin for concluding remarks.

Kevin CummingsChairman And Chief Executive Officer

Good. Thanks, Sean. Our message is to be faithful and not fearful. We need to be a source of hope and optimism in our communities. All our branches are open at full service on regular hours, except for the recently mandated hotspots in Brooklyn. We are taking all precautions to protect our customers and employees. We have close to 75% of our corporate employees back to the office, and it is very good for me to see them healthy and strong, willing to return and lead our communities back to some form of normalcy. I visited a branch in Southampton, a former Gold Coast branch, on Saturday and listened to their challenges during this pandemic and their transition to our bank. Our retail teams are engaged and excited to be working and, more importantly, helping their customers and our communities through this pandemic.

The past eight months have not been easy, but we have faced the challenge and continue to get stronger and more adaptable as we navigate the changes from these unprecedented events. If we can get some stabilization in the macroeconomic climate, some cooperation in Trenton, Albany and Washington, including another stimulus bill, which will then impact our economic models, we expect that we can finish the year with a great fourth quarter. We’ve been aggressive in calling on our loan customers and have a war room-type attitude toward monitoring our credit exposures with great teamwork and cooperation from our line of loan officers and our credit risk teams. This crisis is great different from 2008 as the banking industry is stronger with better capital to sustain this economic downturn. Investors Bank is also stronger and better prepared for these events, and I’m much more optimistic than I was in April or July when there was a lot more uncertainty. Our medical professionals and health workers have been outstanding and have learned a lot about the treatment of this virus, and we are in a better position to monitor and treat this terrible pandemic. We hit a goal of 10% return on tangible equity for the quarter. Our earnings per share increased 35% to last year after taking additional provisions in the quarter with less net charge-offs. Our balance sheet and capital are strong, and we are well positioned to grow as the economy improves.

Now I’d like to turn this call over to questions. Andrea?

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Mark Fitzgibbon of Piper Sandler. Please go ahead.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Hey, guys. Good morning. Kevin, just to follow up on the buyback comments that you made. With the TCE ratio pushing 10% and the stock trading sort of 75% of tangible book value, I guess I’m curious why would — you still have the buyback in place, why would you be executing on that right now even before the elections?

Kevin CummingsChairman And Chief Executive Officer

Mark, I think it’s our way of being prudent. There’s such uncertainty in the market. We’re continuing to evaluate it, and I think we’re just waiting after the dust settles after the election and have some continued discussion with the other constituents that are involved mainly our regulators. We did the big repurchase at the end of last year, and we want to manage it in a — similar to what we’ve done since the first step through the second step in a prudent manner. So it’s a wait-and-see attitude, see what happens to the markets afterwards. And our plan is to continue to buy back sometime in the very, very near future.

Domenick A. CamaPresident And Chief Operating Officer

And Mark, it’s Domenick, and if I could just add another comment to that. Obviously, we recognize that the buying back of the stock is a good investment for us, and it’s something that we want to do. We have already had some preliminary discussions with our regulators and with our Board. And it’s — I remember someone saying to me once, it’s not a matter of if, it’s a matter of when. And so I think as Kevin said in his prepared remarks, things look good that we will resume buying back the stock sometime in the fourth quarter. But we would like to touch — would like to do a little more analysis on it and have more discussions with the constituents that Kevin mentioned.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Okay. And then secondly, it looks like you still have about $4 billion of borrowings at an average rate of 2.22%. I guess I’m curious how much of those will roll off over the next few quarters. And should we expect more prepayments like you did this quarter?

Domenick A. CamaPresident And Chief Operating Officer

Yes, Mark. Actually, we don’t have any more borrowings coming due this quarter, but we do have about $1 billion of brokered CDs and retail CDs maturing over the quarter at an average cost of about 150 basis points. So, that’s going to give us some momentum for NIM for the end of the fourth quarter. We are also looking at — I think Kevin mentioned earlier in his prepared remarks that we did sign a contract to do a sale leaseback in which we’re expecting a gain of somewhere between $7 million and $9 million. And our thinking is that we’ll take that money, that gain, and use it to offset prepaid fees on borrowings that are averaging a cost of about 2%. So still — and so we’ll get some more momentum from that. But, in terms of this quarter, the big gain will be in the form of brokered CDs. There are no borrowings left to pay off this quarter.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Okay. And then, Sean, I apologize. I missed your comments on your expense outlook for 4Q.

P. Sean BurkeExecutive Vice President And Chief Financial Officer

Well, you missed it because I didn’t provide one.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Well, let me rephrase. Can you provide one?

P. Sean BurkeExecutive Vice President And Chief Financial Officer

We believe expenses will be similar to Q3.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Okay. And then lastly, I wondered if you’re seeing much of a difference in credit performance from your multifamily and commercial real estate loans in New York versus New Jersey.

Domenick A. CamaPresident And Chief Operating Officer

The — Mark, on collection rates, I think we continue to see collection rates at about 85% for multi and about 50% to 60% on CRE. But I did want to put out one piece of information that wasn’t in the deck that we put out. And specifically about Manhattan, we looked at the deferrals in Manhattan by category. And the LTVs of our multifamily loans in Manhattan is approximately 54%, and these are deferred balances in Manhattan. The lodging category, which is obviously the biggest category that we have of deferments, $244 million sit in Manhattan. And the weighted average LTV of those properties is approximately 49%. So, those are the two big categories in Manhattan, and I know there’s been a lot of discussion around the industry about the knock on Manhattan and what’s going on there. But, we feel very good about the LTV situation and the fact that the customers we’re dealing with have a significant amount of equity in their properties in Manhattan, and we deem it a very low probability that they’re going to walk away from these properties.

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Thank you.

Operator

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

Jared David Wesley ShawWells Fargo Securities — Analyst

Good morning,guys. Just circling back on the margin, you talked about the runoff in the resi book and some opportunities for growth elsewhere. Should we expect or can we expect to see maybe an improvement in loan yields quarter-over-quarter on the core book based on that change in mix? Or should we expect sort of loan yields stay roughly where they are?

Domenick A. CamaPresident And Chief Operating Officer

Yes. I think you actually may see a reduction in loan yields, Jared, because — I mean if you just look at what the average loan yield was in our residential book, quarter-over-quarter was approximately the same. But if you go back a year in our residential book, we’re down almost 40 basis points. So that resi book, we’re continuing to put loans on. We’re just not putting on as many as we were in prior years. On the multifamily side, we have now moved our pipeline up significantly. On the CRE front, our pipeline is about $1.7 billion. And the weighted average cost of the CRE pipeline is about 3.90%. So that will bring down the yield on the CRE book. C&I is about $800 million, and that’s a little bit more difficult to project. But the combination of multifamily loans and residential loans continuing to come on the balance sheet will, I think, have the effect of lowering our average yield on loans.

P. Sean BurkeExecutive Vice President And Chief Financial Officer

If I may, Jared, it’s Sean. I just wanted to add a comment, though, the trend that really benefiting margin in the third quarter, which are declining cash balances with very low average yields and deposit costs continuing to come down, we expect that will continue in Q4. And despite maybe some headwind on the loan side, we do expect improvement in margin in Q4, a similar ilk to that we experienced in the third quarter.

Jared David Wesley ShawWells Fargo Securities — Analyst

Great. That’s great color. And then just circling back again on the credit and the trends you’re talking about on those deferred loans, which is great. Are those values at origination? And I guess what are you seeing in terms of valuation impact from COVID? Obviously, you’re not doing full reappraisals. But, are you seeing valuations really get hit because of this? And if you did mark those to market, what would you guess they look like?

Domenick A. CamaPresident And Chief Operating Officer

Yes. I mean we haven’t seen any significant decline in valuations. I mean we look specifically at cap rates, and cap rates continue to be in that 4.5% to 5.5% range. So, no significant decline there. On some of the C&I properties, it’s a little bit more difficult to do because, obviously, operating income has been impacted. And, trying to put a valuation on a hotel, for example, its operating business, is difficult right now. So specifically, though, in the commercial real estate and multifamily sector, while we have seen a tick up in cap rates, it has not been significant. It’s not actually what I expected it to be. It just — it stayed pretty stable.

Kevin CummingsChairman And Chief Executive Officer

You know, Jared, I don’t think we see like a panic in the market. People aren’t knocking on our doors giving back the keys. I think there’s still confidence in the market. We don’t see a panic out there dealing with the hotel operators, like they are generational owners. One in particular has put up a six months of payments in escrow on a large exposure, multi-properties — multi-numbered properties. And, I think we’re working with borrowers. It’s a small group. Like I said, 61%, $360-plus million is in six relationships, and we know these customers very well. And I think it’s — we feel much more confident than we were sitting here six months ago.

Jared David Wesley ShawWells Fargo Securities — Analyst

Okay. Great. And then just finally for me, as we look at the allowance level, if we make the assumption that the macro model doesn’t change, the macroeconomic model doesn’t change, is this a good high watermark for the allowance? And as you start dealing with some of those remainder loans that either on deferral or don’t return to payment and if there’s a charge-off needed there, should we just expect that provision — or allowance as adequate? And you can see maybe a future decline as those loans are resolved?

P. Sean BurkeExecutive Vice President And Chief Financial Officer

I think it’s a big if, but we understand if forecasted conditions improve or remain similar, then, yes, I would agree with your statement, Jared. But, also keep in mind that loan volume and loan production and loan balances also impact that. So, we’ve seen declining loan balances. And if that — if the tide were to turn there and we would see more production, it could lead to increased provision as it relates to loan volume.

Jared David Wesley ShawWells Fargo Securities — Analyst

Thanks a lot.

Kevin CummingsChairman And Chief Executive Officer

Jared, that reminds me of a question I used to get when I was with Peat Marwick in 1991, ’92 when the audit committee just asked me if the allowance is adequate. And I said, yes, today, it is, but God only knows in the future.

Operator

Our next question comes from Steven Duong of RBC Capital Markets. Please go ahead.

Tu DuongRBC Capital Markets — Analyst

Hi. Good morning, guys. Just on the Manhattan, the CRE exposure. I just want to confirm if I heard that right, that it’s primarily just the multifamily and the lodging that you guys spoke about?

Domenick A. CamaPresident And Chief Operating Officer

Yes. Well, I think we put a deck out last night or this morning. But if you look at Manhattan, Manhattan has total deferments of $313 million. And the composition of that is $243 million in lodging, $58 million in multifamily and then $10 million CRE and $1 million in C&I.

Tu DuongRBC Capital Markets — Analyst

All right. Perfect. Now, that — the deck was really, really helpful. And then just on the buyback, the remaining capacity that you have, that’s about roughly $150 million, $120 million. So that’s a little more than 50% of a year’s earnings. Assuming you go through that in the next few quarters, I guess looking beyond that, would you be open to starting another buyback program next year?

Domenick A. CamaPresident And Chief Operating Officer

Of course, we always look at the buyback as an effective way to manage our capital. And obviously, if it makes sense to buy back the stock and we’ve run out of authorization, of course, we would go back to the Board and ask them to reauthorize an additional allotment.

Tu DuongRBC Capital Markets — Analyst

Great. And just along those lines, is there a target capital level that you would like to be above?

Domenick A. CamaPresident And Chief Operating Officer

Yes. I mean, again, you’re asking me that question in the middle of a pandemic. If you had asked me, say, two years ago, I might have said 8.5%. And these days, it’s more like 9.5%. So, it just depends on where we are at a particular point in the cycle. But it’s difficult to say that in all situations, this is where I would be very happy.

Tu DuongRBC Capital Markets — Analyst

Understood. And then you made a comment about the pipeline in fourth quarter looking good. Are there any particular segments that you’re more optimistic about in the fourth quarter?

Domenick A. CamaPresident And Chief Operating Officer

Yes. Health care is having a good quarter. The C&I book, we think we’re going to close about $500 million in the fourth quarter. That’s — I spoke to our Chief Lending Officer this morning about that. And multifamily has opened up a little bit. We have approximately $250 million of new C&I loans in the pipeline. And, I should mention that despite the continued reduction in multifamily loans that has occurred quarter-over-quarter, this month, we have finally stopped that bleeding. So, we’re actually flat for the month.

Tu DuongRBC Capital Markets — Analyst

That’s great news. And then just last question for me. Your noninterest-bearing deposits grew pretty well this quarter. Can you just give us some color like what drove the growth?

Domenick A. CamaPresident And Chief Operating Officer

Yes. Steve, we — obviously, we had some PPP money in there that continue to come in. We had — also, we put out a team of bankers, business bankers that we talked about last year. And those folks have started to reap some benefit. We’re doing more C&I lending. We are doing more treasury management. And those two factors are having the effect of bringing more noninterest-bearing deposits in. So it’s been our strategy to continue to transition the bank from a traditional thrift to a commercial bank, and I think we’re finally starting to see some benefit from those strategic decisions.

Tu DuongRBC Capital Markets — Analyst

Good to hear. Thank you.

Operator

Our next question comes from Matthew Breese of Stephens Inc. Please go ahead.

Matthew M. BreeseStephens Inc. — Analyst

Hi, Good morning. I appreciate the color on the near-term margin. Just considering the average balance sheet and the opportunity to continue to reprice the CDs, there’s obviously room on the borrowings front. And then average new loan yields don’t sound terribly off from where they are now. As we look into next year and you deploy the cash, where could we see the margin expand to? Where do you see that plateau mark?

P. Sean BurkeExecutive Vice President And Chief Financial Officer

So, we are going to reap the benefits of continued repricing of both borrowings and deposits, and so there is a tailwind there. And we believe that the benefit — there’s still a lot of benefit there, not only in Q4, but looking out into 2021, Matt. So, I think where you’d start to maybe peter out running out of that tailwind, probably the second half of 2021 is where you could see some trail off there. But we could have 20 more basis points to go here. I mean, ideally, we would like to see something in the 3% range. That may be a little bit of a stretch, but I think that’s a stretched goal for us. And, not saying that we’re going to get there, but that’s a target that we have in mind.

Domenick A. CamaPresident And Chief Operating Officer

And Matt, if I could just add to Sean’s comment, so you — obviously, you get the benefit that he described on the deposit side. But our continued remixing of the asset side of the balance sheet is going to continue to provide benefit to us. We’re seeing yields on C&I loans of 50 basis points to 5/8, above where multifamily and CRE are coming in. So, as we continue to focus on the C&I front, that will help to add to NIM also.

Matthew M. BreeseStephens Inc. — Analyst

Excellent. I appreciate that. You mentioned several points of the pipeline that sound relatively strong. Looking into the fourth quarter and beginning of 2021, how do you feel about net loan growth prospects? Can we expand gross loans from here?

Domenick A. CamaPresident And Chief Operating Officer

Well, I think that net loan growth will be better as we head into ’21. I think that, as I said earlier on the multifamily front, I think that we’ve stopped that bleeding. We are looking at ways to stop the bleeding on the residential side. We’re dropping there probably $60 million to $70 million a month despite the activity that we have in that portfolio. And we’re looking at — now I should add the comment that it was a strategic decision to start to slow down residential balances on our balance sheet. However, when the pandemic came along, that presented an opportunity for us with wider spreads. Having said all of that, I think, Matt, it would depend on resi. If I can get resi to stabilize, we should see growth in 2021. We’re going through the budget process right now. And while I’m not trying to give guidance at all here, we are projecting growth in 2021. And that budget hasn’t been approved yet, but we are looking at ways to continue to grow the loans in 2021. Because, again, as Sean described earlier, the steam is going to run out just based on the — getting rid of the cash balances, and we need to start to generate growth to continue to add to NIM.

Matthew M. BreeseStephens Inc. — Analyst

Understood. Okay. Last one for me. In your prepared remarks, you mentioned that you’re getting 50% to 60% rent collection on the commercial real estate asset class. What are the components within that? What is it for office versus retail and hotels? You mentioned — also mentioned 85% rent collection in multifamily. What is that in New York versus New Jersey?

Domenick A. CamaPresident And Chief Operating Officer

Matt, I don’t have that breakdown. I would say that New Jersey is probably doing a little bit better than New York in all of the categories, but I don’t have a specific — I don’t have the numbers to support your question. So — but if you’d like, I can look up that information, and we can send that out to you.

Matthew M. BreeseStephens Inc. — Analyst

Sure. Would appreciate it. That’s all I had. Thank you very much.

Operator

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

Laurie Katherine Havener HunsickerCompass Point Research — Analyst

Yes. Thank you. Good morning. These slides are great, and I’m probably missing it, so I just need your help finding it. So the — of the $7.256 billion of multifamily, it looks like $3.049 billion is in New York City. But what I can’t find, unless I’m not reading it properly, is the $188 million that you have in multifamily deferrals. What — how much of that is actually in New York City?

Domenick A. CamaPresident And Chief Operating Officer

Debt of $58 million is in Manhattan.

Laurie Katherine Havener HunsickerCompass Point Research — Analyst

Okay, OK. Yes, I’m sorry. You gave that number earlier, and I just — I couldn’t find where it was. Okay. And so the $46 million of multifamily loans that you mentioned that are returning to payment status next week, is that coming out of the New York bucket? Or is that New Jersey bucket?

Domenick A. CamaPresident And Chief Operating Officer

It’s coming out of the New York bucket, mainly out of Manhattan, like in Bronx and other boroughs.

Laurie Katherine Havener HunsickerCompass Point Research — Analyst

Okay. That’s great. And then just a quick accounting question for you, Sean. The $1.9 million recovery that you’re going to book on the nonperforming loan disposition tomorrow, is that hitting your top line, your net interest income? Or is that going into noninterest income?

P. Sean BurkeExecutive Vice President And Chief Financial Officer

No, that will be in provision through the allowance of your recovery.

Kevin CummingsChairman And Chief Executive Officer

The allowance.

Laurie Katherine Havener HunsickerCompass Point Research — Analyst

Recovery in the allowance. Okay. Perfect. That’s all I have. Appreciate the detail.

Operator

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

Collyn Bement GilbertKeefe, Bruyette — Analyst

Thank you. Good morning, guys. Just one final question for me. Dom, you kind of touched on it, but just wanted to get your thoughts on the mortgage banking outlook. Dom, you kind of indicated your appetite for, perhaps, portfolio-ing more resi production. But just broadly, how we should be thinking about that. Because obviously, that was a huge, huge number this quarter.

Domenick A. CamaPresident And Chief Operating Officer

Yes. I mean it’s been a great business. I mean some of the spreads that we’ve seen on mortgage banking have been pretty remarkable. I mean this morning, just going through our rate meeting, selling loans to Fannie Mae at two 3/4%, we’re reaping a price of 102. So to the extent that we can continue to generate business loans for sale to Fannie, we’re going to continue to do that. And actually, one of the questions we had this morning was should we lower the rate and take less price from Fannie, and the consensus was that we want to maintain the quality of the underwriting process and the closing process. And we felt that we could be adding too much pressure to the group. So it’s a long-winded answer, Collyn, but I think you’re going to continue to see more noninterest income as we go through next quarter and the early part of 2021 because that business is really hitting on all cylinders.

Collyn Bement GilbertKeefe, Bruyette — Analyst

Okay, OK. That’s helpful. And then just the corresponding expense to that. I know you had indicated that this quarter’s expenses were up because of incentive comp. Is there a big number there, a big delta in there for what the mortgage commissions would be as well?

P. Sean BurkeExecutive Vice President And Chief Financial Officer

It’s not a huge delta, but it is part of it. So the compensation — a bigger piece of it, quite honestly, is the retail incentives. And we’ve had very good low-cost deposits and noninterest-bearing deposit growth that we’ve incentivized our people to do and generate. And so that, in large part, is driving higher incentive comp.

Kevin CummingsChairman And Chief Executive Officer

Collyn, the commission on the sale of mortgage loans is netted in the gain on sale.

Collyn Bement GilbertKeefe, Bruyette — Analyst

Okay. Just want to make that –OK. Got it. Okay. Thank you very much. That’s all I had.

Kevin CummingsChairman And Chief Executive Officer

Thank you, Collyn.

Operator

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

Kevin CummingsChairman And Chief Executive Officer

Thanks, Andrea. First of all, I’d like to thank you all for participation today. Our country is a great country. It’s a strong country, but it’s not perfect. We have created a country of great opportunities. But like Investors Bank, we need to continue to get stronger, improve and listen to all our constituents. Not going to be easy in 2021, regardless of Tuesday’s results. We at Investors are well positioned to move forward into next year with great hope and optimism. We will create great opportunities for all our customers, employees and the communities that we serve. I want you all to please stay healthy and follow the CDC guidelines. Listen to that Jesuit educated Dr. Fauci. Wear a mask and stay away from crowds.

Domenick A. CamaPresident And Chief Operating Officer

And wash your hands.

Kevin CummingsChairman And Chief Executive Officer

Yes, wash your hands. Let’s pray for each other and inspire each other in our daily work and look for magical moments to help each other to be the best version of ourselves during this crisis as we make this journey together. And I said it earlier, in July, the journey is the destination. I want to again thank you for your participation today. And I look forward to the day we can get out on the road and be visiting with you all soon. Enjoy Halloween, as I know I will, as it is my first granddaughter’s first birthday. Raptors won its first road game on the road last week, and college pro football continues. I think we have to be optimistic. Life is good, and we need to cherish the moments. It’s another step back to normalcy, and let’s continue to pray for a cure to this dreadful virus. Be strong, be safe, and God bless. Thanks for your time today, and have a great day. Appreciate it.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Kevin CummingsChairman And Chief Executive Officer

P. Sean BurkeExecutive Vice President And Chief Financial Officer

Domenick A. CamaPresident And Chief Operating Officer

Mark Thomas FitzgibbonPiper Sandler & Co — Analyst

Jared David Wesley ShawWells Fargo Securities — Analyst

Tu DuongRBC Capital Markets — Analyst

Matthew M. BreeseStephens Inc. — Analyst

Laurie Katherine Havener HunsickerCompass Point Research — Analyst

Collyn Bement GilbertKeefe, Bruyette — Analyst

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