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Investors Bancorp Inc (NASDAQ:ISBC)
Q2 2020 Earnings Call
Jul 30, 2020, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Investors Bancorp second quarter earnings conference call. [Operator Instructions] Please note, this event is being recorded. We will 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 operation 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 result materially different 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 certain risks and uncertainties affecting Investors Bancorp, please see the section entitled Risk Factors, Management Discussions and Analyst of Financial Condition and Results of Operations set forth in Investors Bancorp's filings with the SEC. Now I'd like to turn the call over to Mr. Kevin Cummings, Chairman and CEO of Investors Bancorp. Please go ahead.

Kevin Cummings -- Chairman and Chief Executive Officer

Thank you, Nick, and good morning, and welcome to the Investors Bancorp second quarter earnings call. Last night, the company reported in its press release net income of $42.6 million or $0.18 per diluted share for the three months ended June 30, 2020 as compared to $39.5 million or $0.17 per share for the quarter ended March 31, and $46 million $46.6 million or $0.18 per share for the three-month period ended June 30, 2019. For the six months ended June 30, net income totaled $82.1 million or $0.35 per diluted share compared to $94.8 million or $0.36 per share for the six months ended June 30, 2019. During the company during the quarter, the company completed its acquisition of Gold Coast Bank, which had approximately $535 million in total assets, $443 million in loans and $490 million in deposits. It added seven branches in the New York market, nearly doubled our deposits in Nassau and Suffolk Counties. These customers have attractive demographics and give us opportunity to leverage our business models to customers in that market. Getting this transaction completed during this pandemic is attributed to the grit and tenacity of the bank as we closed the transaction, rebranded the branches and completed the data processing conversion during the weekend of April three.

The acquisition resulted in a recognition of $12 million in goodwill and approximately $2.5 million in core deposit intangibles. During the second quarter, the company recorded a provision for loan losses of $33.3 million versus $31.3 million in the first quarter of 2020, and this compares to a credit of $3 million in the second quarter of 2019. This elevated provision is a direct result of the current and forecasted economic conditions that include the economic impact of the COVID-19 pandemic. Pre-provision net revenue was $92.1 million for the three months ended June 30, 2020, an increase of $6.7 million or almost 18 8% compared to the three months ended March 31, 2020. And this is also an increase of $29.8 million or 48% compared to the three months ended June 30, 2019. The bank has spent considerable effort in evaluating its credit position and has focused its effort on the commercial portfolio. As disclosed in our March 31 Q, the company reported approximately $3.6 billion in commercial loan deferrals, comprised of $600 million in C&I loans, $1.4 billion in multifamily loans and $1.6 billion in CRE. The bank's lending teams were very aggressive reaching out to customers during a time of great stress and uncertainty. And like the PPP loan program, we looked at this deferral process to help our borrowers and customers. We were actively reaching out to them to assist them during this economic lockdown initiated by local governments. We have spent the last 10 weeks actively communicating with our customers to assess their needs during this pandemic.

After extensive communications with our borrowers and follow-up on our lending teams, we have reduced the exposures to deferrals significantly. At July 24, total requests and that's different than total request for second deferrals totaled $480 million, and which was comprised of $218 million in C&I loans, $87 million in multifamily loans and $175 million in commercial real estate. We have performed detailed reviews on 79% of the original $3.6 billion in deferrals to date. We anticipate, upon completion of this entire review of deferred loans, a second deferral exposure for commercial loans of approximately $750 million or 5% of commercial loans. As mentioned earlier, of the $480 million in loans that have requested second deferrals, approximately $292 million is concentrated in the accommodations and food services sector. Of that amount, $230 million are hotel loans to two relationships who have strong liquidity and are proven generational operators. One relationship had deferred loans with an average LTV pre-COVID of 45% and a debt service coverage ratio of 1.85. And the other relationship is also for deferred loans, with an average LTV of 51% and a debt service coverage ratio of 1.42. Both these borrowers have good locations in desirable areas of Manhattan. In the retail sector, we have approximate exposure of $1.8 billion at June 30, 2020, that's the entire commercial portfolio and an initial deferral amount of $880 million, which has been reduced to $380 million by borrowers making their July one payment. Based on discussions with borrowers, we expect further reduction upon completion of the initial three month deferral period of $258 million, which would result in second deferrals in the retail portfolio of approximately $130 million.

In the office sector, our total loan exposure is $1.2 billion, with initial deferrals of $186 million. As of July 22, we have received the July one payment for loans totaling $35 million, which results in a current deferral balance of $151 million. Based upon follow-up with our borrowers, we anticipate further reduction of $115 million in office deferral balances as a result of payments principally scheduled for August 1, which would result in a second deferral balance of approximately $36 million for this sector. In the multifamily sector, we have total exposure of $7.4 billion at June 30, with initial deferrals of $1.4 billion, which have been reduced to $900 million due to payments received in July. We expect those deferrals to be further reduced upon the completion of the initial three month deferral period by August and September payments to approximately $100 million. So in summary, today, we have approximately $1.4 billion of loan deferrals in the office, retail and multifamily sectors. We expect, based on current conditions of our borrowers, that those deferral balances will be reduced to $260 million at the end of their initial first three month deferral period, which is ending August 1, September 1, and to a limited extent, October 1. Overall, we're very pleased where we are with respect to assisting our customers through this pandemic to date. There is much uncertainty and forecasting future events and results are sometimes very difficult, but we will continue to work with our customers to help them through this crisis.

Our approach is to be proactive in addressing these issues as it will be in the future difficult conversations. We believe we have taken a conservative approach to our provisions as compared to banks with similar portfolios in the New York, New Jersey markets, and we are well positioned to weather this storm. With respect to charge-offs for the quarter, we had one significant charge-off on a multifamily loan for $3.5 million that was not pandemic-related. And have had the loan written down to 80% of current appraised value, which was received recently in May.

With respect to delinquencies, $15.3 million of the $24 million in multifamily 30-day delinquent loans are current as of today. $6.5 million of the $10.6 million in CRE 30-day delinquencies are current as of today. And $5.9 million of the $7.5 million in C&I 30-day portfolio is current as of today. In the 60-day bucket, the only significant exposure is in the multifamily, which totals $19.1 million, of which $9.9 million is current today. $4.8 million has been approved for its first deferral and $4.4 million is a maturity where there is a contract for sale. In the 90-day bucket, the only significant increase was in the multifamily portfolio, where the reference loan with this quarter's charge-off, that now has a carrying value of $18 million was moved into the 90-day delinquent bucket during the quarter. In addition, there were five small additional credits with an average balance of $1.4 million, which moved into nonaccrual status during the quarter. Based on our current delinquencies and the significant progress in reducing our deferred loan balances, in addition to the increase in our loan reserves in the past two quarters, we believe we are well positioned to get through this pandemic. With respect to the balance sheet, loans increased $75 million during the quarter, which was attributable to the Gold Coast acquisition and the origination of approximately $328 million in PPP loans. Without those transactions, loans would have declined by approximately $700 million.

With the uncertainty that we are looking at with the uncertainty that we were looking at in March and April, it was prudent to take our foot off the accelerator and build liquidity to manage the challenge of this economic environment. As we get a better handle on our exposures to the pandemic economic impact, we will assess our growth opportunities. As the economy 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 2020, where we were more focused on business lending side. This is not a major strategy shift, but one that will be opportunistic based on current interest rates. It was a strong quarter for deposits as noninterest-bearing deposits increased $618 million or 25% for the quarter, of which $93 million was attributable to Gold Coast. Total deposits increased $1.3 billion or 7%, which of which $490 million was from the Gold Coast acquisition. Our loan-to-deposit ratio declined from 117% to 110% for the quarter. Cost of deposits declined 46 basis points in the quarter, and there are still opportunities to decrease funding costs in the second half of this year, as $2.5 billion in time deposits are scheduled to mature with an average cost of 1.57%. With respect to capital, the company announced a cash dividend of $0.12 per share and has maintained its capital ratios across the board given the impact of the PPP loans. 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.

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

Sean Burke -- Executive Vice President and Chief Financial Officer

Thank you, Kevin. Net interest margin increased two basis points to 2.73% quarter-over-quarter despite an elevated average cash position in the second quarter. We continued to benefit from previous Fed rate cuts and saw our cost of interest-bearing deposits decline 46 basis points during the quarter. Total loan balances increased $76 million quarter-over-quarter, inclusive of $453 million of loans from the acquisition of Gold Coast and $329 million of PPP loans. Deposits increased $1.3 billion or 7% quarter-over-quarter, with noninterest-bearing deposits up $618 million or 26% quarter-over-quarter. Total noninterest income totaled $10.1 million for the quarter, a decline of $4.5 million quarter-over-quarter. The decrease was driven by a $2.6 million MSR writedown, a $1 million reduction in swap income and lower loan and deposit fees as a result of COVID fee relief policies. Excluding $3.3 million of Gold Coast-related costs, expenses totaled $96.7 million for the three months ended June 30, 2020, a decrease of $5.8 million or 6% compared to the three months ended March 31. Our reported efficiency ratio improved to 52% from 55% in Q1, reflecting a modest increase in revenue and a decrease in noninterest expense. Provision for credit losses was $33.3 million for the three months ended June 30 compared to $31 million for the three months ended March 31. Both periods were significantly impacted by the COVID-19 pandemic.

Our CECL economic forecast scenarios for the second quarter included a double dip recession scenario where GDP and unemployment further deteriorate in Q4, and unemployment remains in double-digit territory for most of 2022. Asset quality, liquidity and capital were in a strong position at quarter end as we continue through this environment. Nonaccrual loans represented 0.59% of total loans at June 30 compared to 0.46% at March 31, while our allowance for credit losses to loans stood at 1.37% at June 30. Our Common Equity Tier one ratio was 13% at June 30, exceeding the well-capitalized level by approximately $1.2 billion. Liquidity improved quarter-over-quarter as our loan-to-deposit ratio stood at 110% at quarter end, down from 117% in Q1. Finally, I would like to note that additional information on loan deferrals can be found in an 8-K that we filed last night. Now I'd like to turn it back over to Kevin for concluding remarks.

Kevin Cummings -- Chairman and Chief Executive Officer

Okay. Thanks, Sean. Our message at the bank 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 at regular hours. At the height of the pandemic, we had 48 employee cases. And thank goodness, thank God, today, we do not have any. We are taking all precautions to protect our customers and employees. We have close to 50% of our corporate employees back to the office, and it's 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 yesterday and listened to their challenges during the height of this pandemic here in New Jersey. Our retail teams are engaged and excited to be working and, more importantly, helping their customers and communities through this pandemic. The past four 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 get some stabilization in the macroeconomic climate, which will then impact our economic models, we can have a much stronger second half of 2020. We've been aggressive in calling on our loan customers, and have a war room-type attitude to monitoring our credit exposures with great teamwork from our front-line loan officers and our credit risk team.

This crisis is different from 2008's Great Recession as the banking industry is stronger with better capital to sustain the economic downturn. Investors Bank is also stronger and better prepared for these events, and I am much more optimistic than I was in April when there was so much uncertainty. Our medical professionals and healthcare workers have been outstanding, and I've learned a lot about the treatment of this virus. And we are in a better position to monitor and treat this terrible pandemic. Our earnings per share is flat to last year after taking $36 million in additional provisions in the quarter. Our balance sheet and capital are strong, and we are well positioned to grow as the economy improves. Now I'd like to turn it over to questions.

Questions and Answers:

Operator

[Operator Instructions] First question comes from Mark Fitzgibbon of Piper Sandler. Please go ahead.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey guys, good morning, and good morning, Kevin. Kevin, I really I like your optimism. It's good to hear. First question I had, you all saw a pretty good drop in deferrals this quarter. I'm just curious, was that borrowers genuinely willing or ready to start making payments again? Or did it necessitate a fair bit of nudging on your behalf to get them to sort of start making payments again?

Domenick A. Cama -- President and Chief Operating Officer

Mark, it's Domenick. I think yes, I think for the most part, the customers were willing to come off the deferrals. But we did put a policy in place in which we made it a little bit tougher to get a second deferral. We asked for income/expense, P&L statements, we've looked at their debt service coverage. In some cases, in exchange for getting the second deferral, we would ask them to put up a cash reserve or even put a guarantee on loans. And so as I said, for the most part, customers were willing to come off. But clearly, our second deferral policy is to be a little tougher and to scrutinize the deferral request a little bit more than we did the first time.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then that same vein, how are rent payments, particularly on multifamily properties, going recently?

Domenick A. Cama -- President and Chief Operating Officer

Yes. Mark, I think we've been open with this information. I mean, what we're noticing is not too dissimilar to what we see in the rest of the market. In the multifamily space, I would say that average collections of rents are north of 85%. On the commercial real estate side, I would say that, that number is about 50%. But again, on multifamily, it's been stronger than commercial real estate.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then, Sean, I'm curious, can you give us a sense for the timing of the excess liquidity deployment? Because I know that obviously is weighing on the margin a bit.

Sean Burke -- Executive Vice President and Chief Financial Officer

Yes. Mark, by quarter end, by June 30, you could see that our cash position had come down nicely from the average balance that you saw during the quarter. So to a large degree, it has come off already. And we're expecting to kind of have that number, average cash balance in the $500 million range come the end of next quarter. And then by the end of the following quarter, we think we'll be back to a normalized level from a cash position perspective.

Mark Fitzgibbon -- Piper Sandler -- Analyst

And then as you think about the margin for the back half of the year, excluding the benefit from PPP that will come in at some point, the core margin up maybe 5, seven basis points a quarter, is that a reasonable expectation?

Sean Burke -- Executive Vice President and Chief Financial Officer

Mark, I don't know if I would completely agree with that. But what I would comment is, we are expecting our margin to be stable with a bias to slightly up through year-end.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Great, thank you.

Operator

Next question comes from Jared Shaw of Wells Fargo. Please go ahead.

Sean Burke -- Executive Vice President and Chief Financial Officer

Hey, Jared, are you on mute?

Operator

Mr. Shaw, are you there? Are you on mute?

Sean Burke -- Executive Vice President and Chief Financial Officer

We can't hear you. Maybe we can go to the next caller and come back.

Operator

The next question is from Laurie Hunsicker of Compass Point. Please go ahead.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah, hi. Thanks, good morning.

Sean Burke -- Executive Vice President and Chief Financial Officer

Good morning, sir.

Laurie Hunsicker -- Compass Point -- Analyst

Just around your comments regarding the core margin for the back half of the year, are you including any PPP forgiveness in that? And then can you remind us what the fees on the $329 million are expected to be?

Sean Burke -- Executive Vice President and Chief Financial Officer

So the answer is yes. But Laurie, we only have $329 million of PPP loans. So it really is not that impactful on our margin as a whole. And I think our expectation is, around 75% of that PPP balance, we are expecting that to cure within a year's period, and then the remainder 25% is going to come in over a five year period. So that averages to about a couple of years, at least that's our assumption that we're using when we do modeling for margin purposes. But again, Laurie, even if you kind of stripped it out with or without, it probably is very negligible, one or two basis points impact on the margin.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. And so the PPP fees for that book, they're around $10 million or do you have a better number?

Kevin Cummings -- Chairman and Chief Executive Officer

Yes, the net fees were approximately $8 million. So that is the potential. I'll say if they're all paid off next week, it'd be $8 million of their interest revenue.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. That's helpful. Okay. And then for the back half of the year, how should we be thinking about expenses? I mean, Gold is closed. Are you thinking about any branch rationalization? Or any color you can give us there?

Domenick A. Cama -- President and Chief Operating Officer

Laurie, it's Domenick. Yes, we are looking at branch rationalization. Obviously, consumers and business customers have taken better hold of online and mobile banking services. So that's giving us an opportunity to look at our branches to see where we may have some overlap. So yes, there's some branch rationalization that we're examining for 2020.

Kevin Cummings -- Chairman and Chief Executive Officer

Laurie, if we we made a comment, we had a discussion last week, if we don't change the way we do business as a result of this pandemic, we've wasted a lot of time, effort and sweat, tears over this last five months. So I think there's going to be significant changes on the horizon as we move forward and customer behaviors change as a result of this pandemic. Luckily, we're in a position where we made significant investments in our technology and our products. And over the last in 2018 and 2019 with a new Chief Marketing Officer, and that's paying off for us in spades as we work through this situation.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. And then on to loan modifications, and I really appreciate all your detail. If we were just more high-level thinking about the $2.7 billion that you have as far as active deferrals as of June 30, what is that number looking like as we get closer to August one or September 1?

Domenick A. Cama -- President and Chief Operating Officer

I think, Laurie, the way to think about it is just at a very high level, and Kevin gave the number at about $750 million. So what we're expecting is, when this is all said and done, that we'll have about $750 million in deferrals that we'll be working with.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. And that obviously included the big chunk of the $230 million or so of hotels?

Domenick A. Cama -- President and Chief Operating Officer

Absolutely.

Kevin Cummings -- Chairman and Chief Executive Officer

Yes.

Domenick A. Cama -- President and Chief Operating Officer

Absolutely.

Laurie Hunsicker -- Compass Point -- Analyst

Yes. So netting that out, it's a really small number. And then if you can just help us think about because you've got your hotels and your food service combined, do you have a dollar balance on hotels and a dollar balance on restaurants? Or if not, I can follow-up..

Domenick A. Cama -- President and Chief Operating Officer

It's overwhelmingly in favor of the hotels. I mean, I think it's we don't have an exact dollar amount, Laurie, but it is predominantly hotel.

Kevin Cummings -- Chairman and Chief Executive Officer

We can get back to you on that number. I think it's like in my mind, it's like less than $50 million restaurant exposure, much less than that. So we will get back to you offline on that.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. And then just one last quick question. Your $1.2 billion of office, do you have an LTV on that?

Sean Burke -- Executive Vice President and Chief Financial Officer

We don't have it right here, Laurie, but we can get back to you with that information.

Laurie Hunsicker -- Compass Point -- Analyst

Okay, thanks. I'll leave it there. Thank you.

Operator

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

Collyn Gilbert -- KBW -- Analyst

If I could start with expenses. So relative to what we were expecting and even in the second quarter, you guys saw a material drop in expenses this quarter. And I appreciate, Sean, kind of your comments and you too, Dom. But if we just think about this quarter's expenses, I mean, it kind of run rates to like $395 million or something below. I think, Sean, what you had given is a $435 million guide for the full year of 2020. Can you just talk about kind of the movement there on the expense side? And what will come back maybe in the back half of the year and how that compares to your original opex guidance?

Sean Burke -- Executive Vice President and Chief Financial Officer

Yes. Look, on the opex guide, we were high as it turns out and I think the largest driver of that is just this pandemic. We just don't have the type of expenses that we would normally experience when people are traveling and loan officers are out generating loans. And so I think we're benefiting from the lack of expenses on that side. As we look through the back half of the year, we don't have anything, Collyn, necessarily planned. It's going to meaningfully increase expenses from the base that we're at now. So I think it's safe to say that the guide that we're providing at $435 million, that we're not going to be at that number, we're going to be south of that. I was thinking about something in the $410 million range is probably more reasonable level right now. I'd probably have a little bit of buffer in that, too, Collyn, just for some of the unknown as we go through the back half of the year, but nothing planned on the docket that's going to throw off expenses in the back half of the year meaningfully.

Collyn Gilbert -- KBW -- Analyst

Okay. Okay. That's helpful. And then just in terms of your you mentioned kind of the liquidity or the cash usage through the end of the year, Sean. Can you guys just tie that to what you think loan growth will be? And then within that in terms of like your current loan pipeline and then what you're seeing in terms of new loan origination yields? And then I have a follow-up to that as well.

Domenick A. Cama -- President and Chief Operating Officer

Collyn, it's some we've just recently opened up our lending to a greater degree. We came into 2020 with a strategic plan intended to reduce residential and multifamily. And certainly, that's happened and our pipelines were reduced coming into the first quarter. Then the pandemic hit. And I would say that we were more cautious on lending and so did not see a lot of loans closed during the March, April and May time frame. As credit spreads started to widen, we recognized that we could put on residential and multifamily at a decent spread and which would be which would contribute to net interest margin. And so those pipelines now have started to build and right now, we're looking at a pipeline of about $2.4 billion if you include $400 million for residential loans. So C&I is about an $800 million pipeline. CRE is about $1.2 billion in pipeline. And I know that's a long-winded answer to tell you that I'm not really sure where loan growth is going to be. I mean, if I took PPP and I took Gold Coast off the table for a moment, the loan actually declined about $700 million. So I'm hoping that we could get that back and keep the balance sheet stable and neutral for the rest of this year. So having said that, that would mean that I would stay at around the $27 billion mark as we head into the end of the year.

Collyn Gilbert -- KBW -- Analyst

Okay. Okay. That's helpful. And then just so on that and Sean, your comment on the NIM. I guess I would be thinking that maybe that NIM would expand a little bit more than what you guys are indicating. Can you just talk about so you had mentioned the tranche of CDs that are maturing and coming down. But where your sort of new CD rates are or kind of the fits and starts as to what you're assuming on the funding side? And the composition of deposits is a big one, too, right, in terms of your outlook for noninterest bearing?

Domenick A. Cama -- President and Chief Operating Officer

Yes. Collyn, it's Domenick. The on the cost of deposits coming in now, I mean, we have a product out there, a money market account that's tied to our core checking account that requires activities and certain number of online deposits and things like that. And that cost is at 75 basis points right now. That's what we're advertising. We have a 13-month product out there at 85 basis points and a seven month product out there at 60 basis points. And quite honestly, just been talking about it the last few days, we see those numbers as being toward the higher end of the market. So we see that coming down somewhat. But I wanted to go back to Kevin's comment about the maturing CDs. I mean, it's significant. It's close to $1 billion, $900 million. If you look at it through the end of the year with the weighted average cost of, let's call it, 1.60-ish.

And so that should help NIM coming into the third and fourth quarter. As far as our projections in being light on where that is, I mean, clearly, there's a lot dependent on where NIM is going to go. These cash balances have been a burden on us. To the extent that we continue to shrink, it could mitigate any potential benefit. But on the loan side, I mean, we're seeing rates between resi and C&I going anywhere from three 3/8% to three 5/8%. So that's so if you think about the incremental cost of funds here being somewhere around, let's call it, 40 to 60 basis points, we're looking at spreads north of 300 basis points, which will be additive to NIM as we head and go into the third and fourth quarter, obviously, offset by any cash balances that we continue to maintain.

Collyn Gilbert -- KBW -- Analyst

Okay. That's great color. And then just one last question on mortgage banking. It was up nicely this quarter. I guess, just seeing a lot of the activity in the market here. Do you have a sense as to where you think you can take that business line either through just near-term activity and then just structural sort of how you see that building out longer term?

Domenick A. Cama -- President and Chief Operating Officer

The Collyn, our mortgage banking business, I mean, we just had a meeting on this, this morning. I mean, right now, our pipeline is about $400 million, and about 50% of it is slated to be sold to the agencies. It's amazing to me. We looked at the pricing this morning and two 7/8% 30-year mortgages can be sold to Fannie at a price of north of three points, which when you compare that to where we've been historically, let's say, over the last 18 months, I mean, that spread has was about 1.5. So it's gone from 1.5 to north of three over an 18-month period, and the coupons have come down to two 7/8%. To answer your question in terms of where could this go for us, it's hard to say. I mean, we're just trying to we're not out there actively having a mortgage banking business. We're just trying to manage our own customer base and generate some commissions for our loan officers. So it's not the type of thing that we're going to build up or make any significant investment in. We're just kind of reaping the rewards of the current interest rate environment and the impact it's having on mortgage banking.

Collyn Gilbert -- KBW -- Analyst

Okay, that's great, that's super helpful. I will leave it there. Thanks everyone.

Domenick A. Cama -- President and Chief Operating Officer

Thank you.

Operator

Next question comes from Matthew Breese of Stephens, Inc. Please go ahead.

Matthew Breese -- Stephens, Inc. -- Analyst

I appreciate all the detail on the commercial book in terms of deferrals, very encouraging. Could you just talk about deferral trends or expectations for the residential portfolio? And are the cure rates as strong there?

Domenick A. Cama -- President and Chief Operating Officer

So Matt, that's a very good point. It's something that we've looked at. Actually, it's not as strong on the residential side as it has been on the commercial side. So on the residential side, we had approximately $600 million of loans that were deferred. And when we look at those that were coming due in July, that totaled approximately $352 million. Of the $352 million, 34% have cured, right? So that's about $140 million. And 65% have asked for a second deferral. So you can see on the resi side, it's not as strong as it has been on the commercial side.

Matthew Breese -- Stephens, Inc. -- Analyst

Is the process for issuing additional consumer or residential deferrals as strenuous as it is for commercial customers?

Domenick A. Cama -- President and Chief Operating Officer

It is not as strenuous. What's happening there, Matt, is we are trying to follow the Fannie guidelines on that. And Fannie's guidelines don't push customers to provide the type or the level of detail that we can on the commercial side. So we're a little hamstrung. Even though these loans are in our portfolio, and I guess, technically, we don't have to abide by the Fannie guidelines. But I think not abiding by Fannie guidelines would probably hurt us just from a reputation perspective.

Matthew Breese -- Stephens, Inc. -- Analyst

Understood. Okay. And then considering the overall deferral comments and trends, and certainly, there's more positive body language and tone this quarter. Can you just talk about reserve adequacy and the outlook for the provision? And whether you think what we've seen these last two quarters is what you expect for the back half of the year? Should we expect a reduction in the level of provision?

Kevin Cummings -- Chairman and Chief Executive Officer

Well, Matt, some of my commentary on the macroeconomics. You deal with the model now. And it's a little difficult to forecast that future based on the inputs that may be changing over the next couple of months. We got asked by our regulators in a meeting the other day, and it could be down to $15 million and up to $50 million in the course of that range. It's a truck you can drive truck to the range, and to give guidance on that, in things that really are not in our control based on the life of the loan and the new CECL mandates, it's very, very difficult to forecast. But I think where we are, I think we feel very comfortable with our reserve today.

Matthew Breese -- Stephens, Inc. -- Analyst

Okay. And then my last one is just bigger picture. The last few years, we've seen the bank really push toward C&I and more relationship-driven banking. But in times of stress, we've heard you talk about adding to the residential and multifamily portfolio. Has everything that's happened given you any sort of have you contemplated maybe a more balanced approach and going back to the multifamily resi business and a little less on C&I. Has that any of that changed?

Domenick A. Cama -- President and Chief Operating Officer

I don't think so, Matt. I think we continue to I think we run a well-diversified portfolio. I mean when you look at the ratios of multifamily loans, they've come down. I mean, we have at $7.5 billion on multifamily, $5 billion on resi, $3.5 billion on C&I and about $5 billion on CRE. So that's a pretty balanced book, I think. I mean, from the C&I perspective, we're going to continue to try to grow that business. I mean because it's not only the C&I loan that you put on your balance sheet. It's also the deposit that comes with it, it's the cash management fees that come with it. And quite frankly, when we compare our returns nationwide to banks in our peer group, and we see banks who are performing better than we are, again, pre-COVID, the one the two pieces of data that are different in those banks versus our bank is that they have a greater percentage of their loan portfolio in C&I, and they have a greater percentage of their deposits in noninterest-bearing deposits. And so when I look at those two factors, they pretty clearly tell me that we can have a better return on equity and a better return on assets if we shift the strategy a little bit here despite the fact that we're here in the Northeast.

Matthew Breese -- Stephens, Inc. -- Analyst

Understood. That's all I had. Thanks for taking my questions.

Operator

Next question comes from Jared Shaw, Wells Fargo. Please go ahead.

Jared Shaw -- Wells Fargo -- Analyst

It's try this again. Can you hear me. Hey thanks. Yes. So I guess I just wanted to circle back on the loan growth discussion with the headwind of looking at that core sort of number down $700 million this quarter in the pipeline you guys talked about. Are we thinking how should we be thinking about the magnitude of loan growth from here? I mean, is it trying to recover that $700 million by the end of the year? Or is that too much, I guess, to think of over the next few quarters with the headwind on the smaller PPP balances?

Domenick A. Cama -- President and Chief Operating Officer

Yes. I think that's a fair assessment of where we want to be. If we can recover that $700 million, I think we would all feel pretty good about it.

Jared Shaw -- Wells Fargo -- Analyst

Okay. And then circling, I guess, back with that provision with that growth is the backdrop for the provision. If we don't see any change in the economic models, then I mean, would that I guess that would mathematically lead to a significantly lower provision in third and fourth quarter without economic deterioration, without outsized loan growth?

Domenick A. Cama -- President and Chief Operating Officer

Jared, again, I'd just go back to Kevin's response earlier. I mean, it's just so difficult to try to determine even to sit here and presume that there's a better economy and loan growth. It's just so hard to say. I mean, the CECL process is completely driven by the use of models that are forecasting the economy. And for us to sit here, try to determine what our provision is, is difficult. And I know it's difficult for you because you need to run your models and try to come up with some forecast, but it's just hard for us to say.

Jared Shaw -- Wells Fargo -- Analyst

Got it. I guess with the model, are you using the Moody's baseline? It seems like the way you were discussing it, maybe it seemed like there's a little more of an adverse economic scenario than the straight-line baseline that you're assuming?

Domenick A. Cama -- President and Chief Operating Officer

Yes. So we're using a combination of the three of them, the three models, and we are assigning weights to the specific scenario. So we have weights assigned to the S3 version of Moody's, S1 and what...

Kevin Cummings -- Chairman and Chief Executive Officer

And baseline.

Domenick A. Cama -- President and Chief Operating Officer

And baseline.

Kevin Cummings -- Chairman and Chief Executive Officer

Jared, we're in a unique situation here because we're in a real-world without the CARES Act and the change in treating nonpaying customers. We would have significant TDRs, troubled debt restructurings, and nonaccruals. And it's amazing that the general market conditions in the stock market, things don't really take that into account. It's going to be something like I said earlier, it's going to be some difficult discussions once this second deferral period ends up, and we might be dealing with, say, anywhere from $300 million to $400 million of loans that might not come off with that hotel group. So we're already talking with them and working on plans post second deferral. And we're hopefully going to be in a better position because we're proactively reaching out to the customers and tell them that it's going to be a while before people go into New York City to go to a flight, it'd be a while before people are traveling the way we were pre pandemic. So when you put all those things together, there's still some uncertainty, but I think we're making the best of a tough situation.

Jared Shaw -- Wells Fargo -- Analyst

Yes. That's great color. I guess, actually, just one quick on the $230 million of those two relationships you mentioned, how many properties are incorporated in those in that balance?

Kevin Cummings -- Chairman and Chief Executive Officer

Eight. Yes, each have four. Each have four locations in New York City.

Jared Shaw -- Wells Fargo -- Analyst

Great, thanks. I appreciate the color.

Operator

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

Steven Duong -- RBC -- Analyst

Hi, good morning guys.

Domenick A. Cama -- President and Chief Operating Officer

Good morning.

Steven Duong -- RBC -- Analyst

Hey, Steve. Hey, just on your footprint, are there any pockets that's showing more stress than your other areas?

Domenick A. Cama -- President and Chief Operating Officer

Stress from what perspective?

Steven Duong -- RBC -- Analyst

I guess from, I guess, from a credit perspective, just more unusual as opposed to like what you're seeing generally?

Domenick A. Cama -- President and Chief Operating Officer

And from a geographic perspective?

Steven Duong -- RBC -- Analyst

Yes. Yes.

Domenick A. Cama -- President and Chief Operating Officer

I can't say that there's one particular area that has been impacted more than the other. It feels less geographic and more asset class. And I think you could see that, Steve, in our 8-K, right, where you see the deferrals really focused on office and shopping centers, retail CRE and then also the accommodation in hotels, motels. So I think it's more by industry than it is by geography.

Steven Duong -- RBC -- Analyst

Got it. And then just a last one for me. Your treasury management team, are you guys still looking are they still out trying to win business? And just how are they doing? How successful has it been?

Domenick A. Cama -- President and Chief Operating Officer

The treasury management team?

Steven Duong -- RBC -- Analyst

Your products, you know...

Domenick A. Cama -- President and Chief Operating Officer

I mean, we're not out there aggressively trying to win business. Obviously, we have a significant cash position right now. I think what they are trying to do is make sure that current customer base is taken care of, and it's in line with our with the market and our own cost of funds is. But I wouldn't say that we're out there aggressively trying to bring deposits in at least at least on the wholesale side, which is where the treasury management team would be most involved.

Kevin Cummings -- Chairman and Chief Executive Officer

Anecdotally, Steve, I've been out on some calls, a college up in New England, up in Massachusetts, a two very large not for profits, where we won on one of those not for profits, we had the business. And we've taken out one of the national banks, and the cash management procedures and the deposits are a big part of that product offering to that particular customer, and it's a sizable loan line of credit of $8 million. And the other two situation, one's a $32 million loan, and the other one is a $40 million loan. And it's really, we won the business, but it's a pricing issue on whether we can get to a reasonable return for us dealing with swaps and things like that. So I think the business we're out there. Our guys we recently hired five significant well-experienced loan officers. We've also continued to build out that business development team that we talked about on previous calls. Both these groups were so helpful in that PPP process, I mean. And we've gotten through that with a lot of more experienced bankers.

And that's why we're encouraging people to get back. We have 50% of our staff back in the corporate offices. And getting back to normalcy is really what we're striving to do to generate more core deposits. And that gets back to that strategy question before. Like I said, we don't want to change our strategy but we're certainly going to be optimistic and take advantage of situations where like multifamily and residential, good credit products are available to us at average yield. And we're also looking at this opportunity to move out some of our funding for the use of cash flow swaps, and that's been we've been opportunistic using some of those tools to lock down some of our funding and become less liability-sensitive as we anticipate rates going up and not going down any further with the Fed position and our position to negative rates.

Steven Duong -- RBC -- Analyst

Got. I appreciate the color. Thank you, guys.

Kevin Cummings -- Chairman and Chief Executive Officer

Yes. Thank you.

Operator

Next question is a follow-up from Collyn Gilbert of KBW. Please go ahead.

Collyn Gilbert -- KBW -- Analyst

Hi guys, just a really quick housekeeping question. Sean, on the merger charges, do you have where how those broke out in the quarter within each segment?

Sean Burke -- Executive Vice President and Chief Financial Officer

I can get you the breakout, Collyn, but it's primarily two categories. One is data processing. So termination, there's some cost on the Fiserv side and then also professional fees, banker fee, legal fees. I actually think that's the bulk, but I can get back to you, Collyn, on the breakout.

Collyn Gilbert -- KBW -- Analyst

Okay. Okay, that's great. All right, thank you.

Operator

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

Kevin Cummings -- Chairman and Chief Executive Officer

Okay. Thanks, Nick. First of all, I'd like to thank you for your participation today. This may sound strange, but the past five months have been an adrenaline rush for me as our executive team as it is and every day has been an adventure. The days are long but the weeks fly by, and I'm very proud to be working with our leadership team at the bank and the great team of employees who have stepped up to help various not for profits, our customers and just generally people in need. As the famous quote states, adversity and crisis do not build character, they reveal it. And character is the first of our core values, the 4Cs: Character, Commitment, Cooperation and Community. And these values and the core values of this country will carry us through this crisis. I know it may look dark with all those disagreements in the world and in Washington, but we need to be faithful and not fearful, hopeful and optimistic. We need to stay healthy and help each other through this time. I want you all to please stay healthy and follow the CDC guidelines. So it's good to say, wear a mask and stay away from crowds.

Sean Burke -- Executive Vice President and Chief Financial Officer

Wash your hands.

Kevin Cummings -- Chairman and Chief Executive Officer

And wash your hands, right. 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 very best version of ourselves during this crisis as we make this journey together. And always remember, the journey is the destination. Thanks, again, for your participation today. I look forward to the day that we can be out on the road visiting with some of you. Enjoy your summer, enjoy the baseball season, the basketball and hockey seasons. They're starting tonight and have started over the past week. 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. Have a great day, and thank you very much for your participation.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Kevin Cummings -- Chairman and Chief Executive Officer

Sean Burke -- Executive Vice President and Chief Financial Officer

Domenick A. Cama -- President and Chief Operating Officer

Mark Fitzgibbon -- Piper Sandler -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

Collyn Gilbert -- KBW -- Analyst

Matthew Breese -- Stephens, Inc. -- Analyst

Jared Shaw -- Wells Fargo -- Analyst

Steven Duong -- RBC -- Analyst

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