Good day, and welcome to the Investors Bancorp First Quarter Earnings Call. Today all participants will be in a listen-only mode. [Operator Instructions] Please note that today's 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 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 Investor 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. This document is incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the section entitled Risk Factors, Management Discussion and Analysis of Financial Conditions and Results of Operations set forth in Investor Bancorp's filings with the SEC. Today, I would like to turn the call over to Kevin Cummings, Chairman and CEO of Investors Bancorp.

Thank you, Chris, and good morning, and welcome to the Investors Bancorp first quarter earnings conference call. Last night, the company reported in its press release net income of $39.5 million or $0.17 per diluted share for the quarter ended March 31, 2020 versus $48.7 million or $0.19 per share for the three months ended December 31, 2019 and $48.2 million or $0.18 per diluted share for the quarter ended March 31 last year. But I must say that the historical results have less meaning in today's environment as we deal with the economic uncertainty and much more serious issues of health and safety as we manage through this unprecedented pandemic. Right now, our priority is protecting everyone's health and well-being: our employees, customers, vendors and the communities where we work. Our pandemic crisis management team meets daily and includes the entire executive management team, plus key members of credit, operational, compliance and cyber risk management, where we discuss issues and topics ranging from employee health issues and technology to capital and liquidity management. We are focused on operating with a strong liquidity position as we are maintaining an above-average cash balance at quarter end. We continue to maintain a robust capitalization by limiting balance sheet growth and foregoing share buy backs. Excess capital and liquidity plus a fortress balance sheet will serve us well through these uncertain times. Credit topics include asset quality, portfolio analysis and adherence to and revisions to credit policies to meet the current environment. It should be noted that our loan portfolio's past performance has been very strong, and we are well-positioned entering this cycle. Our net charge offs over the past three years have averaged just 4 basis points and 5 basis points over the last 5 years. Our loan portfolio has a lower…

Thank you, Kevin. Earnings before income taxes and provision for credit losses were $85.4 million for the three months ended March 31, 2020, an increase of $3 million or 4% compared to the prior quarter and an increase of 21% over the prior year quarter. While net loan balances decreased quarter-over-quarter, commercial and industrial loans increased $104.2 million or 3.5% quarter-over-quarter. Net interest margin increased 10 basis points to 2.71% quarter-over-quarter with majority of the increase occurring on a core basis. We continue to benefit from Fed rate cuts and saw our cost of interest bearing deposits declined 20 basis points to 1.39% from the fourth quarter. Total non-interest income totaled $14.7 million for the quarter, a decline of $5.8 million quarter-over-quarter. We recorded elevated swap and equipment finance fees in the fourth quarter and saw both return to more normalized levels in the first quarter. Expenses totaled $102.6 million for the three months ended March 31, a decrease of $4.3 million or 4% compared to the three months ended December 31, 2019. The efficiency ratio improved to 54.6% from 56.5% in Q4, reflecting a modest increase in revenue and a slight decrease in non-interest expense. We adopted CECL on January 1, 2020. Upon adoption, the company recorded an increase in allowance for credit losses of $11.7 million. Provision for credit losses was $31.2 million for the three months ended March 31, 2020, and was significantly impacted by the COVID-19 pandemic. At the time we closed the books in early April, our forecast scenarios included a second quarter GDP decline of up to nearly 25% and unemployment up to 13% and a U-shape recovery. Given the uncertainty on how the pandemic will unfold generally makes projecting provision difficult. That being said, our provision in the second quarter will be driven…

Okay, Sean. Thank you. Our message is to be faithful and not fearful. We need to be a source of hope and optimism in the community and continue to live by our core values by being a good corporate citizen and making a difference in a time of uncertainty. We are here for our customers. We are partnering with both the not-for-profit sector and the government sectors to help our communities. We have had our challenges, but as of today, we have executed on the task and the projects that this pandemic has created. Working from home, communications with both employees and customers, technology changes and enhancements, cybersecurity, the Gold Coast acquisition, commercial and mortgage loan deferrals, building a platform for the SBA program and leading our teams during a period of uncertainty and fear all have come with unique problems and adjustments. The bank has accomplished these things because of the hard work and leadership of our executives. At times, it may seem overwhelming, but we are getting it done. We will work continue to work together and encourage, now inspire our teams to reach into the depth of their souls to get through this crisis and clear those obstacles in front of us. We do not plan to survive, but we will strive through this crisis and rise to be the best that we can be. The bank will be a source of inspiration during these times because it is through inspiration and encouragement that brings great execution, success and peace in your life. Our communities and customers need us now more than ever. We will continue to step up and face these challenges. Our leaders continue to inspire each other to our greatest moments, knowing that we are giving our best and leaving all our energy on the field. It is a war out there and we will not be victims of this virus, but we will be victors. Now I'd like to turn the call over to some questions. Thank you very much.

[Operator Instructions] Today's first question comes from Mark Fitzgibbon with Piper Sandler. Please proceed.

So I wondered, first, if it would be possible to give us a little bit of detail on the size of things like your hotel, restaurant and retail portfolios.

Okay. Yes, Mark, I can help you there. Our accommodation and food business is about 2% of total loans, about $387 million. That's the largest concentration that we have there. Arts, entertainment and recreation about $66 million combined between C&I and CRE. And a real the big number, obviously, is in retail, given our commercial real estate portfolio. That's $1.885 billion, making up about 9% of the portfolio. So those are the biggest concentrations we have. As Sean said, we'll be filing along with the press release and our 8-K a more detailed description of these numbers.

Okay. And then as you look at your portfolio in its entirety, I know everything is under pressure, but what is it that you're most concerned about? What which segments of the portfolio or borrower types that have you most concerned?

I mean obviously in the C&I space, that obviously has a lot of concern. Less concern in the multifamily space, I mean, given the fact that that's an $8 billion portfolio and our resi portfolio is about $5 billion, a little less concern there. On the CRE space, obviously, with the shopping centers, that also poses some concern. We feel pretty good, though, that just given where we operate and given the strength of some of our borrowers and some of the loans and Kevin cited the LTVs and the debt service coverage ratios, although those debt service coverage ratios don't mean much right now, that when as we go and trend and go through this pandemic and as things start to transition back to more normal state. We feel that those portfolios, the CRE, multi-family and resi portfolios, will behave well. Again, there's some doubt on the C&I portfolio, but given some of our exposures there, we also we feel pretty good there. We happen to have Rich Spengler, who's our Chief Lending Officer, on the phone and he may be able to add a little bit more color. Rich?

Yes, Dom. Look, I think you pretty much covered it. I think we're looking at predominantly our retail, the commercial real estate and depending upon the duration and when this actually comes back, it seems like that's where there's been the most noise as far as tenant sending in letters and refusing to pay and talking about what time they will actually start making payments again after the pandemic is lifted.

And then, I guess, I was curious on commercial line utilization rates. Have you seen much of an up tick there thus far?

Have not, actually. We were monitoring that very closely, as you may imagine. And we had a little up tick in it and then it flattened out. So the unused lines haven't been a concern to us.

And then, lastly, I heard what you said about provisioning guidance being really difficult given the uncertainties in the environment. Obviously, it's even harder from our perspective to model that out, but as you think about it, say, for the second quarter, would your presumption be that we'd probably see a provision that's somewhat less than what we saw in the first quarter?

Sean, why don't you take that?

Yes, Mark. I know what you're hinting at, but it really is hard to predict. I mean things change daily. And I certainly understand where you're going there. And it certainly feels like things are getting better. But I think we'd be a little reluctant to really venture out saying that in absolute terms., so for now, the environment changes. I think it's safe to say if things improve and the economic environment improves, I think your statement will hold true. If things deteriorate in some way, then we could be looking at elevated provisions. So we'll go the way the economy goes.

Our next question comes from Chris O'Connell with KBW.

Filling in for Collyn. I guess if we could start out with the NIM. You guys had great NIM movement this quarter and good movement on the interest-bearing deposits downward. CDs are still fairly high at 1.88% in terms of the cost. Could you maybe give a look into what CD rates are coming on today and also where borrowings could reprice, given that they're still fairly elevated as well at 2.09% cost?

Yes, Chris. On the CD pricing, we're seeing new CDs come on at a top rate of 1.05% in using a 13-month maturity and 1% in a 7-month maturity. So those are our highest rates these days. I mean we have some programs that require checking accounts that will allow you, if you bring $0.5 million into bringing 1.25. But let's call the highest rates of 1.05% in the CD space. So I mean, those CDs, that 1.88% is obviously elevated because of the fact that rates were so high going through most of 2019. And as rates come down, those CDs will start to reprice more quickly. I think more reflective of our cost of deposits is our government deposit portfolio, which is about $5 billion. So let's call it, $4.5 billion and tied directly to Fed funds. And we've seen those rates come down by about 100 basis points, most of which we'll recognize the benefit of in the second quarter because the first rate cut happened on March 3. We took that right away. And the second rate cut, which occurred on March 15, we decided to wait until April 1. So I think you'll start to see that CD bucket come down. You'll start to see it. You start to see that CD bucket come down, but more importantly, that government deposit bucket has already come down significantly.

Got it. And so as we look into the 2Q NIM, I mean, is it fair to say given that government deposit bucket combined with what presumably will be a decent drop in borrowings in CDs that we could see double-digit NIM increase next quarter?

I'll let Sean, why don't you handle that?

I wouldn't go so far as to say double-digit, but certainly, we are expecting to see some NIM expansion next quarter driven by lower deposit costs, lower borrowing costs.

Got it. And I know you guys are kind of backing away from numerical guidance. But as we look into the back half of the year, is it also fair to say that we should see kind of consistent NIM improvement, obviously, 2Q will be fairly material given the government deposit move. But let's say, rates hold in general and loan spreads hold where they are. Is that a fair statement to say for the back half of 2020?

Yes. There's a lot of moving pieces there. But if we held everything else constant, that's going on, which is kind of a bold statement. But if everything else was constant and we saw borrowings costs are coming down and deposit costs continuing to come down in the lower environment. Yes, that should translate into improved NIM throughout the year. But things are moving around all over the place and it's really hard to predict. So that's why we're backing off a bit going too far out trying to make projections.

Got it. And along the same line, I mean, obviously, liquidity cash built up a ton this quarter. I guess is there a plan or a tentative plan to for how long that might stay on the books?

Yes. I think, Chris, along those lines, we have a number of maturities happening in the second quarter and we'll lay some of that off there. We're going to hold on to the cash for a little while to see how our government deposit portfolio behaves during the second quarter. The government deposit bucket runs in cycles, and we just want to make sure that it continues to run in the similar cycle that it has in the past. So we're going to be cautious holding on to the balances, but we recognize that we have a lot of excess cash on the balance sheet and we'll be prudent about how we work it off during the second quarter.

Got it. And then just one last one. On the buyback, I know it's kind of in limbo right now or suspended just given the current environment. What I guess, you guys are still kind of lying above, I guess, what your target TCE ratio longer term. When would you feel comfortable or what would drive you to get back involved with the share repurchases?

Chris, interesting. Sean and I did a conference early in March and it was up and this is before we knew the world was blowing up and a lot of questions about the repurchases. And I just want to remind you that we did a big repurchase in the fourth quarter of 2019 when we bought back over $300 million of Blue Harbour stock. And while the stock price came down and it seemed beneficial to start buying it back, we're dealing, as I said that day a number of times with a number of constituents, right? I mean we have our regulators to deal with. We have our concentration ratios to deal with. And when you buy back $300 million in of stock in one fell swoop, I think it's time to put it on pause and say, "Hey, let's see how this goes". As it turned out, it was a good move, not buying any stock back in the first quarter, as we felt it was prudent to shore up capital and make sure capital remained in a strong position. And so I'm going to say also, like Sean said to an earlier question, it's who knows what's going on out there. So I don't see buy backs happening in the foreseeable future, all things being equal as the environment exists today.

Yes. I think our number 1 concern is to protect the dividend moving forward. And buy backs are going to take a backseat. We've always managed capital on a 4-pronged approach; M&A, organic growth, buybacks and dividends. And it's always been our prudent approach of balancing those things, using them when available. I know the stock price is down, but it's certainly not a time in the foreseeable future to jump into that part of the strategy to manage our capital.

The next question comes from Laurie Hunsicker with Compass Point. Please proceed.

I wanted to go back to and I appreciate all the details that you've given, really, really helpful. I wanted to go back to the hotel and restaurant exposure of $387 million. How much of that is CRE versus C&I? And then what's the LTV on the CRE piece, if you have it?

On the C&I piece, it's about $280 million and the CRE piece about $109 million. I don't have the LTV, but I think they're pretty low.

Okay. And then you have the breakout of...

Just one other point, Laurie, I just want to be clear on this. On the C&I front, the $280 million, recognize that those loans are secured by the properties in New York City. So while they're not technically classified and while they are under CRE, we made the loans based on the cash flow of the buildings, but the collateral is real estate. So we feel we're pretty well collateralized in those loans.

Got it. And then do you have the breakout of what hotel versus restaurants?

I don't. We don't have that. The way we've broken this out is accommodation and food service together, but I'm going to say that the majority of it is in the hotel business.

Okay. Great. That's helpful. Okay. And then same question on the arts and entertainment, the $66 million, is that primarily C&I or is there any CRE there?

That's primarily C&I. It's about -- it's $47 million on C&I and $19 million on CRE.

Okay. Great. And then same question on, go ahead.

On the accommodation, our hotel and food service, $278 million is C&I, $109 million is CRE.

Okay. That's great. And then same question on the retail exposure, the $1.9 billion. Is what percentage or what dollar amount is C&I versus CRE?

$90 million C&I.

And $1.8 billion, $1.795 billion CRE.

Okay. Great. And you don't happen to have the LTV on that, do you?

Well, we gave the in my remarks, we gave the overall CRE on the deferments. And I believe it was about 55%. I'll check it, okay?

Okay. 55%. Okay, great. And then just on that $1.9 billion, is there any mall exposure in there?

Rich, do you have an answer to that?

It's predominantly retail shopping not interior malls, more just exterior community-type shopping centers.

Okay. So sort of more retail service. Is that a fair statement?

Yes. Exterior anchored supermarkets, big boxes, not large interior malls.

Okay, great. And then, do you have and if you don't have this, I'll follow-up with you afterwards, but do you have any dollar amount on exposure in healthcare, education or transportation, any of those three categories?

We do. Laurie, we can answer the question now, but it will be included in the 8-K.

It will. Okay. I'll wait for that. That's helpful.

Yes. The healthcare and social assistance is about $600 million, $650 million and education, about $80 million. And the LTV on CRE deferments is approximately 53%.

53%. Okay, great. And then I just wanted to go, Kevin, I'm so sorry, I think I must have missed part of this. When you were going through the lower-risk portfolios, the single-family, multifamily and home equity, the LTVs on those three buckets are what again?

Okay. One second.

And while you're looking that up, I go ahead.

$1.1 billion was, I think, also 53%.

Yes.

It was approximately 60%, I believe. We didn't give it on the deferments. It's approximately our average LTVs at year end were approximately 60% for the residential and multifamily portfolios and overall 55% for the CRE and consumer portfolios.

Okay, great. And then just super quick question. Swap fee income I know was down this quarter. What do you have a dollar number on that?

On the swap fee income?

Yes. Laurie, it's Sean. We're down -- I'm going to look it up, but I think it was down $2.9 million, Laurie, quarter-over-quarter. So the fourth quarter had some elevated swap-throughs this quarter a little bit lighter than what we normally expect. So a little bit on the light end, but the fourth quarter had some elevation in terms of what was in there.

$2.2 million.

$2.2 million?

Difference, yes.

Difference.

Perfect. I'll leave it there. Thank you so much for all the details.

Laurie, I'm sorry, it's $2.8 million.

The next question comes from Jared Shaw with Wells Fargo Securities.

So there are not too many questions left, but on the could you give us a spot rate on deposits at 3/31?

What does that mean, Jared, spot rate?

Not the average rate for the quarter, just where cost of deposits were at March 31.

Jared, I don't have the spot rate, but I can tell you the month of March. So at least for interest bearing deposits, the cost of interest bearing deposits for the month of March was 1.29%.

Okay, great. And then we get the impact from government funds that hit in April 1 and 2 that would help bring that down. Can you give a little update on the multifamily line? What you're seeing as loans come to the end of the fixed period, are you seeing sort of continuous renewals or renewals continuing to happen and what's the rate on those renewals now on the multifamily product?

Rich, why don't you handle that?

Yes. We're still seeing activity on people looking to refi when they're getting to the end of that fixed period. There's is a good chunk of the current pipeline that we are seeing. We've enhanced some underwriting relative to how we underwrite those deals at this time. But I would say that's probably the busiest part of the marketplace is the refi of loans that are maturing or loans that are rolling as well as anyone that was involved in 1031. Those are probably the two biggest drivers of that marketplace. And 5-year paper is probably somewhere right around that 4% or just below right now today.

Okay. And then are you taking on new customers in that line or are you just refing the existing relationships?

I would say the bulk of the work is done with existing relationships, but we're still looking at new customers. The majority is all existing.

Okay. And then on the broader CRE portfolio, how is the paydown and payoff activity trending since sort of the back end of the quarter? And should we expect to see that slow down as we go in the second and third quarter?

Customers are still paying off their loans. We did see a couple of big payoffs, Jared, in the back end of the first quarter. I think it will slow down as we get through the second quarter just because there are not a lot of new deals happening. As Rich said, most of the deals that are happening are loans that are up to maturity or guys that need to put their money to work in a 1031 exchange. But we don't see a lot of activity in the purchase market. So we expect that, that will slow down, although, as I said, we did see some big payoffs toward the end of March.

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

Okay. Thanks, Chris. I'd like to thank you for your participation today. When I think about the past two months, I am grateful for the leadership team that I work with and all the employees at the bank. Through great hardship and personal sacrifice, they've done a great job. They continue to amaze me, and I'm humble to leave them with Dom and the executive team. As Churchill once said, "Fear is a reaction, and courage is a decision." Our message is to be faithful and not fearful. We need to be a source of hope and optimism in our communities and continue to live our core values by being a good corporate citizen and making a difference in a time of great stress and uncertainty. Please stay healthy out there. Be careful, and follow the CDC guidelines. Let's pray for each other and inspire each other that we can all be safe and the very best versions of ourselves during this crisis as we make the journey together. I want to thank you again for participating today, and please be careful, and I look forward to the day that we can be out on the road visiting with all of you soon. Have a great day, stay healthy and be strong. Talk to you soon. Thank you.

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