Christopher Maher: I’d, say, a couple of things. I mean, there may be some customer movement. Certainly the talent environment is going to be interesting over the next six to 12 months, but that goes on both sides of it, when you’re in a period of uncertainty people think twice about moving from one organization to another. So we’ll have to wait and see those things. There is a very significant consideration that will play out at least in the Northeast. And then, I think you can see credit spreads expand. There are far fewer people out lending today than they were a year-ago. I think that will translate into some opportunity for us to get paid for the work that we do. And I know Joe and his team will be really focused on making sure that as we grow the loan book from here that were paid to do so.
David Bishop: Got it. And then maybe a question for Joe. Obviously, a lot of attention on the office rebook, but in terms of some of the other segments in terms of CRE. Anything else there flashing warning signals, maybe that you’re dotting around or crossing your team more, more fine-tuning on that maybe not getting as much attention out there in the press that show maybe yellow or red flags here from warning signals.
Joe Lebel: Well. I think everybody hit on the head, David. Everybody talks about — talks about office. We’ve been very thoughtful in building the credit book over the last nine, 10, dozen years around this remediation around geography, dispersion, and asset classes. I think we’re seeing the — we’ve definitely seen a slowing in the warehousing space. I think we’re well past the point of the dynamics around the COVID environment relative to both shopping from home. I think that’s going to continue, but not at the same pace people all thought. We’re not really seeing that softness in our book yet, but we’re thoughtful about it. And then I just make the comment I think, because it’s important because everybody talks about the office where we have $1.1 billion in office.
Our office is largely diversified, not only in the type of office, but also in geography we have pretty even dispersion between our Philly, New York, New Jersey regions in terms of office. We also have half of our office exposures either credit tenants or medical office and the remainder is largely suburban. We’ve talked about you’ve seen the deck, where only I think it’s less than 1% of total assets in the central business districts, but the average size of our office here at the bank is less than $2 million. So while we have some large offices and some small ones, even when you talk about the maturity wall for 2023, we have 155 loans maturing, 112 of them are under $1 million. So I think we’ve done a really good job of protecting that. But getting back to your comment about other things, we still see multifamily being pretty strong.
Since COVID, the average multifamily rents are up almost 20%, which is just fascinating itself, given the amount of people working from home, but it just goes to show you where we stand-in the country in terms of housing. So, right now I think we’re pretty comfortable of what we see, but obviously very critical on what we’re doing going forward.
David Bishop: And Joe said in the introduction, when you did the stress test, you did not adjust underlying cash flows or rents or — current environment, what was done in underwriting, correct?
Joe Lebel: Yeah. Exactly right, David. We didn’t adjust for current rent rolls or current dollars per tenancy, we looked at the original underwriting tenancies. We also looked and we obviously did that making sure that we still had those tenants and the properties which we do.
Pat Barrett: I think the theory on that Dave was, we didn’t want to count on this inflation of rents, because I think you’re going to get some of that back maybe over the next year or so, but we thought we had underwritten rents which were several years ago in multifamily. Most of that was kind of pre COVID rents. That would provide a good floor for us. So it’s a pretty conservative way to look at it.
David Bishop: Got it. And one final question maybe on credit. We did see a little bit of a shift to special mentioned substandard, just curious what drove the increase in substandard loans. Thanks and I will hop off.
Pat Barrett: Yeah. Listen, there was nothing significant. In fact, we remained lower than we were in the third-quarter of last year. Just one moment from special mention to substandard is the bulk of that migration, well secured and
David Bishop: Great. I appreciate the color.
Operator: Our next question comes from Michael Perito from KBW. Michael, your line is now open. Please go ahead.
Michael Perito: Hey guys, thanks for taking my questions and for the extra supplemental information this quarter, it was helpful. You guys covered a lot of it, so I don’t want to take too much time here, but just two quick questions. On the first one, I apologize if I missed it, but just on the noninterest income side. Kind of a low watermark for you guys here on a core basis in the quarter. Just any near term expectations for rebounds anywhere, whether it’s kind of commercial swap income, trust mortgage, is there anything we should be mindful of as we look at this kind of $9 million on a core quarterly run rate in the first-quarter.
Pat Barrett: I think — Thanks, Mike. I think you’re right to say it’s kind of a four-ish number as loan volumes decreased, swaps decreased in this environment, we don’t expect swaps to kind of pop back up anytime soon. Although the noise that you might — in any quarter you might have a couple of larger swap deals. I think that was some of the thoughts behind us focusing a little bit on our mortgage banking business, which may sound counterintuitive at a time when there’s high-interest rates right now, but we have the ability to find some really good talent. You may have seen the press release about Stephen Adamo joining our team. So Joe and Steve, are working on really focusing on the opportunities for a gain on sale business.
As you’ll know, looking back in our financials that’s one area where our income is underrepresented and not that we understand the multiples on a mortgage banking business are not that high usually because of the volatility, but it is a counter-cyclical business and should rates come down next year, refi position — we want to be in a position to make some money off that. That’s probably the only business line, where I would expect to see the potential. And again I’m talking about two, three, four quarters from now, that would require our rates to cooperate a little bit too. But we could do better there and I’m comfortable that Joe and Steve will get that done.
Michael Perito: Got it, okay. And then just lastly for me, on the — you guys spent some time talking about liquidity and carrying that at higher levels near-term, but can you maybe give us an update on where you guys stand in terms of what the right capital is that we should be considering maybe I’d say longer-term, little jokingly because, obviously, a lot can change, but is it fair for us to take that you guys might be more comfortable to carry heavy — a little heavier capital than maybe otherwise normal for the, kind of, foreseeable future until we kind of see what the full fallout from everything recently occurring is or how are you guys thinking about that?
Pat Barrett: I think you’ve probably guessed right Mike, we’re conservative folks. So we’re going to carry a little extra liquidity or in a little extra capital until we know what kind of the world thinks about acceptable liquidity and capital levels. Because, I think it’s going to be a discussion in the industry, it is going to go on for the next couple of quarters. We’re all going to settle in. I will share with you, we’ve been talking internally. I remember all the discussions in 2009 and 2010 that capital is going to have to come up and banks were never going to earn their cost-of-capital and the sector was dead and uninvestable and some of which you hear today. There is a concern right, carrying the extra liquidity and capital will impact profitability, but I think just as we did after the great recession.
The industry is going to figure it out and we’ll get more efficient, we’ll figure out how to get our margins back and whatever the capital ratios need to be, we’ll adjust too and find a way to make money.
Michael Perito: Great. Just one last one for Pat, just $13.5 billion in assets around 100% loan-to-deposit ratio, are these decent bogies for the near-term here that you think could be pretty stable?
Pat Barrett: Yeah, I think so. It’s pretty typical for us to run at around this level of leverage. And again, to echo Chris’ comments, notwithstanding the industry or other stakeholders in the industry and deciding that’s no longer acceptable. We’re comfortable with that.
Michael Perito: Great. Thank you guys. I appreciate it.
Operator: Our next question comes from Christopher Marinac from Janney Montgomery Scott. Christopher. Your line is now open. Please go ahead.
Christopher Marinac: Thank you. Good morning. Chris and Pat and team, I just wanted to ask about how often you’re doing new commercial loans above 7%. I wanted to circle back to the stress-test, I’m curious if 7% is high enough in this environment.
Pat Barrett: So I think Chris, I’d say the following relative to weighted average. I think one of the advantages that we’ve had with our balance sheet and our footprint has been the advent of focused construction lending end-markets largely non spec where we can get floating rate opportunities with interest reserves. So you do see some of that in the weighted average in the pipe and also in the recent increases in the weighted average returns for us. But I would also say that, as we look at the existing portfolios, we’re looking at this based on risk and based on relationship and I think we’re focused on driving those returns where it’s prudent and where the cash flow can support it, which is the vast majority of what we have in the books.
So it will be a slow — we have a — I think we mentioned earlier, we have a slow or small amount of maturities coming due. So that maturity wall is a small one at the moment, but if you look at the pipe — the pipeline is low seven — 7.25 I think — 7.25, 7.26. You don’t always get those deals done at the number you want, but I think we’re really focused on — we recognize what our cost of funds is and where that’s going. So I think it’s important.
