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Sterling Bancorp (STL) Q2 2019 Earnings Call Transcript

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Sterling Bancorp  (NYSE: STL)
Q2 2019 Earnings Call
Jul. 25, 2019, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and Welcome to the Sterling Bancorp Q2 2019 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jack Kopnisky, President and CEO. Please go ahead, sir.

Jack L. Kopnisky -- President and Chief Executive Officer

Good morning, everyone, and thanks for joining us to present our results for the second quarter of 2019. Joining me on the call is Luis Massiani, our Chief Financial Officer.

We have a presentation on our website which, along with our press release, provides detailed information on our quarterly results. During this call, we will highlight the solid quarterly financial results, review the balance sheet remixing that we are doing to create higher returns, update you on our common share repurchase program, and highlight our outlook for the balance of 2019 given the changes that have occurred in the rate environment.

First, on an operating basis, our second quarter results were solid. Adjusted net income available to common shareholders for the quarter was $105.1 million, which was flat to a year ago. Adjusted earnings per share of $0.51 was 2% higher than the second quarter of 2018, and $0.01 higher than our prior quarter. Adjusted return on average tangible assets was 151 basis points. Adjusted return on average tangible common equity was 16.83%. Our efficiency ratio was 40.9%, resulting from continued creation of positive operating leverage. And our tangible book value per share of $12.40 has increased 13.6% over the prior year.

We had a strong organic commercial loan growth for the quarter as average loan growth was $759 million or 11.9%. Year-over-year, commercial real estate, public finance, mortgage warehouse, traditional C&I, and lender-financed portfolios all increased organically, more than 10% on an annualized basis. The organic growth was meaningful, although the majority of the net growth came at the end of the quarter, and did not contribute to net revenue for the second quarter, but provides a good foundation for growth in net revenue for the following quarters. We continue to have strong organic pipeline of commercial loan opportunities that will result in continued net loan growth.

Now that we have restructured a good portion of the acquired residential mortgage and multi-family portfolios, and do not anticipate selling additional portfolios, we intend to grow our overall balance sheet. We see opportunities to add core earnings through commercial loan growth, and associated funding. As with this quarter, the loan-to-deposit ratio may exceed 95% for several quarters. We will not exceed 100%.

Deposit balances were down by $265.7 million, for the quarter, for two specific reasons. First, muni balances decreased $328 million as expected. The reductions are seasonal in the second quarter, due to municipal spending cycles. Secondly, given the yield curve and the rate environment, we are driving deposit costs down. Our cost of deposits increased by 3 basis points to 91 basis points for the quarter. But the actions we are taking -- we have taken on non-relationship deposit clients will begin to lower deposit costs in future quarters.

Additionally, total cost of interest-bearing liabilities decreased by 1 basis points. Our deposit mix and our rate sensitive deposits continues to be favorable at 42% demand deposits, a 11% savings, 35% money markets, and 12% CDs.

Our core net interest margin increased by 6 basis points to 322 basis points, as we added a higher yielding targeted commercial loans, and reduced lower yielding residential mortgages and broker-driven multi-family loans. We will continue to shift the asset mix, lower FHLB borrowing costs, and reduce deposit costs to ensure the core margin is in a range of 320 basis points to 330 basis points through the end of the year. The moderate reduction in the range results from the expected downward pressure on security yields, short-term commercial loan rates and loan origination yields. Core fee income for the quarter was $27.6 million. And we expect to end the year at approximately $110 million, as we continue to expand our treasury management, swap, factoring, loan and payroll fee income businesses.

Core expenses, exclusive of amortization expense, were as planned at $107 million. During the quarter, we incurred a non-core charge of $14.4 million related to our ongoing consolidation of our financial center network consolidation strategy. Since our merger with Astoria in October 2017, we have reduced the financial center network from 130 centers to 97. We will continue to rationalize our real estate, and are targeted to be below 85 centers over the course of the next 18 months. We continue to be confident that we will end 2019 with a core operating expense -- expenses between $415 million and $425 million, as we reduce financial centers, automate our back-office operations and sell real estate.

Our credit metrics and capital levels remain strong. Charge-offs were 12 basis points. Non-performing loans and delinquencies were slightly higher, but well within our targeted range. The increases were due to two collateralized ABL loans and an equipment finance loan. Total tangible common equity was strong at 8.94%, and total risk-based capital was 14.03%. In the second quarter, we utilized excess capital to repurchase 4.5 million shares. We will continue to review the use of our capital on a quarterly basis to repurchase shares as appropriate. There are approximately 8.38 million shares remaining in our repurchase authorization.

Finally, we are confident in our model and our ability to meet and exceed our growth and return targets in the future, even with a more challenging rate environment. Our ability to generate targeted organic commercial loan growth and supplement the growth with portfolio acquisitions will enable us to continue to remix the loan portfolio, and produce strong net revenue growth. With disciplined deposit pricing, we will continue to improve overall net interest -- core net interest margins, as we fund the loan growth with core relationship funding. Our expense discipline will enable us to allocate costs to areas where we see the strong returns and results. Credit quality has continued to be strong, and we have added additional resources to the credit risk area to ensure continued strong oversight.

Lastly, we generate significant excess capital each quarter that provides capital management flexibility.

The results of our strategy over the past eight years is reflected on Page 4 of the presentation. Our adjusted EPS growth has been a compound annual growth rate of 29%, and our tangible book value since the legacy Sterling acquisition has been a compound annual growth rate of 13%. For the second quarter of 2019, EPS was up 2% and tangible book value grew by 13.6% from previous year. We expect to achieve our targeted financial metrics for 2019 and beyond.

So let's open up the line for questions.

Questions and Answers:

Operator

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]

And our first question today will come from Austin Nicholas with Stephens.

Austin Nicholas -- Stephens -- Analyst

Hey, guys. Good morning.

Jack L. Kopnisky -- President and Chief Executive Officer

Good morning, Austin.

Austin Nicholas -- Stephens -- Analyst

Hey, so maybe just on the updated guide on the loan growth, can you remind us of maybe just what's included in that in terms of assumptions from an organic perspective? And then is there a acquisition kind of contemplated in that number, those updated numbers?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. So right now, this is organic getting to those numbers. We feel very confident in the pipelines that we have and the volumes. Frankly, the economy is pretty good in the segments that we're in, and we're seeing lots of volume. We're seeing more volume that hits our pricing targets than maybe previously. So the organic growth opportunities are there. All that said, there are always opportunities to look at acquiring portfolios. And we're constantly evaluating portfolio acquisitions. All that said, the guidance is specific to the rest of the year just being organic. And there's always an opportunity to look at portfolio acquisitions that will go above and beyond that.

Austin Nicholas -- Stephens -- Analyst

Understood. And can -- maybe just on a portfolio acquisitions, can you talk about what you're seeing in the market in terms of opportunities from acquisitions, from banks and non-banks? And how you're thinking about, I guess, what size those could be? And if the market is more attractive today than maybe or less attractive than what it was when we last spoke in April?

Jack L. Kopnisky -- President and Chief Executive Officer

Yea, it's interesting that a lot of banks and, frankly, private equity firms are trying to remix their portfolios too. So there are opportunities that come out of those remixing opportunities. And so we have looked at a variety of things from $250 million to $1 billion, maybe $1.25 billion or so. So that's the range of opportunities that we look at. And obviously, we've said this a bunch of times, we say no to the vast majority of them. The only ones that will get through our screens are ones that match the types of assets we want that have the right credit metrics and, frankly, are at the right price.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

And much more, our focus, Austin, as we've talked about in the past, is on working with banks that for whatever reason have decided to exit business lines because they're non-core and they're not going to be strategic for longer term. That is where we find the best opportunities, the best pricing, and always gives us the best comfort level that, when you're dealing with a bank, especially with OCC-regulated banks, that credit box and the structure and how loans and the overall risk and loan operational framework from a risk management perspective is going to be much more in line with what we do.

So that's where our key focus is. And if we are successful in completing some of these additional transactions that we're looking at, they're largely going to be similar to what we did with Woodforest, which is $500 million to $750 million in size. And they're more than likely going to be out of a bank.

Austin Nicholas -- Stephens -- Analyst

Got it. And then just in terms of the inbounds you're getting, would you say that there is maybe -- there is less today given the outlook for rate cuts and maybe the ability to -- or the outlook to fund those assets a little more easily at potentially selling banks that may have otherwise sold them? Do you think there's any change in view from what you're seeing from the seller side?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

So far, we haven't seen it. There's a pretty vibrant secondary market. And every other day or week, we see another opportunity pop up on our radar screen.

Austin Nicholas -- Stephens -- Analyst

Got it, got it. Appreciate that. And maybe just on the margin, I appreciate the updated guide there. I guess maybe, one, can you talk about how we should think about the cadence of that, as we exit the year, in terms of the margin. And then in the second and -- in the third and fourth? And then just can we see -- could we see deposit -- overall deposit costs start to actually decline kind of overall as we get toward the end of the year?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

So I'll answer the second question first. So on the cost of deposits, the short answer is yes, but I'll ask you the question about how many rate hike -- rate cuts there is going to be. And I can provide you a little clearer answer on that. That is the big unknown, right, but you started to see the leveling off of deposit costs in this quarter. That has been twofold. It's been a fact that the competitive dynamic has improved a little bit, and we have also stayed pretty disciplined. And we have really focused on managing the overall deposit book to focus on deposit relationships, where we have full relationships, loans, deposits, where we have a good mix of both excess liquidity balances as well as operating accounts and so forth. And so that has led to us, I think, being a little bit more aggressive on pricing deposits and not meeting some competitive demands or demands from some of our deposit customers to raise rates in this quarter. I do think that by the -- similar to how we did not see much of an impact from a deposit beta perspective when we first started hiking rates in -- or that first rate hike, I guess, back in 2016, we are here in a world in which in a couple weeks we're going to have a 25 basis point cut. I don't think that you're going to see much of an impact yet, on that first one, but if we are in a world in which there is 25, followed by 25, followed by 25. I think that, by the end of the fourth quarter, you are going to see a cost of deposits that's potentially going to start decreasing pretty significantly.

And this is we're headed into an environment where this is where our commercial bankers and relationship managers are going to truly earn their keep, all right. It's always easy to raise rates. They're now going to have to have the tough conversations with their clients, as to how we're going to start moving these down. And similar to how we had a 30% deposit beta on the way up, we're anticipating that we're going to have a 30% deposit beta on the way down. And we are working on -- actively working on strategies to figure out how we can accelerate that deposit beta, if we are in a more -- in a steeper decreasing rate environment, I guess, over the next, call it, six to nine months.

On the progression of the NIM, is again it's tough to -- we'll see what happens with the break and pace of rate cuts that come in. Again as I said, you are going to start seeing -- if there is a 25 basis point cut, I think that you're going to see a bigger decrease initially in net interest margin, because you are going to have about $5 billion of LIBOR and floating-rate assets that are going to reprice downward. And we started to see some of that pressure already year-to-date with LIBOR rates that have moved down by about 10 basis points at the beginning of the year. And you're not going to see that corresponding change yet on the deposit costs, but I do think that those deposit costs will catch up pretty quickly in the back half of the year. We do see two or three rate hikes. And so therefore, we feel pretty good that we can maintain that 3.20%, that low end of the range that we provided even in the face of two to three rate cuts.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. Let me tell you -- let me just expand on what Luis said on the deposit side. We've been doing this for a long time. A bunch of us have been around probably too long, but we -- it's very clear when you go through cycles like this that everybody will argue, well, that competitors aren't lowering rates and it's tough out there. The reality of this is you have to lower rates. And you just have to be tough on this. And you play -- there's -- there are going to be a couple quarters and a time period where you're playing this kind of rate volume game all the time. And if you give in to the exception pricing side of it, you'll never get to the right place in terms of setting the deposits rates where they're at. So we've been very aggressive at lowering deposit rates. It also depends upon the types of mix that you have in your company and, frankly, the type of relationships you have with your clients. In our particular setup, about 80% of the deposits we have are relatively rate insensitive. And about 20% of them are more rate sensitive. So things like CDs or high-balance money markets or people that are just looking for rates.

So that's the realm in which, you're really trying to move rates down on so that you create the right funding number. And again it isn't -- and sometimes, it doesn't all happen at one quarter, but it happens over a period of time, but we intend to continue to drive down rates and selectively price relationship deposits along the way. Probably more than you wanted, Austin, on this, but thought we'd give you a little more.

Austin Nicholas -- Stephens -- Analyst

No, I appreciate it. And then maybe just one last quick one on expenses. Could we see expenses be flat in 2020 compared to the operating number this year, just given everything you're doing on the cost-cutting side?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Short answer is yes. We feel -- again, we've been a little bit -- the recognition or the realization of the cost saves has taken us a little bit longer, but especially with as we've talked about here in the past, in prior calls, getting out of financial centers, getting out of real estate, reducing head count related to financial centers and reductions in real estate are always messy and complicated. But the trajectory of where we see our expenses headed has not changed. And we actually are very confident that we're going to continue to realize those cost saves and that we're going to maintain a relatively flat to slightly decreasing OpEx base from here into 2020. We feel very confident about that.

Jack L. Kopnisky -- President and Chief Executive Officer

And again this is one of those history. History tells you, when you have a decreasing rate environment where margins are kind of under fire, you kind of skinny down the company to make sure that you have high levels of productivity and the right people in the right places, but this is not a place to spend, to go out and overspend. So we've been very, very deliberate about looking at our cost structure and moving it down. And again, it doesn't all happen in just one quarter. It happens over a period of time. But we're very comfortable with the road map that we have created, so that we overall will lower the expense base and go in -- as Luis said, go into 2020 with kind of a flat or a decreasing expense base.

Austin Nicholas -- Stephens -- Analyst

Got it. Great. Jack, Luis, thanks for the questions. I think my time is up.

Jack L. Kopnisky -- President and Chief Executive Officer

Thank you.

Operator

And next we'll move to Casey Haire with Jefferies.

Casey Haire -- Jefferies -- Analyst

Yes. Thanks. Good morning, guys.

Jack L. Kopnisky -- President and Chief Executive Officer

Morning, Casey.

Casey Haire -- Jefferies -- Analyst

So how are you doing? So I guess, a little more color on the NIM. So I guess I'm trying to understand. So you're saying that a fed cut would compress the core NIM from here, and yet you're still holding to the 3.20%. Low end of the guide would be 3.20%, so I'm just -- it seems like, it's going to be a bit of a close call. I'm just -- am I -- what am I -- am I missing something on the borrowing side? I know you have $2.5 billion coming due on the borrowing side, but it just seems like something's not squaring here.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Yes, I think that's -- it is a, I think, a close call. Or I think that it is a there are a lot of moving pieces that go into it. The 3.20% is not a decision. There is a chance that we wouldn't hit that range, but with the ongoing repositioning of the balance sheet, what we're going to be doing on the borrowing side, where we have a substantial chunk of that that's coming in, in maturing near term, and just the continued focus on having runoff of lower-yielding loans being replaced by higher-yielding commercial loans. We're going to continue doing what we said we were going to do, which is we're investing in asset classes where we find better risk-adjusted returns and better overall yields.

And again the -- one, it's all a matter of how quickly the funding side of the equation catches up to whatever is going to happen on the asset side. And through the past two quarters, we've been much more focused on originating or the places where we've seen the most amount of our growth on the loan side have been in places like, public sector and then the commercial, the diversified commercial real estate side, which are largely fixed-rate loans, where again, that's not going to be impacted by it. So you're going to continue to see a transition on the types of loans and the loan composition going forward. And we anticipate that that's going to -- again, as more residential mortgages and multi-family loans that yields 3.5% or below run off and they're replaced by loans at higher yields, and combined with some of the loan growth and the acquisition opportunities that we're looking at, we feel pretty good that we can -- with that low end of the range.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. Do this step by step, Casey. So the loan yields have generally held in there pretty well. We have a -- obviously a portion that reprices with lower rates that are variable that the -- we have the issue of mixing these. So as Luis said, taking off 3.25% loans and putting on 4.5% or 5% or a little more than 5% loans. You have the borrowing costs going down, so we're repricing some of the borrowing costs we have. And then anomaly, the most fungible is the deposit cost. So again, we're being disciplined about driving those down. So we're comfortable in the range, probably -- comfortable with two rate declines, really comfortable. Third rate decline may really push up against the 3.20%. So it depends on how many rate cuts there are, but that's kind of how we think about it.

Casey Haire -- Jefferies -- Analyst

Okay. I mean I guess -- I mean, if I think about it, like the one missing ingredient here has been the deposit growth. I understand that munis went against you this quarter. But what -- if I heard you correctly, Jack, you're not going -- the 100% loan-to-deposit ratio is a hard ceiling for you. So if that would presume, given your loan growth guide, that deposits are really going to ramp up here, so just what's underlying that confidence? And then to the borrowings, what is the -- is that going to continue to run down? And what is the replacement rate versus that 2.50% level?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. So I'll take the first part. And I'll let Luis do the second part, on the borrowings. So the first part of this is we have -- what we build in the Company is many sources of deposits. So if you think about it, in the consumer bank you have the -- through financial centers you have a certain deposit mix, a certain deposit volume, and at a certain rate and a certain longevity of those deposits, same thing in the commercial side. And the commercial side is even more broad in the different sources you can go to for funding the different costs with different volumes.

And frankly, we've been experimenting with some online functions that again have different volume-rate mixes along the way. So we're pretty confident that you can go to different parts of this to get different funding at different prices. Again, in the sequence where rates decline and where you're holding your line on your core funding you have some flexibility to go out and pay for certain other types of funding to support the asset growth.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

I would not characterize 100% as a hard ceiling. That's -- when Jack, when we referred to 95% to 100% loan-to-deposit ratio, that's the long-term target that we want to run the business at, but we have plenty of liquidity and excess liquidity available to us to -- for a period of time, if we have to, we find and identify good loans that we want to originate or a good portfolio that we want to purchase. We certainly have more than the ability to operate at a slightly higher ratio than that for some time. So this is, I mean, I don't think that you should come away from this saying, if it's a 1.01% [Phonetic] for a period of time, that we would not book loan growth, again, assuming that there's good loan growth and that increases to the long-term strategy of diversifying the portfolio, I think you need to build out the commercial businesses. So our ceiling shouldn't really be a way to characterize that. Now the intention is, long term, it is to maintain that funding profile somewhere between 95% to 100%. And as Jack was alluding to, we are a -- we have a bunch of different channels that we're using to originate deposits. That includes the financial centers. It includes work with the commercial banking teams. It includes specific investments that we're making in various verticals, including legal and property management and not-for-profit. It includes things that we're doing in the online channels. So there's a mixed bag of a -- or a mixed approach and a diversified approach to generating deposits.

Today, where deposit is coming in, it's somewhere between 2% to 2.25%. We have three rate cuts that's going to be at a lower -- a number that's substantially lower than that. And we -- three years ago, we were in a world in which a good commercial account, high-balance commercial account, used to cost us somewhere between 50 basis points to 75 basis points. And in today's world that costs us 2.25%. So there is -- as I said before, our commercial banking teams are going to earn their keep, and we truly are in a decreasing rate environment. And we are going to essentially have the ability over the course of 2020. So if there's two, three rate cuts this year, the costs of deposits on -- especially on the commercial side of the house, will decrease. So there's going to be a lag to it, but it's going to decrease pretty significantly once rates -- once competitors and market dynamics start moving in on that direction. We're pretty confident with that.

Jack L. Kopnisky -- President and Chief Executive Officer

Do you want to talk about borrowing costs?

Casey Haire -- Jefferies -- Analyst

Yes. Okay. And just -- yes -- sorry. Just last one for me. And so the runoff, the multi-family and the mortgage buckets. The runoff was very slow this quarter. It was, I mean, only $30 million. I'm just -- so just some color as to what happened in the quarter. And do you expect that to accelerate going forward?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Yes. So there's a nuance that you have to factor in to that $30 million. The -- remember that we had held -- we had a bigger proportion or a bigger number of loans held for sale at the end of 3/31, which was the remnants of the residential mortgage book. When we started seeing the decreasing rate environment, and the acceleration in prepayments, that we decided to essentially retain those loans. And we moved those back into loans portfolios. So in total, the runoff is actually pretty much exactly the same as like what we saw in the first quarter. So it was roughly about $250 million -- just over $200 million in total. So if anything, with decreasing rate environment, we actually anticipate that there is going to be faster prepayments in both residential mortgage and in the multi-family book. So we've been guiding to about $600 million of total runoff. That's still a pretty good number for the year, and if anything, we think that it might actually exceed that by $100 million or so for the back half of this year.

Casey Haire -- Jefferies -- Analyst

Got you. Thank you.

Jack L. Kopnisky -- President and Chief Executive Officer

Thank you.

Operator

And next we'll hear from Arren Cyganovich with Citi.

Arren Cyganovich -- Citi -- Analyst

Thanks, Jack, you mentioned in the kind of prepared remarks the opportunities you see in commercial loan growth, and you mentioned associated funding. Is that -- what associated funding were you referring to, just the deposit growth? Or are there other avenues that you're looking to fund the commercial loan growth?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. No, it's primarily deposit growth, but we are looking at other channels. So it's really core deposit growth from retail, commercial and, frankly, some of the online functions that we're experimenting with. But we're looking at other things. So part of the M&A things that we're looking at are also deposit functions. So that -- and there's a variety of things in many of the verticals that Luis touched upon, so there are some opportunities along that path also.

Arren Cyganovich -- Citi -- Analyst

Yes. And then in terms of M&A, are you finding any opportunities or open to opportunities on a broader M&A more strategic beyond just the portfolios that other banks that might be available in the market?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. It's an interesting time for bank M&A. I -- my experience is there is a lot of banks that are interested in talking about potentially selling. They're talking about potentially selling at pretty favorable prices. I -- my view -- again, we've been doing this for a long time. This is an interesting environment where there are more banks that want to sell than there are buyers of banks, and the pricing for the banks that are interested in selling are better than they have been in the past. So we're looking at that. And again, we look at bank M&A to create more funding, primarily.

A normal outgrowth of that is that you get cost saves, and a normal outgrowth is they -- that they have some good practices that we can apply to the combined company going forward. But -- so there are an awful lot of conversations we've had with folks. I probably had more conversations in the last three to six months than maybe a lifetime, over that period of time, but folks that are interested in talking. Now doing is -- actually making things happen is something separate. But there is an awful lot of opportunities at seemingly better prices along the way. And so there are -- we're continuing to look at those opportunities.

Arren Cyganovich -- Citi -- Analyst

Okay. Thank you.

Jack L. Kopnisky -- President and Chief Executive Officer

Thank you.

Operator

And we'll move on to Alex Twerdahl with Sandler O'Neill.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Hey, good morning, guys.

Jack L. Kopnisky -- President and Chief Executive Officer

Good morning, Alex.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Just first off, back to margin. I'm sure you guys are sick of talking about it by now, but what would have to go right to get to 3.30% on the margin in the back half of 2019?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

I think first and foremost would be a we are successful in executing on a decent-sized acquisition opportunity, that it has the types of yields in the various diversified commercial asset classes. That would certainly help. Second, it's going to be the progression of the how fast is the beta going to be on potential reductions across the board from both consumer and commercial deposits. But I think that there's a -- again, as long as we continue to originate diversified commercial loans, and we find -- or we find acquisition opportunities to generate diversified commercial loans that are fixed rate, with good credit spreads heading into this type of -- we can fund those with liabilities that are going to have favorable betas and great dynamics in the back half of the year. There's a path to getting to the high-end of that range. So 3.30%, I don't want to minimize this by saying that it's not a layup, but we don't consider it a layup. But we do see a path to getting there if we are successful in getting some of these pieces of the puzzle to work and come our way.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Okay. And then assuming that we get a rate hike in a week and another one in September, and potentially one early next year, how do you think about the margin heading into 2020? Like are you ready to be able to give us some sort of a range? Because I think at this point investors are probably looking more 2020 EPS than the back half of 2019, anyway.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Well, so I'd tell you that -- so I think that it's a little bit early to tell, but I do think that, if we are -- sort of we're back into a world. And I think about it more from the perspective of the steepness of the curve, right. And so we're -- where we stand today with two to 10 spreads where they are and you compare that -- and two to 10 spreads where they were three or four years ago, and then you compare with our core NIM, excluding purchase accounting was back then versus where it is today. We've stayed pretty neutral. We've always operated somewhere between 3.10% to 330-ish, 3.35% or so. And we operated at the high-end of that range when the steepness of the curve was closer to 100 basis points to 125 basis points versus where it is today.

So we are in a world in which we're going to now be in a decreasing rate environment. And you see a decrease in the short-end of the curve of, call it, 50 basis points, 75 basis points and, over a longer period of time, even more so than that. When you start getting to those types of spreads between the two and the 10, I think that we can -- again, we're pretty neutral. We can start hitting the higher end of that range. And we get a little bit of help from the perspective of being able to put -- get five -- really get compensated or paid at least on a relative basis in originating five, seven, and 10-year assets both in the securities book and in the loan portfolio. So I don't think that it's a major difference or that you'd see anything too different relative to what we've operated historically, especially if we come back to a more normalized rate environment within a little slightly steeper curve.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Okay, thanks for that. And then your comment earlier, Jack, about not anticipating any more residential loan sales, would that change if you landed an acquisition of some sort?

Jack L. Kopnisky -- President and Chief Executive Officer

Well, if you do a bank acquisition, sure, you remix the whole balance sheet again. So you reset that. But as -- what we see today based on what we're doing today, I would say that's -- my statement is correct. But all bets are off if there is a meaningful M&A transaction.

Alex Twerdahl -- Sandler O'Neill -- Analyst

But if you landed like a $0.5 billion or $750 million commercial finance acquisition, you would try to fund that as deposit growth, as opposed to left side of the balance sheet?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Deposit growth over time, but there would be a component -- we still have a fair amount of assets that are pretty low yielding in both the securities book and the loan portfolio, so there'll be the ability to do a little bit of a mix of both.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes, which we're actually trying to drive down our loan-to-securities percentage too. Our securities level [Speech Overlap] yes -- are a little bit too high on a percentage basis. So we have lots of liquidity to take lower yielding securities off and kind of fund it.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Okay. And then just final question for me. Can maybe just give us a little bit more color on what's going on with the substandard loans? I recognize there's a lot of choppiness in there, but it does seem like substandard. And you attributed to some, I think, ABL loans this quarter. Maybe get us a little more comfortable that there's nothing working behind the scenes that we should be worried about.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. The biggest thing I think you all -- everybody is worried about is there's some big number out there that's going to hit the wall, and that's not the case. So if you think about it, the NPLs and delinquency levels are about the same as they were kind of a year ago. From a very macro standpoint, we're very comfortable with the collateral mix and loan-to-value. So again, on the commercial real estate side, we have about a 48% loan-to-value on the entire portfolio and about a 1.60 debt service coverage.

On the total C&I portfolio we have -- about 97% are secured within margin of accounts receivable, inventory or equipment. Now all that said, there will always be one-offs that'll go out. ABL especially is one that it's monitored credits. So we know what the collateral value is. So if there are losses, they are 10% of the total rather than 100% of the total or something like that, 10% to 20% at the most. So we're very comfortable with where it's at. There are no negative trends in any of the portfolios that we see. Charge-offs were very comfortable with, where we're at on the charge-off ratios also. So that's how we think about these things. So no negative trends. And we think the charge-offs will continue to be low in a very moderate range. The ratios are not much different than they were a year ago. And from a macro standpoint, the collateral oversight on these things are pretty strong.

Alex Twerdahl -- Sandler O'Neill -- Analyst

Great. Thanks for taking my questions.

Jack L. Kopnisky -- President and Chief Executive Officer

Thank you.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Next we'll move to Steven Duong with RBC Capital Markets.

Steven Duong -- RBC Capital Markets -- Analyst

Hey, morning, guys.

Jack L. Kopnisky -- President and Chief Executive Officer

Good morning. How are you doing?

Steven Duong -- RBC Capital Markets -- Analyst

Good, thanks. So just first off, just a technical question on your loan growth target of $2 billion to $2.5 billion. Is that off of a $19.1 billion base that you used in a prior guidance?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Correct.

Steven Duong -- RBC Capital Markets -- Analyst

Okay. Great. And then just your -- on your capital target, your TCE. You have it at 8.25% and you still have 8.3 million shares to repurchase. Can you just walk through how this -- the math on this given that you repurchased about 4 million this quarter and your TCE ratio went up?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Yes. So we're -- the 8.25% is a long-term target. And based on where we are today from an internal capital generation and how we've been managing some of that runoff or the balance sheet growth based on the runoff that we've seen in multi-family and residential mortgage, we're not going to get to the 8.25% even if we bought back the entirety of the 8.5 million shares by the end of the year. It's unlikely that we're going to get back to the end -- or the kind of organic -- on a stand-alone basis, we're going to get back to the 8.25% by the end of this year.

What would potentially get us there faster is, if we actually exceeded that loan growth either through better organic or greater organic origination or as we found, again, one of these and we're able to execute on one of these portfolio acquisitions opportunities soon or in the second half of this year. We're going -- subject to market conditions, we're going to continue being active on the buyback front. To your point, we bought a lot of shares. We bought 4.5 million shares this quarter. And our TCE ratios and our regulatory capital ratios increased again. Part of that increase in the capital ratios is the fact that this is the first quarter where you see a true, full impact of the loan portfolio sale of $1.5 billion that we sold last quarter. And so therefore, average earning assets were lower this quarter, and risk-weighted assets were lower -- or average the -- return on average ratio purposes, average total assets were lower this quarter than the next. We don't anticipate that that's going to -- or that capital formation isn't going to be as significant in the following quarters as it was in the second quarter because we do anticipate seeing some balance sheet growth in the second half of the year. But unlikely we get to 8.25% by the end of this year, but we will continue to be active on the buyback front. And once we used up this 8.5 million, we will review with our Board potentially reupping that and continuing to be active, again if prices make sense.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. Thanks for the color. So maybe if we just move on that, looking on to 2020, is there any reason why you wouldn't do a comparable buyback that you've done this year, that you're expected to do this year?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

There is no particular reason. There wouldn't be a definitive reason as to why we would not do it. As we've always said, we're pragmatic about the world. To the extent that we find investment opportunities to redeploy that capital and to generating 17% and 18% plus ROTCEs like we generate today, we will do that. We will turn up the buyback if we found them. To the extent that we don't find special opportunities to do that, then we will continue to buy back shares. More than likely, based on what we see out there today, it's going to be a combination of both. And I think that, as we think about the world, we're going to see a kind of same type of commensurate level of growth, especially in the commercial side of the house, in 2020 as we've seen this year. And that is going to leave us in a place where we're going to more than likely be actively buying back shares as well, maybe not to the same degree of the 20 million plus that we will buy this year, but we're still going to have a likely meaningful buyback activity given the internal capital generation that we create today.

Jack L. Kopnisky -- President and Chief Executive Officer

The thing about it, the sequence of things. Our view is the best use of capital is investing it into our business. And frankly, we think we've done a pretty good job of delivering the right returns over a period of time when you invest back in the business through organic or M&A. And if those opportunities aren't there, then buying back shares and kind of controlling that destiny makes sense to us too.

Steven Duong -- RBC Capital Markets -- Analyst

Right. Thanks for the color there. And then just moving back on the NIM again. So the $2.5 billion, what's the borrowing cost on the borrowings that's $2.5 billion that's coming off at the end of the year? And what's the current rate that -- margin rate for these borrowings?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Today, the difference between those two numbers is approximately 25 basis points to 30 basis points. So things that are rolling off are 25 basis points to 30 basis points higher. We are in a three rates -- rate cut scenario from here to the end of the year. That number is going to increase substantially from that 30 basis point difference. And so that also depends, Steven, on depending on how far out you go. We've -- we, by design, had stayed relatively short. And that's why, out of $3.7 billion, we have closed to $2.5 billion. So more than two-thirds of that comes due. We had purposely stayed short, trying to not anticipating or trying to play rate games, but thinking that there could be a chance where rates would not continue to hike. And so therefore, we did not go out on the duration curve on that.

Now we will have the same type of decision that, based on if you stay in overnight money versus three or six, nine months or one year, going out to three years, you can actually borrow today at better rates on the FHLB three years, almost five years or seven years out relative to what you can do on the overnight. So the good thing is that the lower rate. And we're going to have the ability to reprice a substantial chunk of that in the second half of this year, with the balance of that other $1 billion-ish or so or $1.5 billion being repriced in the first half of next year. So we're going to have a bunch of bites at the apple there, but it's about 30 basis points, yes.

Steven Duong -- RBC Capital Markets -- Analyst

Great. Thank you. And just last one. If -- let's just assume that if there's a rate -- the 25 basis point cut in July, and that's the only cut for the third quarter, do you expect your core NIM in -- to move below the 3.22% from this quarter?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

If it does, it would move slightly. We don't envision that, that would have a major impact short-term, the bigger impact is going to be what happens with longer-term loan origination yields and how -- and what's going to be the difference between asset that roll off longer term versus assets that roll on. Near term, I don't envision having that big of an impact because we have about $5 billion or $6 billion. So we have about $5 billion of asset that reprice on the short end of the curve. And obviously, prepayment activity and repayment activity will have -- or acceleration of prepayments could impact that number. But conversely, between borrowings, broker deposits and then just some higher-cost funding liabilities, we have a similar percentage. So we could -- we should be able to -- again, we're pretty neutral and we should be able to withstand that relatively well, but if it's only one cut, that would likely have a slight -- there's definitely a chance that we could be slightly below that 3.20%.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. I appreciate. Thanks, guys

Operator

And next we'll hear from Collyn Gilbert with KBW.

Collyn Gilbert -- KBW -- Analyst

Thanks. Good morning, guys.

Jack L. Kopnisky -- President and Chief Executive Officer

Good morning, Collyn.

Collyn Gilbert -- KBW -- Analyst

Two just quick housekeeping items, and if you guys covered this at the beginning, I apologize. But Luis, what was -- what's your outlook for accretion income? I mean, are you still holding in your prior guide of that $75 million to $80 million, or does that change at all this year? And then just your outlook for next year on that too.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Based on the acceleration of prepayment activities that we've seen on the resi and multifamily side, it's probably going to be a little bit higher than that, but I caveat that by saying that there's always some uncertainties surrounding that number. So that $75 million to $80 million, if you think about what we've done in the first half of this year, which is closer to -- between the first and the second quarter, we were running at about just over about $45 million year-to-date. There's definitely a path to having that $75 million to $80 million be closer to $80 million to $85 million. So it actually moved that up by $5 million. And again if we continue to see a decreasing rate environment where you start seeing greater prepayment activity, in particular on the multifamily side, that number -- there is a chance that, that number could be higher than that.

Collyn Gilbert -- KBW -- Analyst

Okay. And then just how much of that drops off next year with CECL and just...

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Not a big -- so not a big change relative to next year because this is essentially more so of acceleration of long-end tails that would come in. And so for next year, with the guide that we provided before of closer to $35 million to $40 million, we still feel pretty good. Because again this isn't necessarily that -- this is usually longer-term loans that would have a longer tail to them. And the accretion that get accelerated back the -- and plus, that tail kind of accelerates into next year as well. And so this -- I don't think this would have a big impact relative to the guide that we provided for next year. If that changes, we will definitely let you know.

Collyn Gilbert -- KBW -- Analyst

Okay, OK. That's helpful. And then just any change in the provision outlook?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Not right now. We've been right at around $10 million to $12 million in quarterly provision for the past six or seven quarters. And we envision that that's going to remain. We -- obviously we've seen some questions here on some of those substandard credits. We feel very good about those in the sense that we're well collateralized. We've got accounts receivable and equipment and in some cases enterprise value that are protecting our interest there. And we're going to collect our money back. And any charge-offs that we see there are -- we think, would be very manageable and should not have a disproportionate impact on the reserve based on what we're seeing today. So $10 million to $12 million is still a pretty good number.

Collyn Gilbert -- KBW -- Analyst

Okay, OK. And then on the loan side, so the jump in construction this quarter, can you just talk about that and kind of what your outlook is for construction going forward? [Indecipherable]

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Everything that we're doing -- yes. No, we have not covered that. That's a good question. Everything that we're doing in the construction side is connected to our low-income housing credit investments, tax credit investments. So it's a very niche-y component of construction. This is not high-end construction projects. This is not residential or traditional residential construction or retail construction. This is entirely tied to our low-income housing tax credit business, which is in an asset class that we like a lot where we find very good risk-adjusted returns and where you can have other -- actually also tax efficience.

So they're actually tax free. So the yields are very good. The credit is very manageable. And as long as you're working with good developers -- in many instances, we are our own takeout because this is part of the equity -- the tax credit equity investment that we make. So once the construction -- we fund the construction loan. The construction project occurs. And once it's reached its completion, we actually take ourselves out because we also hold a commitment from a tax credit equity investor perspective. So we are -- we like that business a lot. You're not going to see the same type of growth that you're seeing quarter-on-quarter. It's going to be a little bit choppier, but that is going to be a line item that's going to increase. But again it's not traditional construction. It's completely concentrated in low-income housing.

Collyn Gilbert -- KBW -- Analyst

Okay, OK. That's very helpful. And then can you just remind us what the outstanding balance is of New York City rent-regulated multi-family loans?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

So the rent-regulated multifamily loans. So we've got $4.7 billion of total multifamily. About $1.5 billion of that is co-ops. The remainder of that is kind of traditional multifamily loans, so call it $3 billion to $3.25 million or so. Out of that amount, about $850 million of them have some form of free-rent type of unit in them that would potentially be impacted by new legislations on rent. The rest of it is rent stabilized, rent controlled in its entirety.

Collyn Gilbert -- KBW -- Analyst

Okay. And then do you just happen to have what the LTVs would be on that $850 million?

Jack L. Kopnisky -- President and Chief Executive Officer

That's 45%.

Collyn Gilbert -- KBW -- Analyst

Okay, OK. And then just finally, Jack, a question for you. I know you'd said in your comments that you guys are still committed to your performance and growth targets, and the like. Just obviously given the environment is changing quite rapidly, I -- how do -- how should we think about -- kind of I know you said in the past like a 10% EPS growth target. Should we -- is that kind of -- now be kind of a little bit more of a longer-term target? Or just kind of just curious to see your kind of broader views on where you think that can go.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. We think -- things like the ROAs and ROTCEs and the efficiency ratios. I think we're still very comfortable at the 150, 17% or 18%, 40% on that. The EPS, depending on the mix of what we're doing, it has to be a long-term, a more long-term one on the 10%. So we think we can get pretty close to that, but this is more -- in the near term, it's more kind of 7% to 10%. We believe that, over the cycle, we're -- we'll get back to 10% or more. And part of that is -- part of the point that you all may see, we -- what we've done the last two quarters is we really reset the balance sheet. So you'll see lower year-over-year EPS. Now that we've kind of reset it by selling off and changing this thing, we should be able to begin to accrete back incremental EPS growth for the remainder of this year and into 2020. So unfortunately, we live quarter by quarter on these calls, so everything is in a micros piece. And if you look at it over a period, that's what we've really done. We've really reset the balance sheet based on what we bought and the last acquisition and all those things. And now it really does position us well to go beyond and continue to more accrete EPS along the way.

Collyn Gilbert -- KBW -- Analyst

Okay. That's why I use the term broadly, Jack, to...

Jack L. Kopnisky -- President and Chief Executive Officer

I know.

Collyn Gilbert -- KBW -- Analyst

I appreciate the resistance to like look at it on a microcosm of a -- but anyway. Okay, all right. That's all I had. I appreciate it. I'll leave it there. Thanks, guys.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. By the way, you said two questions. You ended up with six questions, so...

Collyn Gilbert -- KBW -- Analyst

I -- shocker. I never can do anything in short version. Sorry.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

I know. Quite stunning, the -- thank you.

Collyn Gilbert -- KBW -- Analyst

Sorry, thanks.

Jack L. Kopnisky -- President and Chief Executive Officer

Thank you.

Operator

And next we'll move to David Bishop with D.A. Davidson.

David Bishop -- D.A. Davidson -- Analyst

Hey, good morning, gentlemen.

Jack L. Kopnisky -- President and Chief Executive Officer

Hey, David.

David Bishop -- D.A. Davidson -- Analyst

Jack, I'm just curious. The -- you've maintained the target maybe a little bit. Is it inflationary pressure on the expense outlook there? Second quarter, it looked like there might be some unusual charges. I don't know if you can -- if that's the case, there's something in there that looks like maybe, I will say, unusual or nonrecurring from the second quarter perspective.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. We had a couple operational losses in the $1 million to $2 million range that, frankly, we screwed up on. So we had some issues with some fraudulent wires, some operational losses, things like that, but we're pretty comfortable that those are nonrecurring. But there are a number of items in that, that we -- again, it's kind of those quarter-by-quarter things we had to deal with and, frankly, clean up. So yes.

David Bishop -- D.A. Davidson -- Analyst

And did I hear you right, I think, on the preamble? It sounds like you maybe probably expanded, a little bit more on the -- on a risk management side on the credit side of the house. Is that correct? Did I hear you right from the opening comments?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes, yes. It's a good pickup. One of the things, one of the fun things about this company is we've continued to evolve the company. And as the company gets bigger and more sophisticated, we've tried to always be ahead of the curve on enterprise risk management. So we've brought in a number of really terrific folks to make sure that we can monitor and manage in a very sophisticated way. You know what, part of our underlying success has been we've had very, very strong enterprise risk management foundation into the company. And again as the world gets more sophisticated and complicated, we need to always be ahead of the curve on that. So we've been able to attract a ton of really high-performing folks into the company across the board but specifically in the credit risk area.

David Bishop -- D.A. Davidson -- Analyst

Got it. And then circling back to the discussion in terms of the funding side here. I know you guys have laid out a pretty aggressive plan to shut or -- additional financial centers there. Has there been any impact have you seen at all from a funding side? In terms of attrition, have you lost any accounts? Or there's been a little bit more attrition as of late than has been the trends historically.

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. No, the -- as we've consolidated financial centers, our experience is better than the -- our plan and better than what is norm for that. So if you think about it, we're trying to create a company that has value-added support to our clients. So what happens in when you consolidate, you end up exiting transactional deposits that, frankly, don't have a ton of long-term value. You generally control and maintain once they do have long-term value and are relationship oriented relative to the strategy of whatever bank that they're part of. So our experience has been a little bit better than what we expected and a little bit better than kind of the norm out there. So all of the comments we've made, we factor in the idea that we're at the same time consolidating financial centers, and having -- depending on the type of situation, having some attrition of clients.

David Bishop -- D.A. Davidson -- Analyst

Got it. And then one final question. You noted there could be some runoff, additional runoff, in investment securities. It's a little bit higher than expected. Do you have a targeted ratio there as a percent of assets or earning assets?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

18%, maybe at the low end. 18%.

David Bishop -- D.A. Davidson -- Analyst

Okay, got it. That's all I have.

Jack L. Kopnisky -- President and Chief Executive Officer

Great. Thank you.

Operator

And next, we'll move to Matthew Breese with Piper Jaffray.

Matthew Breese -- Piper Jaffray -- Analyst

Hey, Everybody.

Jack L. Kopnisky -- President and Chief Executive Officer

Hi, good morning.

Matthew Breese -- Piper Jaffray -- Analyst

Good morning. A couple of follow-up questions honing in on your portfolio acquisition commentary. And part of that, that would kind of get you to the high end of the 330 margin range. How would you probability weight your ability to get -- actually complete a portfolio acquisition or at least announce one by the end of the year?

Jack L. Kopnisky -- President and Chief Executive Officer

That's very funny. So...

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Announced by the end of the year. I feel very -- no. I'd say 75% plus there. But it's -- again, it's listen. We've been patient with that, Matt. So we are confident that there's plenty of opportunities out there. And if it doesn't happen by the end of this year, then there would be other opportunities that happen early next year. But we feel announcing a transaction and -- puts some -- patience is a virtue when it comes to these things, right. And so I don't want to put out there a target that then would force us to do things to hit targets and so forth. We feel very confident being able to do meaningful acquisitions like the two or three that we've done in the last two years. We see just as much opportunity today as we did a year ago, and one -- and we saw earlier this year. And I -- yes. I don't know about it probability weighted, but I can just tell you that we're very confident in being able to announce and execute on the same types of deals that we've done where we can reunderwrite and we can reserve for front, and where we can feel very confident that we are doing the right amount of diligence and that we have -- that what we are buying meets our credit box and our risk management criteria.

Jack L. Kopnisky -- President and Chief Executive Officer

The danger, Matt, is we don't want -- the M&A stuff happens sporadically. As Luis said, we've done a couple deals every year for the last several years, but the danger is getting you all to put it into your models as highly probable. That's a bit of a problem. So we're trying to be honest and straightforward. We don't -- to not mislead or go too far on these things. So we -- there are -- as Luis said, there's plenty of opportunities out there. They may or may not work and -- but we're going to stick to our knitting. And we just don't want to get folks too far ahead and then come back and say, well, you thought there was a higher probability of this happening and it didn't happen. And now we're going to underperform relative to what the expectations were out there. So that's the danger...

Matthew Breese -- Piper Jaffray -- Analyst

No, totally understand. I'm just trying to best gauge what I sense as positive body language around potential portfolio deals.

Jack L. Kopnisky -- President and Chief Executive Officer

That's why we don't do video calls.

Matthew Breese -- Piper Jaffray -- Analyst

The second kind of non-organic whole-bank M&A discussion. It seems like there's a little bit more openness on that front as well. Could you just characterize whether opportunities are solely in or could extend to out-of-market type candidates? And if out of market, what geographies still interest you longer term?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. It's a great question. So Northeast. I -- so the geography that I would tell you for us would be the Northeast. I'm -- we're not -- I, at least right now, don't see any reason to -- from a bank M&A standpoint, to do a West Coast or a Florida. Even though Luis loves Florida, we're not going to do Florida today, but it's really Northeast. And it's interesting. There are opportunities along the way. There's opportunities that you create that may be smaller fill-in. There's opportunities that are lower midsize, and there's opportunities that may be similar-size types of things. So the -- but it would be generally Northeast.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. I also wanted to get a sense for the pipeline sounds strong. What segments of the loan portfolio in terms of pipeline are the strongest? And then could you just give us an update on where your team front stands, how many teams you currently have kind of pushing, rolling the oars here? And then how many new hires have been completed recently?

Jack L. Kopnisky -- President and Chief Executive Officer

Yes. The -- so the pipelines that are the strongest are places like traditional C&I. It's different sectors of CRE. It's public finance. It's lender finance. Those are the strongest pipelines out there, and lots of opportunity out there. We still have 35 teams. What we've done is we've added to the teams, and we feel really good. What happens in this model is you kind of refine the teams and you get the right mix and focus and size of those teams. So some of the newer teams that have come in the last couple years, we've now added more people to because they get to a certain critical mass. We found that to be more productive than necessarily going out and hiring five more teams a year. All that said, there are a number of teams that we're looking at right now that are pretty fulsome in some niches that we are interested in. There are some people that we want to continue to add to, especially in those kind of four categories that I mentioned that there are lots of opportunities in.

So we continue to do that. And part of that, the secret to our success also, is we've -- basically are fundamentally taking expenses in consumer and move those expenses over to commercial. So we're not -- that's why we're comfortable with the expense guidance, where we constantly kind of reset the mix that we have. We think there is a certain number, amount of expense capital that you spend on consumer banking and in the niches we're in, in the financial centers, in the markets and online. And we think that there is a increasing amount of expense that you would allocate toward the commercial segments because we think we get risk-adjusted returns that are very favorable, and drive anomaly some of the metrics that we have and the -- and that we've produced over time.

Matthew Breese -- Piper Jaffray -- Analyst

Right. I -- and I think that segues into my last question, which is just trying to square you have this pipeline of financial centers that are going to be closed, 10 of those, three back offices, but if I look at your expense guidance, it's incrementally a bit higher. And so kind of juxtaposing reduced physical footprint with slightly higher expense outlook. Is that to say that the commercial efforts are going to be heavily invested in? But what other areas specifically are you going to put some dollars into to make sure this -- the bank is prepared for 2020 and beyond?

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

So I think that, that might be just a presentation/timing issue, Matt. I think that we are -- that incrementally or slightly higher number that we've provided in the past on the OpEx side is driven for this year. And as I mentioned before, I think that this is more of a -- this isn't a change in what we see the absolute level of OpEx coming to but more so of just the timing of how -- the realization of those saves. As -- again as we said, it's just messy to get involved in the financial center consolidations, reduction of real estate. And head count related to that is always just a little bit choppy in how it happens. And so I don't think that you would see a materially -- or you're not going to see a materially different outlook from an OpEx perspective in 2020 relative to what we've said in the past.

We've been very vocal in saying that we think that we can operate this Company at a $415 million to $420 million type of OpEx number for the foreseeable two to three-year window, and that's going to be where we see things shaking out in 2020. This is more so of a timing of how we've been able to execute on some of these cost savings initiatives, but the absolute level of where we see costs shaking out, that has -- that outlook has not changed. And that outlook incorporates the investments that we're making in back-office process automation and the various systems and technology that we're deploying in the commercial side. It factors in investments that we're going to make on people and hiring commercial banking teams. So that's all inclusive. And again, the expense guide long-term is not really changing. We are going to operate this Company at somewhere between $415 million to $420 million of OpEx longer term.

Matthew Breese -- Piper Jaffray -- Analyst

Great. Okay. Totally understand. That's all I had. Thanks for taking my questions.

Jack L. Kopnisky -- President and Chief Executive Officer

Great. Thanks.

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Thank you, Matt.

Operator

And that will conclude the question-and-answer session. At this time, I'd like to turn the call back over to Mr. Jack Kopnisky for any additional or closing remarks.

Jack L. Kopnisky -- President and Chief Executive Officer

No, just thanks for following the Company. And appreciate your questions, terrific discussion. Thank you.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Jack L. Kopnisky -- President and Chief Executive Officer

Austin Nicholas -- Stephens -- Analyst

Luis Massiani -- Senior Executive Vice President and Chief Financial Officer

Casey Haire -- Jefferies -- Analyst

Arren Cyganovich -- Citi -- Analyst

Alex Twerdahl -- Sandler O'Neill -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Collyn Gilbert -- KBW -- Analyst

David Bishop -- D.A. Davidson -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

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