Investors Bancorp, Inc.
Q4 2017 Earnings Call Transcript

Published: 26 Jan 2018

[Operator:]

Good morning, and welcome to the Investors Bancorp Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. We'll begin this morning's call with the Company's standard forward-looking statement disclosure. On this call, representatives of Investors Bancorp Incorporated may make some forward-looking statements with respect to its financial position, results of operations and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors some of which are beyond Investors Bancorp's control, are difficult to predict and which can cause actual results to materially differ from those expressed or forecast in these forward-looking statements. In last night's press release, the Company included its Safe Harbor disclosure and refers you to that statement. That document is incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the sections entitled Risk Factors, Management Discussion and Analysis of financial conditions and results of operations set forth in Investors Bancorp's filings with the SEC. And now I would like to turn the call over to Kevin Cummings, President and CEO of Investors Bancorp. Please go ahead.

[Kevin Cummings:]

Thank you, Gary, and good morning and welcome to the 2017 fourth quarter Investors Bancorp Earnings Call. The Company and the bank had a solid quarter from a core operating point but posted two non-recurring transactions which impacted earnings for the quarter and year ended December 31. In the fourth quarter we recorded a 49.2 million tax expense to reduce our deferred tax asset as a result of the enactment of the Tax Cuts and Jobs Act signed into law in late December. In addition as previously disclosed, we recorded a $5.9 million restructuring charge relating to severance benefits and branch closure costs resulting from our plan to reduce headcount and operating expenses for 2018. As a result, the company reported a net loss of $4.8 million or $0.02 a share for the quarter ended December 31. Adjusted for these two nonrecurring items, net income totaled $48.2 million or $0.17 a share for the quarter compared to net income of $45.8 million or $0.16 a share for the quarter ended September 30 and $52.5 million or $0.18 per share for the three months ended December 31, 2016. For the year ended December 31, 2017 net income totaled $126.7 million or $0.43 per share and excluding the restructuring charge and tax write-down adjusted net income was almost $180 million or $0.62 per share for the year ended December 31 versus $192.1 million $0.64 per share in 2016. It should be noted that the company recorded a tax benefit related to its stock option plans of $10.4 million in 2016 versus $1.7 million in 2017 which relates to a change in accounting for these benefit plans starting in 2016 with the adoption of ASU 2016-09. Despite all the noise for the quarter, it was a strong quarter with net interest margin expansion, continued expense control, strong deposit growth, and asset quality remaining strong. The bank continues to execute on its strategic plan. We posted improved core earnings for the quarter ended December 31 compared to the prior quarter through organic growth, stock buybacks and dividends and maintaining a strong credit quality we have leveraged our capital in a prudent manner. Our tangible capital ratio at 12/31/17 is 12.1% down from 19.7% in June 2014 when we completed our second step. Despite some headwinds due to our regulatory BSA and AML issues, we have finished the year 2017 with momentum as we keep a watchful eye on our operating expenses and manage our growth with respect to our loan mix and concentrations in commercial real estate. In the last two quarters, our loan growth was slower than previous years in the first half of 2017. We finished 2017 with total loan growth of 1,280,000,000 of which 388 million was residential and 892 million was commercial. Our C&I portfolio grew 27% for the year versus 5% for multifamily and 2% for CRE. We continue to focus on business lending as it enhances our yield and gives us a greater opportunity to diversify our credit risk and bringing core deposits to the bank. The CRE business and specifically multifamily business has been very good to us at Investors but as all of you know it is a fiercely competitive business in the New York New Jersey Metro market. During 2017 we deliberately slowed down our production here after two strong quarters of growth in the last quarter of 2016 and the first quarter of 2017. In addition, the transaction market volume and overall economy in the real CRE market in the metro area slowed in 2017 versus 2016 and as a result we posted lower growth for the year of 6.8% in 2017 versus 11.4% in 2016. At December 31 right now our pipeline - our loan pipeline is strong and I'm happy to report we have just signed a purchase agreement to acquire portfolio in the capital leasing equipment segment of approximately 350 million that we expect to close in early February. We have hired a small team of seven leasing professionals located in New Jersey who will bring with them a solid portfolio and many years of experience in the business. We're excited to bring this team on and look to finalize this transaction as part of growing our lending business segment in 2018. We expect to close this transaction in early February. Asset quality remains strong as net charge-offs were $13.7 million for the year and $3.6 million for the quarter ended December 31. Net charge-offs for the year were approximately seven basis points - for the quarter were approximately - for the year were approximately seven basis points and is our fourth consecutive year of net charge-offs being below 10 basis points. On the nonaccrual front, there was an increase in our C&I category due to one loan for approximately $8.1 million which has experienced cash flow issues but is still current at December 31. We are working with the borrower and expect to resolve this issue in the short term sometime later in the first quarter. On the CRE front, our largest CRE nonaccrual loans for approximately $14 million is expected to be paid off in the next two weeks and will be totally resolved with the - maybe a minor charge off of less than 200,000. We have made significant investment in our credit risk management process as we continue to grow and diversify our portfolio and as we move from a community bank structure to a full service regional bank. Our data analytics and loan approval process will be streamlined as the business and credit functions work together to service our growing customer base. Net interest income increased to 174 million, almost 175 million with 2.2% from the previous quarter and our margin has expanded from 287 basis points to 2.9%. Our total deposits increased $480 million for the quarter which resulted in the loan-to-deposit ratio going down from 118% to 115.75% at year end. The market - in reaction to conditions in the market I think we have great momentum and now I’m going to turn it over to Sean Burke who will give little more color on the financial results for the year and the quarter.

[Sean Burke:]

Thank you, Kevin. As Kevin mentioned core net income was $48.2 million or $0.17 per share for the fourth quarter compared to $0.16 per share for the third quarter. Net interest margin expanded three basis points to 2.90% compared to the third quarter as a result of higher loan yields and our liability composition and cost. Excluding workforce reduction and branch closure expenses of $5.9 million, noninterest expenses totaled $103.6 million. Our core efficiency ratio declined to 57% from 58% in the third quarter. Our provisions for loan loss totaled $4.5 million for the quarter compared to $1.8 million in Q3 and $4.8 million in Q4 of 2016. Our core effective tax rate was 35.6% for the quarter as our full-year effective rate of 37% came in lower than our 38% full-year estimate. Loans grew $142 million during the quarter or 3% on an annualized basis while deposits increased $481 million resulting in a decline in our loan to deposit ratio from 118% to 116% at December 31. Our asset quality charge-off trends allowance coverage and capital ratios continue to be strong relative to peers. At December 31, our nonperforming asset ratio stood at 0.61% up three basis points from the previous quarter. Next, I'd like to conclude by sharing some high-level guidance for 2018. We expect 2018 loan growth in the 7% to 8% range. We estimate expenses in the $415 million area which is approximately flat to 2017. We expect full year net interest margin in that 2.75% range assuming three rate hikes in 2018. We expect our tax rate to be in the 27% area. Then lastly and in summary, our 2017 results were negatively impacted by BSA remediation, risk infrastructure build out, tax reform and a decision to streamline our cost structure. Although we are confident these investments in tough decisions will pay off and leave us well positioned heading into 2018 and beyond. Now I’d like to turn it back over to Kevin for concluding remarks.

[Kevin Cummings:]

Good. Sean, thank you. Those adjustments that Sean just referenced to, those nonrecurring items we had a good finish to the year 2017. It was a year of change for the company as we crossed over 25 billion in assets and made significant changes to our infrastructure to enhance our enterprise risk management including BSA and credit risk. We really had to make some difficult decisions during the year but we have positioned the company to do well in 2018, as we have momentum to do the tax law change and stronger economic activities in our markets. A significant portion of our BSA professional expenses are behind us as we continue to monitor our progress to resolve these issues. Our progress has been good and we look forward to moving forward in 2018. The closing of this leasing transaction will give us a good jump start for our loan production in 2018 and the team is excited to be joining the bank at this time. It is a niche business for us. The team is local and it supplements our C&I business is it gives us greater diversification in our loan portfolio. Our adjusted return on tangible equity increased from 5.98% in the third quarter to 6.28% in the December quarter. We will continue to grow and manage our operations to leverage the capital and improve return on equity. The tax law change will enhance our earnings in 2018 approximately 30 million for the year. We need to control our operating expenses and continue to prudently grow organically until we can return to the M&A after our BSA issues are behind us. We continue to have discussions with our regulators on these matters and the dialogue is positive. We are cautiously optimistic that the results will be positive in 2018 but if it isn't, it will not be for a lack of effort of our BSA team and risk management group. We continue to be good stewards of capital. Our asset quality is strong. Our efficiency ratio has gone down in the last two quarters and our EPS has been $0.14, $0.16 and $0.17 over the last three quarters. Our trends and metrics are positive and in all fronts operations, headcount, net interest margin and asset quality we see positive trends. Our employees are engaged and out in the community making it difference with their customers. I'm proud of their efforts and the passion that they bring to their jobs every day. Our teams are on the path of continuous improvement with the goal of creating long-term value for our shareholders. Our franchise is growing and our brand is unique and strong in the marketplace. Over the last decade, we have transformed on community thrift into a significant regional bank in the most attractive markets in the country. We’re starting to hear more positive things out of Washington with respect to regulatory issues and its corresponding regulatory burden. Any relief on that front will enhance our momentum in the coming years. Your management team is here to serve our shareholders and bring long-term value. We have a history of performance and look forward to continuing that performance in 2018. I want to thank you for your support and now I'd like to open up the call to questions. Thank you very much.

[Operator:]

[Operator Instructions] The first question comes from Mark Fitzgibbon with Sandler O'Neill and Partners. Please go ahead.

[Mark Fitzgibbon:]

I'm wondering if you could start by giving us a little pricing and maybe some of the details on that leasing portfolio acquisition?

[Domenick Cama:]

The loans that we're bringing over had yields somewhere in the 4.75 to 4.85 range.

[Mark Fitzgibbon:]

And you bought the loans at par?

[Domenick Cama:]

No, a slight discount.

[Mark Fitzgibbon:]

And just a total of seven people came along with it, is that what you said?

[Domenick Cama:]

Yes.

[Mark Fitzgibbon:]

Secondly, it look like C&I loan growth was really strong this quarter, up 8% linked quarter as something. Where is that growth coming from, was it purchased or originated and any particular industries that are driving that?

[Domenick Cama:]

That's all originated stuff originated. We continue to build that team and that team is starting to produce real solid result. We see some concentration in the medical area. We've done some hospitality but it really is spread across a number of different SIC codes.

[Mark Fitzgibbon:]

And then Sean I was curious how you're thinking about balance sheet growth for 2018. I don't think you mentioned that?

[Sean Burke:]

Well we did talk about the biggest driver there Mark which is loan growth and I mentioned that we expect loan growth in the 7% to 8% range.

[Mark Fitzgibbon:]

And then lastly I wonder if you could sort of comment on the State of New Jersey’s plans to open a municipal deposits bank or at least the bill that’s in the Senate there. Any comment on how you think that will progress if it happens, and if it does what kind of implications are there for your municipal business?

[Kevin Cummings:]

We’re not sure how it’s going to progress. It’s been out there for a while. New governor Murphy has talked about it throughout his campaign. I might say that back in 2011 Massachusetts looked at this and did a white paper on it and you know and compared it to the - there is one bank in the country that does it is the Bank in North Dakota. And what goes on in North Dakota is quite different than what happens here in Northeast and Massachusetts, New Jersey. And the conclusion of that white paper back in 2011 when the Commonwealth looked at it was that it’s not a good idea. I think it’s going to be open to a lot of discussion in Congress I was out last night at an event at the Liberty Science Center and was speaking with a senior political state senator and he certainly doesn't report it. It will have significant impact on the community banks here in New Jersey. We’re working with the New Jersey Bankers' Association and talking with this, talking about it and have a group together that’s focused on it. So it’s early on in the process, but it’s been closely monitored by the industry by Investors Bank, by the executive team here and we’re certainly going to be very vocal as we move forward and look at it. I think in some of the discussions we've had, they’re looking at initially state funds because the State of New Jersey banks and most communities banks headquartered in New Jersey don't get any of the state money. So it's all to national banks and even that that's an issue for some of the national bank players. So we’re monitoring it very closely. I don't think it's the number one priority of the new administration; they certainly have other things that they are discussing and acting like the minimum wage. They're talking about legalizing marijuana and talking about tax increases for the people making over $1 million a year. So I think - it’s not at the top priority of the administration, but it certainly a threat that we’re monitoring very closely and will have an impact, but I think it has a long way to go and we are early in the game.

[Operator:]

The next question comes from Collyn Gilbert with KBW. Please go ahead.

[Chris O'Connell:]

This is Chris O'Connell filling in for Collyn Gilbert. So along the kind of same lines as Mark’s question on the balance sheet growth outlook to support that loan growth how do you guys see the deposit growth going and are you managing to that loan to deposit ratio at all?

[Kevin Cummings:]

Yes Chris, we're projecting just about $1.3 billion in deposit growth for 2018 and yes obviously we're managing the loan to deposit ratio pretty closely.

[Chris O'Connell:]

And just to double check the recent portfolio that you guys are purchasing, that's accounted for in your NIM guidance correct?

[Sean Burke:]

Yes.

[Chris O'Connell:]

And then for the operating expenses guidance and can you kind of walk us through the trend or the timing of those expenses just given the expense cost save kind of plan that’s came through in the fourth quarter and then with the BSA and AML kind of professional fees going from consulting towards full time?

[Kevin Cummings:]

Sure, I think they're pretty even throughout the year however, in the first quarter we do expect them to be a bit elevated as a portion of our branch closures and headcount related to that is still in the first quarter results. So, as we move through the second quarter we’ll see a reduction there. Also in the first quarter, we do have snow removal and some wintertime costs that do inflate our expense base in Q1. But looking at the Q2, Q3, Q4 we expect that to be pretty level.

[Chris O'Connell:]

And then finally just on the kind of buyback appetite it’s a little lower this quarter than previously. Maybe can you walk us through the reason for that and your outlook or appetite for that going forward?

[Sean Burke:]

Chris, we are - I think we obviously we look at tangible book value as a determinant of where we think it makes sense to buy the stock back. And we've used a range - a max of 130% to 135% of book in order to tell us where we should max out on our stock buybacks. So to the extent that the stock which is trading above those levels during the fourth quarter, we did not use buybacks as a way to manage capital during the quarter. We did increase our dividend in the fourth quarter and I think we’re still in the early stages of trying to analyze the impact of the tax reform on EPS and then ultimately on tangible book going forward. And so will have some additional analysis to do going forward that will tell us where the right price maybe on buybacks.

[Operator:]

The next question comes from Dave Rochester with Deutsche Bank. Please go ahead.

[Dave Rochester:]

On the NIM, it look like you were able to control deposit costs decently more in 4Q with checking cost actually down. Was just wondering what drove that decline and then if you guys could talk about what you’ve done in terms of any repricing of deposits overall post the hike that will be great.

[Sean Burke:]

Dave we continue to build our non-interest-bearing checking line item that's a line item that continues to build as we build our C&I business. I think you know that in the third quarter we ran a campaign to bring CDs in, we bought in about 800 million at 160. During the fourth quarter we had no active campaigns to high rate campaigns to do that. We have not moved rates I mean we certainly have been in a position to negotiate rates with some municipal deposit customers or large customers here. But for the most part, we have not had any active campaign to - or high rate deposit campaign in the fourth quarter.

[Dave Rochester:]

I guess the one thing you were doing was following that CD campaigns you were trying to work on cross-sell into checking. So was that part of the driver there and seeing that growth this quarter and then the cost decline?

[Sean Burke:]

I would say that that campaign continues in cross-selling so that's happening, but it's - I would say it wasn't the primary driver. The primary driver of the non-interest bearing checking accounts is essentially the fact that we've grown our C&I business and we ask for more deposits and we’re getting them. I mean as that C&I business grows it's bringing more non-interest-bearing checking accounts to the bank.

[Dave Rochester:]

And then with the uptick in the middle of curve here where you guys now pricing multifamily and CRE five ones at this point?

[Kevin Cummings:]

Multi is priced at 3 5/8s and commercial real estate in five year is 3 and 3.25s.

[Dave Rochester:]

It’s 3 and 3.25?

[Kevin Cummings:]

Yes.

[Dave Rochester:]

So just a little bit wider then okay, and then on securities.

[Kevin Cummings:]

Did you say wider or…

[Dave Rochester:]

Yes, a just a little bit wider I guess 8 point?

[Kevin Cummings:]

It’s an 8 above the multi-family rates.

[Dave Rochester:]

And then where do securities reinvest rates at these days?

[Kevin Cummings:]

2.25.

[Sean Burke:]

No actually higher we’re probably in the 2.50 to 2.75 range.

[Dave Rochester:]

Great and then just on NIM guidance what are you thinking for NIM in 1Q given the December hike. And then how much of an impact are you baking in for the rate hikes this year in that 2.75?

[Kevin Cummings:]

So we have three rate hikes built into our forecast and the guidance that we provided Dave. In the first quarter we expect margin compression probably in the order of 6 to 7 basis points. And it's not just the rate hike, you know it was going back to Q - or slightly year where our pricing our multifamily and commercial pricing was a bit lower than what we had it today as we're building our pipeline. So there is a small impact that will come through in the first quarter related to that but as Domenick just mentioned, our pricing has gone back up and so I believe that is really an isolated to the first quarter that magnitude of impact from a rate increase and then it should taper off, so let's call it 5 to 6 basis points for every rate move after that.

[Operator:]

The next question comes from Austin Nicholas with Stephens Incorporated. Please go ahead.

[Austin Nicholas:]

Most of my questions have been answered but maybe just on the leasing purchase this is something that we can see looking forward to this type of purchase and ongoing strategy to grow your nontraditional assets?

[Domenick Cama:]

Austin I would say purchasing is not going to be a main driver of the strategy. This purchase is really done as a way to continue to enhance our C&I business. There was a lot that was good about this particular portfolio. We've looked at a number of them and have turned them down but this one - the team is based here in New Jersey, the assets are not small ticket items. The yields on this are, I'll call bank like and you know in that 4.75% to 5% range. So there was a lot that was good with this especially bringing over an experience teams but we don't see this as a main driver of C&I growth in any way for 2018. Again it's just simply a way to enhance the business. A lot of the customers are locally based, so we think there is some core selling opportunities. So just - Kevin you know used the term of motivating or driving, creating some excitement and that's really what it was all about.

[Austin Nicholas:]

And then Sean maybe in NIM guidance, is there - give us some color on what assumptions being made for prepayment fees?

[Sean Burke:]

So our prepayment fee assumptions are always conservative as we forecast out and you know that's an line item where we don't want to be too aggressive and so generally we're haircutting that assumption moving forward. So without getting into too much detail Austin, I’d say our assumption going into '18 is that that prepayment number is going to be lower than we saw in 2017.

[Operator:]

The next question comes from Brody Preston with Piper Jaffray. Please go ahead.

[Brody Preston:]

Just going back to the C&I growth with the leasing purchase is, is that purchase accounted for in your overall loan growth outlook for the year that 7% to 8%?

[Sean Burke:]

Yes.

[Brody Preston:]

So what would be I guess more - so I guess like maybe the right organic growth is more in the 1.2 type of range?

[Sean Burke:]

Yes, that sounds about right.

[Brody Preston:]

And it seems like - I guess you said the overall NIM guide for the year was 2.75 with the three rate hike assumptions. I guess maybe that's a little bit lower than the NIM contraction you saw this past year in which we had three rate hikes. So sort of implies more balance sheet neutrality. I guess is the largest driver there, going to be more of an emphasis on C&I?

[Sean Burke:]

Partially I’d say that is part of it. The emphasis on C&I but there's another component that looking at 2016 prepayment fees, they were substantial and there was a drop off into 2017 and we're not going to experience the same drop in 2018. So there was a significant drop from 2016 to 2017 in prepayment fees that contributed to margin decline.

[Brody Preston:]

And I guess with a little bit - with the emphasis being a little bit more on C&I, are you expecting provisions to increase a little bit more than historically?

[Sean Burke:]

Not increase relative to historically I have seen street guidance in terms of what's forecasted out there by the analyst community and I wouldn't disagree with the number and the figures that they have forecasted.

[Brody Preston:]

And you said it was 3 and 58 for multifamily, correct?

[Kevin Cummings:]

Yes.

[Brody Preston:]

Is that up or down or flat from where you guys had it throughout the fourth quarter?

[Kevin Cummings:]

Up.

[Brody Preston:]

So you are seeing some ability to pass through I guess through the back up in the yield curve that we've seen.

[Kevin Cummings:]

Yes.

[Brody Preston:]

And are experiencing I guess maybe, you said, but are you seeing better transaction volumes in the market in the first quarter relative to the fourth quarter or how is 2018 shaping up so far in about a month into it?

[Domenick Cama:]

You know transactions are up. I think Kevin mentioned in his opening remarks that the pipeline is up and so we are seeing more volume coming through. I see it in our loan committee meetings, the number deals that are there. So yes, the answer is yes.

[Operator:]

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

[Jared Shaw:]

Just on the margin, what are some of the assumptions for deposit beta and deposit mix as we go through the year, because as you're growing the C&A loans and outing the higher yielding leases, it just seems like a lot of compression given that the strength of asset side, just wondering what you're looking at on the liability side?

[Sean Burke:]

On the liabilities side, the beta that we use and forecasting is around 50% all in of total deposits.

[Jared Shaw:]

Including the DDA.

[Sean Burke:]

Well on the DDA front, our non-interest-bearing I guess there is obviously no beta to that, but yet that's included in…

[Jared Shaw:]

That 50% is on the total deposit balance, it's not just the interest bearing deposit balance.

[Sean Burke:]

The mix of those shift continue to shift as non-interest-bearing becomes a largest component of our deposit base as we look to bring in lower cost core deposits through everything that we try to do here. So that will factor into it as well.

[Kevin Cummings:]

And Jared we do use a higher beta on municipal deposit book, but truthfully just while we use a higher beta in our forecast, the reality is that it comes in lower than what we forecast and it's primarily because of the relationships that we build with the municipal deposit customers and the number of services that we provide to them. So it's a bit stickier than the rules tell you it's supposed to be, but we try to be conservative in the way we forecast changes in cost there.

[Jared Shaw:]

And then I am sorry if you said this, but on the leasing portfolio, what type of leases are those? Is that the healthcare that you're speaking of or is that just the general C&I growth that you're seeing was hospitality and medical?

[Kevin Cummings:]

That was general C&I growth, the leasing business is primarily transportation related; railcars, marine vessels just general transportation, trucks, large over the road trucks, that's about 50% of what they do. It's critical capital equipment to these businesses Jared.

[Jared Shaw:]

And was that in a bank portfolio before or was an independent entity that in terms of where you brought that portfolio and team in from?

[Kevin Cummings:]

It was in a bank portfolio.

[Operator:]

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

[Laurie Hunsicker:]

Just wanted to follow back on net interest margin, what is the impact of the tax act on your margin on the 2.75.

[Sean Burke:]

There is really none because we don't have municipal security portfolio and there’s really not much from a tax perspective that's flowing through that that net interest margin line.

[Laurie Hunsicker:]

And then just similar question, on your 8.7 of professional fees how much of that was BSA this quarter?

[Sean Burke:]

2.5ish I believe, I don't have the number in front of me Laurie. I'd have to confirm that but I believe it’s around 2.5 million.

[Operator:]

The next question comes from Matthew Keating with Barclays. Please go ahead.

[Matthew Keating:]

My question is going back to loan growth, you referenced that in your introductory remarks about how 2017 was somewhat of a tale of two halves from a loan growth perspective with - and most of your loan growth being built in the first half of the year. I guess given that experience, what gives you the confidence how you ended the second half that that 1.2 billion are a bit less an organic growth is achievable this year. And where do you see the composition of that growth? Thanks.

[Sean Burke:]

The pipeline Matt is up significantly than it was in the second quarter of 2017, so it's back up to a level that we think is going to drive some more growth. Also the continued focus on our C&I business and the purchase of this leasing portfolio we think will be the main components that will drive our loan growth. Also you know just as add on we did decide to grow our residential portfolio during the year as a way to offset the reduction on the commercial loan side. And for the first quarter of 2018, we’re going to continue that strategy of building the residential portfolio.

[Matthew Keating:]

And I know it's hard to predict with any certainty but would you expect quarterly loan growth being more balance this year versus last year or at least like early quarter you’ll see some growth and internal we’ll have the deal that closes in February. But how are you thinking about the progression of that growth?

[Sean Burke:]

I think it will be a more balance trajectory. You're right the fact that we’re going to bring on the leases in the first quarter we’ll have a bump for the first quarter. But we think it should be pretty evenly distributed throughout the year.

[Matthew Keating:]

And my final question would just be, you mentioned that taxes are going to help earnings by around 30 million this year. I may have missed this but has investors put out any statements around you know any portion of that that might be reinvested in its employee base or its business? Thanks.

[Sean Burke:]

Yes, we have not made any public announcements. Having said that, I will tell you that we are currently evaluating a number of different initiatives that we will consider introducing in the early part of this year, but at this point we haven't made those public.

[Matthew Keating:]

Okay. Thank you.

[Kevin Cummings:]

Yes, just one comment to Laurie's question regarding BSA and the professional fees. It was about 3.7 million for the fourth quarter and almost 21.5 million for the year.

[Operator:]

The next question comes from Don Koch with Koch Investment. Please go ahead.

[Don Koch:]

Kevin I have sort of three quick questions. Can you give us some color or some focus as to how you view these branches, you have this branch rationalization going on. And the industry is very sort of confused as to how you plan to use, how banks plan to use branches in the future. How are you using - and rest of component is sort of acquire deposits and market share and loans. What's your focus on, how do you determine if you close a branch or reopen a branch or what's your system, what's your taught on the branches?

[Domenick Cama:]

Don this Domenick, maybe I can try to help with that question. We have had a very aggressive branch strategy in the past and that’s been primarily because of the fact that we have expanded into new market. And we know just being here in the Northeast that it’s difficult to enter a market that's new where you don’t have any branch presence. And so in our case for example we decided to expand our business into New York into the boroughs, into Nassau and Suffolk County on Long Island. And being in New Jersey bank we felt that it was necessary to put new branches in those markets so people would recognize us and recognize our brand. Having said that, you did notice that we are closing six offices in 2018 as part of our branch rationalization strategy and as we - the main rationalization there or the logic that we use to close those offices was that those branches well within a specific geographic distance from other branches and we felt that we could consolidate those branches safely. And safely what I mean is not losing any deposits when we took that action. As we go forward and something that we're talking about very actively today is to continue to build out our online capabilities. And the reason that we want to continue to build out our online capabilities is we want to be able to give customers a way to do more of their banking online. Because what we believe is that just like we closed branches that are within 2 miles of each other or consolidated branches that are 2 miles of each other, we can probably start to expand that mileage if you will. So closing branches within 5 miles of each other because people will be able to do more business online and won't have the need to visit a branch as often and so having said that I really - I don't believe and this - I read an article the other day that JPMorgan put out basically saying that you still need presence in order to give people a place to go who may have an issue, who may have questions that can't be answered electronically or through a chat room or who’re going to do loan closings or some other kind of business. And so as we move forward we probably will see less branches and that will be in correlation with us continuing to develop our online capabilities for customers.

[Don Koch:]

You said also that you're focusing on the medical, explain your approach on that and are you seeing any light manufacturing coming back into those sort of coastal parts of New Jersey?

[Kevin Cummings:]

Haven't seen the light manufacturing come in yet. On the medical team let me well add a specific focus we do have a team of six people who are out there and we’re doing financing for hospitals and doctor consortiums, some nursing homes. So it's not really a focus but we think it's a good niche business for us. And so we continue to see some positive things coming out of that business.

[Don Koch:]

And last question, your last quarter you mentioned that you had a shopping center issue I guess of Northern Philadelphia area where there is a shopping center that was sort of closing down. Are you having problems, are you seeing the retail side change or improve or is it still sort of these big centers sort of contracting and shrinking and do you have risks there?

[Kevin Cummings:]

The shopping center that you're talking about is in Southern New Jersey it’s in Cape May County I think or Atlantic County I'm not - I don't remember at this - I think it's Cape May County. And it is limited towards - we do not have much exposure to the known entities like Sears and Kmart you know some of the others. But we do have some retail exposure to the extent that we do have it, we think it's pretty well diversified. We have not seen any issues in our own portfolio as of yet. And now we still feel pretty good about it. Having said that, as we talk to developers and people who are in the business what we’re finding and obviously they're reacting to the changes in the market where people are buying more online. They're bringing more service businesses into their shopping centers. Gyms and restaurants and things that or retail establishments that people can't buy online. So there is a whole shift going on there, but I'm happy to say and you can - it will be borne out by our nonperforming loan ratios that we’re doing pretty well in the retail space.

[Operator:]

The next question is a follow-up from Brody Preston with Piper Jaffray. Please go ahead.

[Brody Preston:]

Just a couple of quick follow-ups. The NIM guide of 2.75 that is inclusive of prepayment penalty income, correct?

[Kevin Cumming:]

That is correct.

[Brody Preston:]

And with the branch closures, I know that you have the six that you’re closing down on the first quarter but you previously had, you know somewhat of a de novo strategy going on. Do you plan to open any other branches in 2018 and then I guess what the net number of branch openings?

[Sean Burke:]

I think the number is four.

[Brody Preston:]

So four total new branches being opened.

[Kevin Cumming:]

Yes.

[Operator:]

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

[Kevin Cummings:]

Okay, I'd like to thank you for your participation today. I think the company is focused on its strategic plan. We finished the year with good momentum, two strong quarters and 2018 is looking very strong also. I want to thank you for participating on the call and I look forward to seeing you out in about couple of analysts conferences scheduled for February. Thank you for your participation, and enjoy the Super Bowl. Talk to you soon.

[Operator:]

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