Investors Bancorp, Inc.
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Operator:]

Good morning, and welcome to the Investors Bancorp Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that 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, Inc. may make some forward-looking statements with respect to its financial position, results of operations, and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond 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 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. I would now turn the call over to Kevin Cummings, President and CEO of Investors Bancorp. Please go ahead, sir.

[Kevin Cummings:]

Thanks, Dan, and good morning to everyone. Welcome to the 2016 third quarter Investors Bancorp earnings call. The company and the bank continue to execute on its strategic business plan. The company posted strong loan and deposit growth for the quarter, and recorded solid earnings as we continue to diversify our balance sheet, leverage our capital, and make investments in our risk management infrastructure. Through organic growth, stock buybacks, and dividend we have leveraged our capital in a prudent manner. Our tangible capital ratio, at September 30, 2016, is 13.4%, down from 19.7% in June of 2014 when we completed our second step. Our loan growth for the quarter was strong at $660 million, which is an annualized growth rate of 15%. This organic growth, without an acquisition, has allowed us to continue to post solid earnings while continuing to manage the bank by making investments in our branch franchise, risk management structure, technology, and the business lines as a bank. Earnings for the quarter were $43.4 million or $0.15 a share, compared to $44.4 million and $0.15 a share in the second quarter, and $48.8 million and $0.15 a share in the third quarter of 2014. For the nine months ended this quarter net income totaled $131.4 million or $0.43 per diluted share, versus $137 million or $0.41 per diluted share for the nine months last year. It should be noted that in the third quarter of 2015 the company recorded a tax benefit of $4.1 million relating to a one-time benefit due to an NOL, net operating loss carry-forward from a previous acquisition. Excluding this item, earnings per share increased 7% for the quarter, and 10% for the nine months of 2016 versus '15. At our board meeting on Tuesday, our Board of Directors approved a cash dividend payable in November of $0.08 per share, which equates to a 33% increase from the $0.06 paid earlier in 2016. As discussed many times on these calls, we plan to use these four key levers to maximize return on equity for our shareholders. Organic growth that diversifies our risk and revenue streams, acquisitions that have reasonable earn backs and dilution, stock buybacks, and dividends. During the second quarter we announced our acquisition of the Bank of Princeton, which operates in the Princeton and Philadelphia markets. In August, we filed an 8-K disclosing an informal agreement with our regulator relating to our BSA and anti-money laundering activities and internal controls. We continue to make significant progress in this area, and a new management team is leading the group implementing new procedures and training programs. We are hopeful that our progress in the BSA will allow us to move forward with the Princeton transaction in the first quarter of 2017. But we can give no assurances at this time that such transaction will be completed. We are in constant dialog with our regulators, the FDIC and the New Jersey Department of Banking relating to this matter. And when we feel we've made significant progress has been made. As a result we remain cautiously optimistic of correcting and improving the weaknesses identified in our informal agreement with the regulators. But we continue to plan for the integration of our Princeton acquisition in 2017. Our loan growth for the quarter was strong, and came in at $660 million or 3.7%. Year-to-date, our loan growth was $1.4 billion or 8.3% which equates to an annualized growth rate of 11%. Our growth in loan continues to focus on commercial lending as the total commercial loans increased $650 million for the quarter or 5.3%, and increased $1.5.7 billion [ph] or 14% for the nine months ended September 30. Multi-family was the largest contributor to this growth, with $457 million for the quarter, and $1.1 billion in growth for the nine months ended September 30. Our asset quality remains strong as net charge offs were minimal for the quarter, at $1.8 million compared to $1.3 million in the second quarter. Our non-accrual loans are down slightly for the quarter at $97.5 million versus $100 million at June 30. It should be noted that 88% of these loans are in the residential portfolio and have an average loan size of approximately $180,000. We continue to be conservative with our evaluation of these residential credits as we move them through the extensive legal process that we face here in New Jersey to foreclose on these non-performing loans. On the commercial side, our non-accrual loans total $11.4 million or nine basis points, with a majority of these loans in the CRE portfolio. There was a slight uptick in delinquencies in the CRE portfolio in the 30 and 60-day bucket, and this increase relates to one relationship which we are closely monitoring, which consists of four loans for $21 million which are 30 days delinquent, and one loan for $9.7 million which are 60 days delinquent. These five loans are a part of a larger relationship, but they are very strong tenants. They are a single-tenant, well-collateralized properties with strong national tenants with long-term leases, and have loan-to-values that collectively estimate around 65% LTV. We finished the quarter with our allowance as a percentage of total loans at 1.22% versus 1.25% at June 30 of this year. And our coverage ratio to non-accrual loans was 229% at quarter end versus 220% at June 30. We will continue to be diligent in the underwriting and credit risk monitoring as we continue to grow. As mentioned on previous calls, we are making investments in our enterprise risk management as we transition from a community back to a large regional commercial bank. With respect to our retail branch activities and expansion, we opened five branches in the third quarter, two in Brooklyn and three in New Jersey, in Hoboken, Englewood, and New Brunswick. Deposits increased $526 million for the quarter, with core deposits growing $781 million for the quarter ended September 30. We continue to make progress in our middle market and small business initiatives. We've had success with our de novo strategy as these branches have shown steady growth and market penetration. And just the give you a little bit of history, for the three branches that we opened in the second-half of 2013, these branches currently average $50 million in deposits, of which 90% are core deposits. We opened three branches in 2014, in the latter part of 2014, in May, September, and December. And these branches average almost $40 million. In 2015, we opened eight branches, and these branches average approximately $45 million in deposits. We expect to open two more branches in 2016, and five more in 2017 and early 2018. Business deposits continue to grow, and now total $3.8 billion. These deposits have grown 15% for the quarter. 93% of these deposits are core deposits with an average rate of 28 basis points. We are seeing increased competition on both the deposit in the loan front, but we will continue to expand our franchise and enhance our product offering. We have good momentum in the marketplace. And now I'd like to turn it over to Sean Burke, our CFO for additional commentary on the results of operation.

[Sean Burke:]

Thank you, Kevin. I will be brief. Our loan and deposit growth, as Kevin mentioned, during the quarter was strong both up 15% on an annualized basis. Our loan pipeline stood at a robust 2.2 billion at September 30, which is consistent with the prior quarter. However, our CRE and multifamily pipelines were down at quarter-end. Asset quality metrics remain strong with most metrics continuing to improve. Net income for the quarter was 43.4 million or $0.15 per share. Excluding the impact of a non-recurring securities gain in the second quarter EPS grew 7% on a liked quarter basis from $0.14 per share to $0.15 per share. Net interest income rose 15% from the prior quarter to 160 million, driven by loan growth which was partially offset by a 4 basis point decrease in margin. Prepayment penalty income totaled 4 million for the quarter versus 5.9 million in the second quarter of 2016. The decline in prepaid fees was the primarily contributor to the margin compression in the quarter. Provision for loan loss totaled 5 million, which is unchanged from the second quarter of 2016. Net interest income totaled 8.5 million, a decline of 2.9 million from the second quarter. The primary factors contributing to the decrease were a non-recurring securities gain of 1.6 million reported in the second quarter coupled with weaker financial product sales and fees. Non-interest expenses totaled 91.4 million, an increase of 389,000 from the second quarter. The increase was primarily driven by professional fees related to our risk infrastructure build to support our growth. Our tax rate was 39% for the quarter and lastly we repurchased 6.4 million shares during the quarter at an average cost of 11.59 per share. On that note, I would like to turn it back over to Kevin for some concluding remarks.

[Kevin Cummings:]

Thanks, Sean. It was good quarter, good solid quarter and as continue to execute on our strategic plan we'll not venture from our core business activities. Organic growth and businesses that we know, M&A that enhances our franchise and have reasonable earn backs within a five-year period, stock buybacks and dividends. We're happy to share with our stockholders an increase of 33% to our dividend payout. We're confident with our business plan and believe we're building and investing in our people and our technology to continue to grow and expand our franchise in the New York, New Jersey markets. In the last three weeks we've opened two branches as I mentioned earlier in Hoboken and New Brunswick, and we have great excitement and energy in the bank. With the help of our foundation we are making a difference in the communities that we serve. We are the largest bank headquartered in New Jersey with one of the strongest capital positions of any of the top 50 banks in the country. We have a proven and sustained track record of earnings growth, franchise expansion and strong credit quality. We're committed to enhancing our franchise value and our shareholders and we'll continue to provide the highest service to our customers and communities. We're a unique bank that started not only to be successful but we strive to be significant. We're a significant force in our markets because we're creating passion and a purpose for our employees to make a difference. Investors Banc wants to be a different bank that makes a difference with its employees, its customers and the communities that we serve. If we take care of these constituencies you are shareholders will be well served. I thank you for your support and your continued interest in our company and your investment in our company. And I'd like to open it up for questions.

[Operator:]

[Operator Instructions] And our first question comes from Dave Rochester of Deutsche Bank. Please go ahead.

[Dave Rochester:]

Hey, good morning, guys.

[Kevin Cummings:]

Hi, Dave.

[Dave Rochester:]

You had some solid loan growth this quarter. Can you just talk about what happened in September? It seemed like the growth was skewed to that month, and I know you mentioned the multifamily and CRE pipes are down. If you just tell us where those sit today and how much they were down, that would be great.

[Kevin Cummings:]

Hey, Dave. The third quarter was a strong quarter, and again the business will be driven mostly by multifamily, but I think going forward, and I know talked about 1.5 billion in production to the year, and we've already achieved a 1.4 billion in production, but it really -- it looks like fourth quarter is going to be a slower quarter than historically we've seen. The two pipelines that we look at on the commercial side of both C&I and CRE, and those pipelines are down about 25% from the end of the first quarter in 2016. So we're going to see that start to come through in the fourth quarter and the first quarter of next year. So, in terms of projecting what growth we may have in loans for the fourth quarter of 2016, I am going to go out on the limb and say their number will be closer to 200 million, which is different than what it's been in years -- in quarters past.

[Dave Rochester:]

That's 200 million in total for both of those sales [ph], CRE and C&I?

[Kevin Cummings:]

Yes.

[Dave Rochester:]

Got you. So, is that just a function of you guys closing a lot of loans in September and kind of eating through the pipeline that you had at that point, now you are kind of rebuilding it?

[Kevin Cummings:]

Yes.

[Dave Rochester:]

Okay, got you. And then can you just give us an update on the systems enhancements you are making how far along the process you think you are at this point and then how you see expenses trending next year as those efforts continue and then you are talking about adding another five branches?

[Kevin Cummings:]

I am sorry, you said business enhancements, Dave, what did you mean by that?

[Dave Rochester:]

I am sorry; the systems enhancements.

[Kevin Cummings:]

Well, the investments in the infrastructure continue and we've accomplished a lot of them. In terms of where we see the run rate for expenses next year, we're actually in the midst of our budget process now. I think it's safe to say that expense will trend upwards in 2017 and again don't hold me to the number but we're probably looking at say 8 to 10% increase over the 2016 number.

[Dave Rochester:]

Okay. And I thought 91ish quarter run rate.

[Kevin Cummings:]

The 91 run rate is really more in the latter part of the year. So I would use 360 as a base for the year.

[Dave Rochester:]

Okay got it. And then just one last one, the NIM it looked like the loan yield was generally stable ex that prepayment penalty income this quarter. Are you thinking that will remain generally stable just given where your new loan production rates are overall and if you could just talk about your outlook for the NIM that'd be great?

[Kevin Cummings:]

At least for the quarter I can tell you that we think that the NIM is going to be stable. We are picking up a little bit of benefit on the funding cost about $1 billion of those deposits that matured this year are coming in at a rate that's about 20 basis, 15 to 20 basis points lower than what they will put on at and we're keeping them, we're keeping about 90% of that. So we think that we're going to gain some benefit as a result of funding but you could see that we're really concerned about prepayment fee income. Prepayment fee income will really determine where the NIM. Third quarter we're down a little bit and we're hoping that it comes back in the fourth quarter. So I think from a stability -- just from a NIM forecast standpoint I think 3% is probably a good place to be.

[Dave Rochester:]

All right. Great, thanks guys.

[Operator:]

And our next question comes from Jared Shaw of Wells Fargo. Please go ahead.

[Jared Shaw:]

Hi, good morning.

[Kevin Cummings:]

Hi, Jared.

[Jared Shaw:]

Just following up on the expense question, that 8% to 10% year-over-year; that includes the impact of printing [ph] closing in the first quarter?

[Kevin Cummings:]

No.

[Jared Shaw:]

Okay, so that's the standalone company's expense growth structure?

[Kevin Cummings:]

And Jared, I think we'll be in a better position next quarter to provide the guidance on 2017. As Domenick pointed out, we're right in the middle of our budget process right now. So it's really to try to finish [ph] down on a number right now I think wouldn't be quite fair but I think it will be fair to do that in the fourth quarter.

[Jared Shaw:]

Okay. And then as you look at winding up the investments on the BSA AML front as we're looking the models what are sort of the puts and take in terms of should we expect to see continued headcount hiring there or are you pretty much down with the headcount and could we potentially start seeing those professional fees coming down or those going to be with a little while?

[Kevin Cummings:]

Well, it's a dynamic situation here, Jared, this year we have spent more professional fees than you actually see in compensation where we have hired a number of individuals that have come in sort of midyear. So what you will see happen next year is we will have more compensation in that area as a result of the risk build less professional fees. At least that's the expectation and net, net we shouldn't see too much of an incremental increase. We think from an expense perspective that a lot of the cost has been absorbed, will we have some incremental add, yes but sitting here today and kind of looking at the numbers and what we expect going forward if we have absorbed a big piece of the build out.

[Jared Shaw:]

Okay. And then shifting a little bit onto the M&A side do you feel that as soon as you are done with the diversion of fingerprints at some point in hopefully first quarter that you could be right back in the market looking at another deal or do you feel you have to wait a little bit to roll that in?

[Kevin Cummings:]

Jared, I think it's twofold. M&A really is a two-fold issue that we are dealing with right now. One is obviously the BSA and getting that behind us, assuming that we can get that behind us we still kept to the list two days, have been trading at a multiple which we don't feel is attractive enough to go out and be very active in the M&A market. I mean some of the transactions that have been done over the last six months were really done at levels that frankly we couldn't afford. I think that if you look at where that Suffolk Bank transaction got done, it got done close to two times book and while we find that whole market very attractive and we are building in that market we just couldn't be there at that pricing level. So we need to continue to do the good thing that we have been doing to the balance sheet and growing and hopefully at some point we will start to see our multiple expand and then that will help to allow us to go out and do more M&A.

[Jared Shaw:]

Okay, great, thank you.

[Operator:]

Our next question comes from David Bishop of FIG Partners. Please go ahead.

[David Bishop:]

Hey, good morning, Chairman.

[Kevin Cummings:]

Good morning.

[David Bishop:]

Sticking with the M&A theme, as you sort of look at the Bank of Princeton book here, I know one of your in market peers, as they match up the risk ratings, the grading between the two sets of books here they have been little more aggressive in loan sales and divestitures. As you are going through their loan book, any surprises stand out here or anything that might make you think that loan attrition or run off might be greater than initially baked in?

[Kevin Cummings:]

You are talking about the Bank of Princeton portfolio?

[David Bishop:]

Correct, correct.

[Kevin Cummings:]

No, no change in what our initial diligence told us.

[Kevin Cummings:]

I mean they have had some good growth and some of the credits like in any due diligent process the acquire always is more critical in some of the loans but we don't see anything unusual there.

[David Bishop:]

I was going to just a follow up in terms of the length of loans, any more color you can provide in terms of what's sort of driving this delinquencies and business specific, just economic conditions in general the project conditions just curious, if you can give some more color.

[Kevin Cummings:]

On the specific borrower that I mentioned in the 30 and 60 day bucket?

[David Bishop:]

Correct.

[Kevin Cummings:]

I think he is just, well he is just a difficult person to deal with and negotiations is tough and he wants to refinance the loan and we don't want to give back on the prepayment.

[Sean Burke:]

It's one relationship that we are talking about that's driving all those early stage delinquencies, so it's not a common theme, it's as Kevin pointed out, its one borrower driving those…

[Kevin Cummings:]

And most of the tenants are national banks, JPMorgan Chase, TD, Walgreen, things like that, 65% LTV and it's just really a battle back and forth dealing with the individual borrower.

[David Bishop:]

Got it. One follow-up question, maybe just intra quarter, just curious in terms of the conditions within the commercial real estate market there, just curious to get an update what you are seeing just in terms of lending environment whether it be pricing or structure?

[Kevin Cummings:]

I think, Dave, from a pricing perspective spreads have widened just a little bit in that there has been a lot of concern expressed by the FDI scene. I know they have been around too many of the banks here in the Northeast, you know that's caused some banks to pull back on pricing and structure. So we have seen a much more conservative structures out there, on the other hand, and that's from our peer level. On the other hand we had seen some national banks ramp up their multifamily production and be more aggressive in terms of the types of loans that they would go after. Of course they don't have the concentration issues that many of the Northeast groups have, so they don't have the same concerns. So when you look at the normal landscape of lenders here in the Northeast we have definitely seen some pull back in pricing and in structure and so that actually has caused and there is some concern about the market overall. I was on the phone with a developer last night who said that he is sitting in cash, has been sitting in cash for a few months and that's primarily of where these cap rate levels are. He doesn't think this is a good time to be in the market and that's a conversation that I have had several times and it's been reiterated by several developers over the last three months. So I think what you see now even in the terms of our reduced pipeline are professional developers and real estate people being on the sideline coupled with the FDIC underwriting issues that have been expressed. And I think on the construction side too we have been getting looks at a few transactions that normally because of our pricing we have been a little higher in pricing in the market versus prime plus one versus some of the LIBOR pricing that we lose deals to. Some of these transactions are coming back to us and we are getting second looks at them, and I think some of them larger players are pulling back a little bit in that field too.

[David Bishop:]

Got it, appreciate the color.

[Operator:]

And our next question comes from Collyn Gilbert of KBW. Please go ahead.

[Chris O'Connell:]

Hi, good morning guys, this is Chris O'Connell filling in for Collyn.

[Kevin Cummings:]

Hi, Chris.

[Chris O'Connell:]

Just wanted to see if -- you mentioned that you expect flattish loan growth, going into the back half of the year, whether you guys have had Fed rate hike assumptions in that or not? And how you might see the NIM progressing in 2017?

[Kevin Cummings:]

No rate hike expected, we originally projected that rate hike would be at the end of the month. So wouldn't affect this quarters production but we are looking at about $200 million increase I think we said to the fourth quarter and in terms of NIM guidance we think we are going to be flattish about 3%.

[Chris O'Connell:]

Okay. And then, going into next year, are you seeing any -- you had a good deposit growth quarter this quarter. Are you seeing -- expecting to do any specials with the opening of the branches next year or later this year? Or how do you see the deposit growth and pricing going forward?

[Kevin Cummings:]

Well, we are hoping that we can keep pricing stable on deposits. We do some specials when we open branches but nothing that has a significant impact on of course the deposits, it's really those bigger bank wide specials that have an impact and we have been trying to stay out of that market. In terms of growth, I mean deposits continue to be tough area for us but we are looking probably in the 8% growth area for deposits for next year.

[Chris O'Connell:]

Great. And then finally just, you have an increase this quarter, is there any change in capital priorities, whether be buyback or dividend going forward with the increase, and how Bank of Princeton might affect those dynamics.

[Kevin Cummings:]

Well I think we certainly made a statement in terms of about the way we are managing capital, right? We increased our dividend by 33%. So that's certainly a change from where we have been but nothing -- no change in capital as far as the Bank of Princeton deal is concerned. It's just relatively small deal. And we are just looking forward to getting it done, so that we can continue to grow our franchise in that market.

[Chris O'Connell:]

Great, thank you, guys.

[Kevin Cummings:]

Thanks.

[Operator:]

And our next question comes from Matthew Breese of Piper Jaffray. Please go ahead.

[Matthew Breese:]

Good morning everybody. Sticking with the capital deployment question maybe to ask it another way, given that the dividend increase is 33%, a significant amount, should we expect an offset on the space of share repurchases going forward?

[Kevin Cummings:]

You know, Matt, it could be -- when you look at it, it probably cost us incrementally about $24 million which equates to about 2 million shares. And when you consider that we bought back about 30 million shares so far in 2016, it could happen. Now, what also could happen is that as a result of our dividend payout ratio going up and the dividend going up, we could see our stock start to rise at levels which would then naturally limit what our buybacks would be that is we've always employed the strategy in which we buyback more shares as the stock price fall. So given the higher dividend and given our continued growth, we are hoping that that number as a percentage of book will start to go up and that might limit the number of shares that we buyback. But, just looking at 2 million share with a possibility of doing 36 million this year, it's not that big of a deal to us.

[Matthew Breese:]

Right. And can you just remind us in terms of on the buyback, what levels are attractive to you versus less attractive? And where would we see that tipping point where buyback essentially turn off?

[Kevin Cummings:]

I think probably at around -- between 125 and 130 a book. It depends what's going on in the market at that point in time. But I think we -- when we look around at our peers and we look at where they are trading, we think buying back our stock above I am going to say 130% of book, we could probably do better things with the capital at that point.

[Matthew Breese:]

And then, just one last one on this, how much cash is at the holding company at quarter end? And given the pace of capital deployment versus net income, when does that become a limiting factor?

[Kevin Cummings:]

Good question. So, we have about 400 -- 300-400 million as a holding company. And that will drive some of our appetite for share repurchases because when we run out of cash there, you have to get it from the bank. And we've got to recognize and pay attention to risk appetite and concentration levels and things like that that we have to take in account as we manage the business. So, I think it's safe to say that our repurchase activity in this year while significant, we are not going to reach those levels next year. But in terms of what the exact level is, it's hard –-I will be hard pressed to give you a number right now as we go through the budget process and really had to add it all up into the pot and see where we come out. But going back to the decision to increase the dividend, I think Domenick mentioned that the incremental cost of that is pretty low actually. And when you compare that to the space of share repurchase and what it means in terms of scaling back there if we wanted to offset, it's not that significant. I think you hit on a bigger issue with respected share repurchases where it will start impacting our CRE concentration levels at the bank level, and that we have to really pay attention to.

[Matthew Breese:]

Understood. That's all I had. Thank you very much.

[Sean Burke:]

Hey, Gary, just to follow-up on in the fourth quarter last year when our stock price was in that 1250–1260 range, we purchased probably an equivalent amount of 6 million shares. Some of them we bought this quarter. So we continued when the price went up a little bit.

[Operator:]

And our next question comes from Laurie Hunsicker of Compass Point. Please go ahead.

[Laurie Hunsicker:]

Yes, hi. Thanks. Good morning. Just to stay with Matt's buyback question for a second, as we are looking at this quarter just compared to June and March where you purchased 11 million and 12 million respectively right around same price 1150-1155, why was this quarter slower? Was there any reason, or again were you pulling back by design I think as you referenced even potentially the commercial real estate concentration.

[Kevin Cummings:]

There were a number of days, Laurie, in the month prior to us filling our 8K where we thought that it was prudent not to be in the market buying back our stocks given what that we knew we are going to be filing an 8K.

[Laurie Hunsicker:]

Got it.

[Kevin Cummings:]

So, you get how many days? That was probably 10 business days.

[Laurie Hunsicker:]

Got it. Okay, and then just on the question of commercial real estate concentration, as we look at your slowdown in pipeline, i.e., the down 25%, is any of that regulatory pressure -- is any of that by design?

[Kevin Cummings:]

Well, it's by design given what's going on in the market, given our own concerns about where valuations are, given our concerns about structure. I mean one of the primary reasons why the pipeline is down is because we are limiting how many loans we do with IO characteristics. And we are also limiting how many loans we do at lower cap rate. So those two factors alone is helping to drive the pipeline down, and I would say that's more market-driven and risk-driven here at the bank than regulatory-driven.

[Laurie Hunsicker:]

Okay. And then, just one more question on that, have the regulators given you all any specific ISCC [ph] feedback from the standpoint of our own commercial real estate with it?

[Kevin Cummings:]

Given us any what feedback?

[Laurie Hunsicker:]

In other words, did you give any specific feedback on guidelines?

[Kevin Cummings:]

No.

[Laurie Hunsicker:]

Okay. Okay. And then, just going back over here to De novo branches, you've mentioned that there were five branches that opened in the quarter?

[Kevin Cummings:]

Yes, yes.

[Laurie Hunsicker:]

Okay. Did you have closures because I had a different number? With that five…

[Kevin Cummings:]

During the year, we had two closures.

[Laurie Hunsicker:]

Two closures, was that in this quarter -- go ahead.

[Kevin Cummings:]

Wildwood closed earlier in the year, and then Ellen closed it.

[Laurie Hunsicker:]

Okay. So you had five net branch opening on the third quarter?

[Kevin Cummings:]

Five net? I am not sure.

[Sean Burke:]

No, it might be thinking of that we have any relocations, Kevin? What number do you have, Laurie?

[Laurie Hunsicker:]

I have two.

[Sean Burke:]

Two what? Closures?

[Laurie Hunsicker:]

I have net branch openings for the third quarter. There may be…

[Sean Burke:]

The Hoboken branch was technically opened on October 2nd which is not the third quarter. It's technically the fourth quarter. So, I think we have included the Hoboken branch because it was so close to the end of the quarter.

[Laurie Hunsicker:]

Got it. Okay. Okay. So, right. And that rolls into the fourth quarter. And then, I just wanted a clarification the five branches you said in 2017 and early '18, was that five in '17, and then five more in early '18, or that's five combined?

[Sean Burke:]

Five combined, yes.

[Laurie Hunsicker:]

Okay.

[Sean Burke:]

Yes, three in early -- and two in early 18.

[Laurie Hunsicker:]

Okay, great. And then, just over to the M&A question. I believe when Jared was asking you, so are you inferring that with your stock currency sitting here around $12.5, you are not likely to do another acquisition once you get on the other side of the BSA amount?

[Kevin Cummings:]

I think, Laurie that we have to obviously look at what the situation is like on the other side, okay. When I think about where our currency is at 125 or 120 and I look at what price properties are going for like, for example, that Suffolk Bancorp transaction would have been a wonderful transaction for us from a strategic perspective, but we could not be involved in that transaction obviously because of the pricing. So, again it goes back to the theory of how much dilution would be introduced into company's book value in the event we do a transaction if I am looking at a deal 190 a book and I am only trading at 125, obviously that would be prohibitive from a dilution perspective. So the only answer I can give you is it depends. It depends on what the target looks like, it depends on what business opportunity it brings, it depends on where they're trading and it depends on where we're trading at the time. But once we get through the BSA situation, we certainly would be open to doing more M&A provided that it has the right pricing metrics and return characteristics that we look for when do the deal.

[Laurie Hunsicker:]

All right. And so along those lines, how much in theory, and realize there is a lot of moving parts but how much in theory could you digest? What would be acquisitions appetite and total return on assets you could apply and say at given year?

[Kevin Cummings:]

Oh, I think it's not so much the appetite that you look at is by asset. You have to look at by the number of institutions, right, because you know I can do $1 billion -- I could buy a bank with $1 billion in assets or I could buy a bank with $5 billion in assets and the amount of work that I have to put in it is probably the same. And I would think that assuming we can get a deal done in the first quarter of 2017 that would probably would have an appetite for one more in '17 given that it came to us and we could get it closed by mid-year because as you point out there are a lot of moving parts. So it's not an asset driven equation. It's more fewer number of banks and timing as to when you get those deals done. And I think, Laurie, if you look at our history now in the 8 transaction we have done, we have done like for example the normal transaction closed in December of '13 and the GCF transaction closed in January of '14. Those two transactions were about 2 billion in deposits. Integration went very well. Deposits are up in both of those franchises and we've executed on those transactions very well. I think if you look back even further, we did the Brooklyn transaction and the Marathon transaction in the same year and even before then, the American transaction and the Bank of Popular [ph] and what we have on each community bank acquisitions, I don't have the numbers in front of me, but our deposit and core deposit growth has been very, very significant in these markets but we've leveraged in energy, the foundation and all good things we do in the retail teams in those markets they have an outstanding history in integrating the smaller banks. So, on due one year $2 million, $3 million as long as we get our regulatory house -- I think we have a great expertise added and we do it very well.

[Sean Burke:]

And Laurie, I will just add; I mean we're talking about the life on the other side. I think really the priorities for us are resolving in dealing with the agreement that we have, and focusing on the bank for instant. Going beyond that really is not on my priority list right now.

[Laurie Hunsicker:]

Great. Thank you very much.

[Operator:]

And ladies and gentlemen this concludes the question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

[Kevin Cummings:]

Very good, I think we had a very strong quarter. I want to thank you all for participating and have a good Halloween coming up at the end of the month, and we'll see you in January. Thank you very much.

[Operator:]

And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.