Customers Bancorp Inc (CUBI) 2015 Q1 法說會逐字稿

Good day everyone and welcome to the Customers Bancorp first-quarter 2015 earnings conference call. As a reminder, today's conference is being recorded.

And at this time I'd like to turn the call over to Mr. Ted Haberfield, President, MC North America. Please go ahead, sir.

Thank you and good morning everyone. Customers Bancorp's first-quarter 2015 earnings release was issued yesterday afternoon just after the close and is posted on the Company's website at www.customersbank.com.

There will be no slides accompanying today's call but the press release will be at the website. You can also email me at thaberfield@mzgroup.us if you have any additional questions.

Representing the Company today are Jay Sidhu, Chairman and Chief Executive Officer, and Bob Wahlman, Chief Financial Officer.

Before we begin we would like to remind you that some of the statements that we make today may be considered forward-looking. The discussion today may contain forward-looking statements which are made in good faith by Customers Bancorp pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 as amended and the Securities Exchange of 1934 as amended.

These forward-looking statements include statements with respect to Customers Bancorp's strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations due to the performance of business. Statements preceded by, followed by or that include the words may, could, should, pro forma, looking forward, would, believe, expect, anticipate, estimate, intend, plan or similar expressions generally indicate a forward-looking statement.

At this time it's my pleasure to introduce Customers Bancorp's CEO, Jay Sidhu. Jay, the floor is yours.

Good morning, ladies and gentlemen. Thank you for taking the time to be on our call today. Also joining me today besides Bob Wahlman, our CFO, is Dick Ehst, our President of our bank.

As you know we are very pleased to report a strong beginning to 2015. And so our first-quarter earnings per share as you know were up by 69% over Q1 2014 and we improved our financial metrics in every area: return on equity, return on assets, asset quality, interest rate risk profile, all of them showed improvements. So we are very pleased with the first-quarter performance.

Today's call what we will do is I will provide some initial comments. Bob will go over in detail our financial results and then before we open it up for Q&A I'll go over some of our critical success factors and some strategic issues that we are involved in and we really look forward towards having a dialogue with you.

As I mentioned to you earlier earnings per share were very good and in terms of the deposit performance we are very focused on that and we are very pleased to share with you that our non-interest-bearing deposits were up by about $75 million. Non-interest-bearing deposits were if you combine the two exceeded our loan growth and that is a very important accomplishment in this sort of an environment for us. And as we had expected and we had planned that we managed our capital very well and we focused on growth in variable rate of loans in the first quarter and so the margin also expanded in the first quarter.

So with that sort of a general introduction I'd like to hand it over to Bob Wahlman who will go over some details of the financial performance and the Company.

Thank you very much Jay and good morning everyone and thank you for calling into Customers' earnings call this morning. Customers Bank is reporting a record net income for the first quarter of $14 million compared to net income of $8.1 million for the first quarter of 2014, an increase of 71.5%.

And as Jay noted a moment ago Customers' fully diluted earnings per share for Q1 2015 is $0.49 compared to earnings per share for Q1 of 2014 of $0.29 or an increase of 69% year over year. Linked quarter the first quarter of 2015 earnings of $14 million were up $8 million, or 6% over Q4 2014 and our Q1 2015 earnings per share of $0.49 increased $0.02 compared to the $0.47 reported for Q4 2014.

The other key financial and balance sheet metrics for Q1 2014 or for Q1 of 2015 of special note were as follows. Customers reached 12.5% return on equity in Q1 2014 (sic - see Press Release, "2015"), up from 8.4% in Q1 2014 and 11.9% in Q4 2014. This was the first time we reached our previously stated goal of 12% target return on common equity.

Asset quality continues to be outstanding with non-performing loans declining to $11.8 million to only 0.19% of total loans outstanding at March 31, 2015. That's down $6.3 million, or about a third from a year ago. And other real estate also declined by $2.5 million from a year ago to $13.1 million.

Customers' efficiency ratio also continued its downward trend reaching 52.8% in Q1 2015 compared to 61.8% at Q1 2014 and 54.9% for Q4 2014. Our return on assets also continue to improve reaching 83 basis points for Q1 2015 compared to 76 basis points for a year-ago quarter and 80 basis points for Q4 2014.

Customers' total assets climbed to $7.1 billion as of March 31, 2015 another milestone. That's an increase of $2.1 billion or 42% since March 31 of 2014 and an increase of $308 million or roughly 4.5% over December 31, 2014. The balance sheet growth was driven by loans on the asset side funded by deposits and borrowings on the liabilities side and the $308 million of growth during Q4 2014 reflects the moderation of our growth that we had talked about previously.

Loan growth reflects the growth in total assets with loans as of March 31, 2015 up to $6.1 billion, or up to $2 billion over loans as of March 31, 2014, and up $348 million over loans as of December 31, 2014. Year over year the C&I portfolio grew $267 million. The commercial real estate portfolio grew $332 million.

Mortgage warehouse loans were up $1 billion and multi-family loans were up $576 million all over a year ago. Quarter over quarter C&I loans were up $69 million, CRE loans increased $47 million, mortgage warehouse loans increased $342 million and multi-family loans declined during the quarter by $92 million. Deposits grew $1.3 billion to $4.9 billion as of March 31, 2015 compared to $3.6 billion as of March 31, 2014.

Money market deposits were up $647 million. DDA accounts year over year were up $103 million and CDs were up $538 million. Deposits grew $361 million in Q1 2015 with money market deposits up $60 million and DDA deposits up $180 million. The difference was made up by CDs over that period of time.

Borrowings increased $773 million to $1.7 million (sic - see Press Release, "billion") and we use this largely to fund our warehouse portfolio so it reflects the growth in the warehouse portfolio. The borrowings increased also on a year-over-year basis included the $110 million of subdebt used for Tier 2 capital and the bulk of the borrowing was due to a short-term growth in the FHLB borrowings to fund the mortgage warehouse loan portfolio growth.

Turning our attention to the income statement customers reported net interest income of $46.3 million for Q1 2015 compared to net interest income of $29.8 million for Q1 2014, an increase of 55%. The increase in net interest income is largely attributable to the $2.3 billion higher average loan balance for Q1 2015 compared to Q1 2014. Net interest income is up approximately $1.3 million Q1 2015 compared to Q4 2014 with average loans up $224 million.

Customers' net interest margin for Q1 2015 is reported at 2.9% for Q1 2015 compared with 2.91% a year ago. The net interest margin reported for Q4 2014 was 2.84%.

While loan yields are down somewhat year over year and quarter over quarter, and year-over-year borrowing costs have increased as a result of the issuance of the subdebt and the senior debt in June of 2014 the NIM in 2014 has been supported by decreasing our interest rates paid on money market deposits and other deposits accounts and increased dividends received on FHLB stock. The Q1 2015 NIM was also held back by a decline in prepayment penalties in Q1 versus Q4 on multi-family loans, down about $400,000. Margins were also assisted by the fewer number of calendar days in Q1 2015 compared to Q4 2014.

The allowance for loan losses is reported at $3 million for Q1 2015 compared to $4.4 million for Q1 2014 and $2.5 million for Q4 2014. The Q1 2015 provision reflects provisions of approximately $900,000 for asset growth during the period.

Otherwise asset quality remained outstanding with slight improvement with NPLs declining to only 0.19% of total loans. However, we still provided an additional $2 million for loan losses for potential loan losses as we continue to evaluate our loan exposures.

Q1 2015 non-interest income was $5.7 million down $1.6 million compared to Q1 2014 and flat relative to Q4 2014. The decrease in non-interest income year over year results from a Q1 2014 non-recurring gain on sale of securities of $2.8 million that was offset by the recurring gains on sale of multi-family loans in Q1 of 2015 by $1.2 million.

Customers sold approximately $140 million of multi-family loans in Q1 2014. We sold $134 million in Q4 2014 and $101 million in Q3 2014. So we have demonstrated our sustained ability to sell multi-family loans.

Q1 2015 non-interest expense of $27.5 million is up $6.3 million from Q1 2014 and was down $400,000 compared to Q4 2014 operating expenses. Customers' $2 billion growth in the loan portfolio year over year has required increased staffing for loan originations and administrative support on the loan teams that we have listed from other institutions and has increased our operating expenses by about $4.6 million year over year.

With the increased assets and the employee headcount employees and Customers incurred higher occupancy expenses, higher FDIC assessments, higher franchise taxes and higher regulatory fees. In aggregate those are up $1.6 million in Q1 2015 compared to Q1 2014.

The Q1 2015 costs that I've already noted include approximately $1 million for BankMobile costs. The decrease in Q1 2015 expenses compared to Q4 2014 expenses results from $1 million lower write-downs for repossessed properties and the cost of settling certain litigations offset by the increased staffing occupancy and BankMobile costs as we continue to grow and invest in our business.

The Q1 2015 tax number reflects an estimated 35.5% effective tax rate. Customers was using a 35% estimated tax rate at Q1 2014 and for all of 2014 but the Q1 2014 tax expenses reduced to a one-time benefit for that period to approximately 30% of pretax income.

That's my detailed review of the income statement and other financial metrics. And I will turn the presentation back to Jay.

Thank you very much, Bob. I stand corrected on one thing.

I mentioned you in my opening comments that our deposits the DDAs were up by about $75 million. The number is more accurate what Bob said, it's about $180 million, not $170 million some -- not $75 million. So we are very, very pleased with that.

Now talking about a few other highlights as you heard from Bob we have strong profitability, efficiency ratio went down, we're getting much more closer to the 50% and we would love to get down to into the 40%, 45% to 50% range. And we think within the next 24 months or so that's going to happen and the credit quality remains very, very strong. As you know are NPLs are today at 19 basis points and our charge-offs have been for the last five quarters between 0.02% and 0.03%.

So what's been our strategy? As you know our shareholder value creation model is really focusing on building and attracting very high credit quality loan portfolio loan customers by marketing to very high credit quality borrowers.

And even if we have to sacrifice a little bit on the interest rate we will do that but we don't sacrifice on the structure. We deliver that through single point of contact and by recruiting and retaining and continuing to attract very experienced teams.

So in the first quarter we are pleased to share with you that we have added two full-fledged teams and one in the New York area. And that team came to us from Chase and supplemented that with Capital One. And that team will be housed in Melville, Long Island and they will be focusing on gathering core deposits as well as small- and medium-size middle-market lending.

Then we announced recently that we've attracted a very experienced team which will be housed, the coverage is housed currently in Boston and they will be moving over to New Hampshire closer to where they live. And that team is going to be focused on commercial finance and we believe that we should be able to really show some good growth in that area. The team currently manages about a $1 billion portfolio and it's our objective that within the next two to five years that team will be able to bring substantially most of that business over to us as well as look at new business.

So are shareholder value creation model has consistently been and it remains the same quality, credit quality from high-quality borrowers and being focused on the remaining as a business bank. To supplement that we are also very focused on stable core deposit growth as I mentioned to you and that's DDAs. So we are recruiting teams which are very focused on DDA growth.

And just to share with you some numbers in terms of our performance in gathering deposits from the different segments from the business segment we today have about $1.7 billion in deposits and from the banking, the privately held businesses, we have about $1.3 billion in loans. So that clearly shows our penetration in this market and it creates very, very strong opportunities for us.

Number three is we continue to focus on our very, very efficient way and what we call a branch light high touch single point of contact banking supported with high technology. And that we are not going to change and so you shouldn't expect us to add any more branches in any significant way at all. And we believe this is the model which gives us a strategic advantage while other banks are looking at what do they do with the branches; we have no intention of growing our branches.

The next item for shareholder value creation is continue to use new technologies and products that disrupt the market and improve our operating efficiencies while making the customers say wow. We think there are tremendous opportunities in that and that's something which we will continue to do.

A very important part of our strategy is to control our risks and that gets into the credit risk, interest rate risk, compliance risk, cyber security risk as well as talent attraction and retention. And in that area like I shared with you already we'd be happy to answer any kind of questions but we think that is a very significant strategic advantage that we possess.

So we made some changes this quarter based upon aligning our alignment of responsibilities with this risk structure. We added several people to our overall interest rate risk management, compliance risk management, credit risk management and we appointed the executive with the greatest amount of experience in credit risk to be our Chief Risk Officer and that's Bob White. And the person in our Company who has the greatest amount of experience and was the chief auditor for Sovereign, Mary Lou Scalise, we promoted her and she becomes the chief auditor for us to supplement and work closely with Bob and the rest of the team in improving not just the credit risk but also the overall enterprise-wide risk management area.

So our objective remains the same, sustainable above average ROE and growth rate in earnings. And we are pleased to share with you that our interest rate risk position is much better today than what it was even a quarter ago. And we are very well-positioned for higher interest rates as well as for a flatter curve and we believe those are the two most possible structures or things that will happen in the marketplace.

So in looking at I know some of you may have questions about BankMobile. BankMobile is an experiment by us in the consumer banking business.

And we launched it this quarter and our goals remain the same, about 25,000 customers by the end of the year and about 250,000 customers within five years. And we are very pleased with the results that we've seen so far. And we believe that those goals are to be achieved by us and we will continue to monitor progress in that.

In the first quarter we spent about $1 million on BankMobile. It's reflected in our income statement and we had very, very as you would expect in significant revenues over there. Our goal is to spend somewhere between $5 million to $6 million this year and by the end of the year have those 25,000 accounts.

So it's going to have immaterial impact on our income statement but we believe it will have a very material impact on our franchise value. So that's basically the BankMobile area.

In terms of our loan mix what we are focusing on multi-family loans are about now today about 35% of our business and we are focused on continuing to make to grow our C&I business. That's why the commercial finance team as well as other teams that we've gathered and we will we intend to keep in the longer term somewhere our multi-family business about a third of our business and not make it the significant part of the business like some of our competitors have.

We love the business, we like the business but we've developed a strategy to keep what we like on our portfolio and to sell whatever additional business that we have and we have our demand for that exceeds our ability to sell.

So what we been doing in the multi-family area is remaining very disciplined on pricing. We have not put any loans in our portfolio which are below 3.25 with half a point or 3 3/8 with no points. That discipline we will maintain.

We haven't put a single loan on our books less than that over the last year and we will not put any loans at less than that going forward. We are not taking advantage of any prepayment penalties because we are not seeing large payoffs. We've entered this business only in the last three to four years and so we think our margin is very core and not dependent upon fluctuations and coming through the prepayment penalties as such.

So we believe this quarter we will probably show some increases in that portfolio and by design we sold more than what we originated in the first quarter this year. Our focus remains New York, pretty much our loan sizes remain $4 million to $7 million and we are not focused on packages and we are not focused on doing very large deals or financing buildings with elevators in them as such. So it's the smaller type of businesses that we have.

Asset quality like I mentioned earlier remains very, very strong and we have 19 basis points and compared to approximately in terms of our non-performing loans and that compares to 130, for our peer group, and 230 for the industry as such and so we do not expect any significant movement in that area at all. Our delinquencies remain very low. There have been no change in our delinquencies, no change in our non-performing loans, no change at all of any significance in our classified loans at all.

So asset quality remains very, very strong. Interest rate risk issues becomes better actually than where it was in the fourth quarter.

So with that we'd like to open it up for questions and answers. So, Aaron, if you can please open the line for questions.

(Operator Instructions) Frank Schiraldi, Sandler O'Neill.

Good morning. First I just want to ask on capital plans. In the past year you guys have talked about 2015 and said you weren't interested in raising common equity.

Obviously the stock price has moved pretty significantly, valuation has improved. So I'm wondering if that has changed at all and then if we other than that if we should expect a preferred at some point perhaps this year?

Frank, we remain focused on constantly managing our capital along with other things but I want to make very clear we are not going to issue common equity. That is consistent.

So we don't need to we're going to taper our growth to our self-generated common equity as generated to retained earnings and we will remain opportunistic and we will look at every single option available to us on a regular basis. We don't need to increase any capital at any time and we will look at options to us on a constant basis.

Okay and then I guess on Tier 1 risk-adjusted is it at the end of the quarter is that akin or similar to what we saw at the end of the year, I think around 8.4%, maybe 8.5% if I recall correctly?

It's in that range, yes.

Comparable.

Okay. And then just on BankMobile given really a reiteration of what you said in the past, Jay, it sounds like it's pretty much going according to plan. And so just wanted to get maybe a little more commentary there.

And then on the expense front is it still safe to assume about $5 million in expenses for the year? I believe that was the number.

Yes, like I just said a moment ago Frank it is somewhere between $5 million to $6 million of expenses and yes everything is on plan. And it's been very well received by the marketplace and we continue to make improvements.

So our strategy is we haven't done any marketing at all yet and that will be in the second half of the year and we are on target. It's going to take a somewhere between three to five years to reach the breakeven point so it will be an expense burden on our Company for the next at least two to three years.

Okay and then finally I think in the past you've talked about I think it was on 4Q call but a margin, Bob, a margin in sort of the range of plus or minus 280. I just wondered if that was still a reasonable assumption going forward and if you could just share with us what the contribution to the margin was this quarter? Sounds like there was very little it prepayment penalty but from the FHLB special dividend.

Sure. I think that what we've said before is we expect the net interest margin to range between 2.75% and 3%. 2.80% is certainly within that range and I think there's a reasonable expectation going forward, maybe a little higher.

But there's a lot that goes into the net interest margin on every side. Everything, all the interest-earning assets and liabilities come into play there. We've had some things develop over the period as we know that there was lower prepayment fees that were received during the first quarter which actually worked against this.

It was a shorter month -- February only has 28 days and that helps us. We had some -- the FHLB had a little bit more of a dividend this period and there's just a lot of different pieces that come into play. And I think overall and we've talked about a range 2.75% to 3% and we're comfortable with that.

Okay. I just wanted to make sure and it was in the ballpark on the FHLB dividend. I had thought it would be about $1.7 million, $1.8 million the special dividend that they paid I guess in the first quarter. Is that in the ballpark or --

No, that would be much too high for the special dividend. That would be the total dividend. The special dividend would have been only 40% of that.

Okay. And the special dividend was 2.5% on your FHLB stock?

That's correct.

Okay. I had thought maybe so the stock about the stock was about $70 million as of the end of the fourth quarter at least. Has that changed?

No, Frank, our FHLB as Bob mentioned special was only a couple hundred thousand bucks, not into millions, no.

Okay. And then I guess just finally on the deposit front obviously some pretty strong deposit growth. Was that supplemented by brokered or wholesale deposits and could do to share where those levels were as a percentage of total deposits at the end of the period?

We have been deemphasizing brokered deposits. Our broker deposits reduced significantly.

This is core deposit growth and not broker deposit growth. And I think broker deposits are about 20% or so approximately and we will keep them at that level or lower.

Okay, thanks.

Bob Ramsey, FBR.

Hey, good morning guys. Let me follow-up real quick on Frank's question about the FHLB special.

I mean it looks to me looking at the average balance sheet like there was an increase in the income from other interest-earning assets of about $1.3 million quarter over quarter. And I thought most of that was the FHLB special but if it's not, if the FHLB special is only a couple hundred thousand I'm just curious what else is benefiting the yield on other interest-earning assets this quarter versus last?

Bob and that income number there was about -- the total amount of dividend that was received from the FHLB was approximately $2 million for the quarter and that's why you see the increase period over period. Some of that increase relates to the core dividend which was 4% and some of that relates to the special dividend which was 2.5%.

So roughly that $2 million is divided 60/40 between regular dividends on our borrowings from the FHLB and the special dividend. So the special dividend was approximately $750,000 to $800,000.

And what was the dividend in the fourth quarter just by point of reference?

The dividend in the fourth quarter was approximately $700,000 a little bit plus or minus something. But as our balances increase and our short-term balances increase our borrowings increase.

Okay, great, that is helpful. And I might have missed it earlier but did you quantify what prepayments were this quarter versus last? I know you said they were down I just didn't catch the dollar amount.

They were down approximately $400,000.

Okay. That is helpful. Okay, so next quarter if prepayments are similar and the special goes down I guess that's a little bit of margin pressure above whatever would be core is probably the right way to think about margin here.

Yes, yes, Bob, but like we said there's a lot that goes into it and sometimes there are some things that come up that are good and sometimes some things work against you. So I think that when we talk in a range is the best way to think about it.

Got it. Okay, and there were a couple of numbers I couldn't find in the release. Do you have the dollar amount of net charge-offs this quarter and the end of period shares outstanding?

Yes, I think the end of period shares outstanding were 28.3. It's in the press release.

Okay. I only found diluted. I couldn't find the end of period.

We'll get you that. (multiple speakers) between 500,000 share difference between the outstanding and the fully diluted, Bob, is an approximation but we can get that to you.

Okay.

And then in regards to the charge-offs the charge-offs for the period were $1 million. And that's (multiple speakers)

Okay, great. And then I was hoping you could give may be a little bit more color, I know you broke out what drove the provision expense this quarter and there was about $2 million for decreased collateral valuation on some credit impaired loans. Can you just elaborate on what types of loans these are whether these are loans that you guys acquired or originated, whether they were updated appraisals or what drove the shift in collateral valuation?

Yes, Bob, we try to take a very conservative you on credit quality and on reserving. And we felt that even though our loan portfolio for held for investment didn't really -- we didn't want to increase it as much this quarter. But still there ought to be some consistency in our provisioning.

And so keeping that in mind we went through a pretty thorough analysis and we came up with a number of our provisions. And you can see it's in allocated based upon the appropriate accounting guidelines that are there. And so really but the bottom line is we don't envision and we don't see any deterioration at all in our credit quality and so this is the way we can really justify and quantify our provision.

Okay, fair enough. So on a go-forward basis I guess if credit trends seem reasonably stable it's fair to expect provision expense will stay in that $2 million to $3 million to $4 million ballpark? Is that a fair way to think about it?

Once again we are going to have to follow accounting guidelines and SBC guidelines. And the end result is that wherever that comes but we will be as conservative as we possibly can be.

Okay. I was wondering too if you could provide maybe a little bit of update on the outlook for multi-family loan sales. You guys obviously had your third quarter where you all have sold a fair amount of multi-family loans.

That gain on sale has bounced around a little bit. Just curious how you see the outlook for that piece of the business.

Yes, I think there has been many of our competitors have really in our opinion taken put on some loans on their books in the 2.75% to 3% range and they are most welcome to have that kind of business. And we think with the interest rate risk profile that we want to maintain and the credit quality that we want to maintain and our earning asset needs that exist right now that we do not have to stretch at all. And we will not violate our pricing discipline as well as our structure discipline.

So in the last two or three quarters we have sold approximately on an average $100 million to $125 million. You should expect us to sell a little bit this quarter also. And it's based upon our needs for the balance sheet as such.

And what's happening is that the business still is coming to us but it's at a lower level because some of the people are just giving it away in our assessment. So we will continue with our strategy. That's nothing new but the bottom line is you will probably see a growth in our multi-family outstanding this quarter and because we see a need to do that and maybe a little bit less sales this quarter compared to what we did in the first quarter.

Okay. Very good. Curious, too, the outlook for mortgage warehouse.

Obviously a very strong quarter for balances in that business and I guess mortgage banking in a broader sense. But how are you all thinking about the mortgage warehouse outlook from here today?

Mortgage warehouse is about 25% to 30% of our business and we want to keep it sort of in that range. We think the second quarter average outstandings might be pretty darn similar to the first quarter. And we expect it to slow down a little bit in the third and the fourth quarter as such.

About 60%, between 55% and 60% of our business is refi business. And so that you can see why we believe that volume will be coming down a little bit in the second half of the year.

So we are picking up some new customers at the present time. We've been consistent in this market. Our quality of service is very, very high and that's why you should expect us to see that volumes, our outstandings to be somewhere between $1 billion to $1.7 billion for the rest of the year.

Okay, that is all very helpful color. Thank you very much, guys.

Chris McGratty, KBW.

Hey, good morning everybody. I may have missed this in the prepared remarks but you talked about some of the hiring initiatives you've done and the build out of BankMobile. And so I apologize if you've already covered it, can you help us with the outlook on the expenses?

You guys have talked about leveraging the expense base and driving efficiencies lower. But if we think about core expenses they're up marginally sequentially, but any kind of expectations for the next few quarters?

Yes, Chris, we spent about $1 million, a little over $1 million in the first quarter on BankMobile and we expect for the year that number to be somewhere between $5 million to $6 million. That's consistent with the guidance that we've given to you last year. And we are on target with our expectation on the new business that we are getting.

This is the business which like I said earlier that doesn't have any significant impact on our income statement on the revenue side. It does have a significant impact on the expense side but the greatest impact is going to be in the franchise value creation.

We think it will take us about three to four years, minimum two years to reach the breakeven point. And that's why but so far it's been very well received by the customers, very well received by the marketplace and that's why we're going to continue doing what we've done in the first quarter.

And we are in Phase 1. We have actually are also recruiting a technology team so we have -- we will be making some Phase 2 improvements in that area. Like we said earlier that we have intentions also sometime over the next two quarters to also launch a BankMobile-like offering for small- and medium-size businesses to gather deposits and to extend our small business administration lending through the mobile technology also.

Okay, that's helpful. On competition you talked about some of your competitors doing 2.75% pricing. I'm interested, is that coming from the smaller players in your market or is that coming from the bigger banks trying (technical difficulty) marketshare they may have lost?

Chris, I think the bigger players are generally much more disciplined than the new entrants and the smaller players.

Great. Last question is on overall balance sheet growth. I think you've talked about managing the originate and sell model to kind of keep the capital steady. But I can't remember if you told us the exact or a range of the total balance sheet growth for the year.

I think we have given the guidance of 10% to 15% total balance sheet growth for the year, so you can see we had 4.7% balance sheet growth in the first quarter. And so that's consistent in that range and so you should expect us in the high end 15% and the low end 10% for the year. So we ended the first quarter with a little over $7 billion and you should expect us to be by the end of the year to be about $8 billion or under.

Okay. Thank you very much.

Chris Stulpin, Merion Capital.

Hi, good morning. Two of my questions remain from my list and they are the equipment finance team is a business, the team that you hired up in New England. What are your growth plans for this line of business and how should we look at this as it pertains to contributing to future earnings?

I think Chris it's in addition to our small business administration -- excuse me, our small business lending. So we are very focused on privately held companies and this business will help us in that area. Plus there are certain industry segments like one is an expertise that our team has in the plastics industry you know and very unique situations and needs that they have for financing.

Another expertise this team has is in certain high-quality franchise businesses for some term financing in that area. So we believe this team within a year will reach a breakeven point and then will be contributing to our profitability beyond, that.

And so we remain in that area. We have stated in the past that we would like to see our C&I loans and our owner occupied commercial real estate loans over a three- to five-year period to be about a third of our business and we think this is consistent with that. So this is simply helping us to get to that level.

And as you know that business C&I and owner-occupied, the CRE is approximately 12% or 13% of our business right now. So we see tremendous growth opportunities in that area over the next three to five years.

Okay great. One last question what's the comfort range for your loan to deposit ratio? I know it came down substantially linked quarter in the first quarter of this year.

Like I said earlier a balanced bank is a strong bank and we think shareholder value creation comes through franchise enhancement and franchise enhancement comes through both deposit core deposit generation as well as high-quality loans which cannot easily be duplicated. So we are continuing to recruit teams to build our deposits. We think we should be building deposits faster than loans this year.

It depends upon some seasonality. And so we are focused on that sort of thing and you should expect our core loan to deposit ratio to remain between 95% to 100%. We look at funding our mortgage warehouse business or banking to the mortgage companies with some deposits but mainly with borrowings so that there is matched funding for that.

Understood. Thank you.

Bill Dezellem, Tieton Capital Management.

Thank you, a couple of questions. The first one would be relative to BankMobile, you said you're going to begin advertising in the second half of the year. How are you planning on doing that and as we look out in the marketplace how will we see the BankMobile advertising?

I think I'm sorry if I use the word advertising but I said the marketing. And the marketing it's probably going to be much more digital marketing than newspaper advertising or radio or television advertising. So you probably will not see that much.

We think data analytics is the way to go. And we can look at so many different market segments, analyze what their preferences are and use digital marketing to propose to them this option for banking.

So our model remains the same which is we go after the millennials, we go after millennials, some of our interests through Affinity groups and then you also use some direct marketing techniques such as multilevel marketing and guerrilla marketing at the street level, that sort of a thing marketing awareness. So we have no intentions of using mass media advertising.

Great, thank you. Then the second question, you have reached your ROE goal here this quarter and how about the ROA goal? What do you need to do to accomplish that ROA goal?

I think for our away it's just the way we look at it is to grow our revenues faster than the growth in expenses and to take about $6 million, $5 million to $6 million in expenses that we are investing in our consumer banking franchise through BankMobile. That has an impact on the ROA and ROE in the year but we believe by recruiting teams, by getting earning asset growth, by maintaining our margins, by looking at non-interest income sources, that is the way we will achieve our ROA goals. And so we think that within the two to three year period of ROA somewhere between 90 to 100 basis points is very doable by us.

Thank you. Nice quarter.

Richard Reach, RLR Capital Management.

Thank you for taking my question. When you sell loans, is there a put back feature in any of those loan sale agreements?

No.

No. Okay, great. Thank you very much.

Bob Ramsey, FBR.

Hey, thanks for taking the follow-up. I just had a couple lingering questions.

With the equipment finance team that you guys are bringing on board how will that impact expenses in the second quarter? I imagine you see some lift in expenses before the revenues start to come through.

Bob, we see revenues pickup in other areas for the second quarter so you shouldn't expect any material change to our efficiency ratios in the second quarter even though we will be picking up compensation of eight people. Because this is the largest team that we've recruited at one time but we do see offsetting revenues coming from other areas. So I wouldn't make a big deal of it in terms of impact on our second-quarter earnings.

Okay. Just from a modeling perspective how much should we increase the expenses for the team or how should we think about that?

You can figure out eight people and they are all very experienced people and those kind of things for modeling, Bob.

Okay.

But it's very difficult and we are not going to be giving any guidance at team level. But all I'm saying to you is it should not have any material impact at all on our second-quarter earnings and our modeling for second quarter that we are doing.

Okay. Great. Then just curious as well if there is any updated thoughts you guys can share or want to share on I guess one, the Religare investment and two, the Philly Fed ongoing situation?

I think on the Religare we remain the same which we've said to you in the last couple of quarters including our Analyst Day at the New York Stock Exchange on January 7 that we're going to wait until the third or fourth quarter. And at the most that's it. And if our investment doesn't get increased in value significantly as a result of Religare getting banking license we're going to pull it back.

And as far as the regulatory issues are concerned we don't comment on that other than to say that we are very, very strong in risk management. We believe we are very strong in TRA compliance and we have no issues on the peer lending at all. So we feel very optimistic about the strength of our Company and the risk management practices that we've employed.

Okay, thanks for taking the follow-ups.

We have no questions holding in the queue at this time.

Okay, thank you very much ladies and gentlemen. Please give us a call or email us if you have any questions at all. And we are excited about 2015 and look forward to the next call.

This does conclude today's conference. We thank you all for your participation.