Customers Bancorp Inc (CUBI) 2015 Q4 法說會逐字稿

Good day and welcome to the Customers Bank fourth-quarter earnings call. Today's call is being recorded. At this time I'd like to turn the call over to Matthew Selinger with Three Part Advisors. Please go ahead, sir.

Thank you Melissa, and good afternoon everyone. This is Matthew Selinger from Three Part Advisors, and we are delighted to taking over the IR efforts and look forward to interfacing you with many of you. Customer Bancorp's fourth-quarter and full-year 2015 earnings release was issued earlier today after the close and is posted on the Company's website at www.customersbank.com. 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 some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that cause actual performance results to differ materially, including the risk that results are different than currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation, undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings including our report on the form 10-K and also the 10-Q for a more detailed description of the risk factors that may affect our results. Copies may be obtained by the SEC by visiting the Investor Relations section of our website. At this time it is my pleasure to introduce Customer Bancorp's CEO, Jay Sidhu. Jay, the floor is yours.

Thank you very much, Matt. Good afternoon, ladies and gentlemen. On what was otherwise a pretty volatile day we are pleased to announce very good strong continued earnings for Customers Bancorp. As you all hopefully know already that we are announcing earnings of $56.1 million for 2015, and that is $1.96 per fully diluted share. And that's -- and then for the fourth quarter we are announcing earnings of $0.58 a share. These earnings -- net income was up 29.8% over 2014. And for the fourth quarter net income was up 27.3% over last year.

Our return on common equity was 11.8% for the year and our return on common equity was 13.5% for the fourth quarter 2015. We continue to increase our tangible book value per share. That is a very important focus of ours, and that is up about 12% in 2015. Our loans grew about 26% during the year, and our deposits grew about 30% for the year. In terms of risks -- risk management activities, our credit risks remained very well under control. And we are delighted to share with you that our non-performing loans were only 15 basis points as a percentage of total loans. And we provided about a little over $20 million in provisions for possible loan and lease losses during the year, and ended the year with reserves of 342% of non-performing loans.

In terms of -- because of our growth in the Company we thought I would like to highlight what our pretax, pre-provision return on assets for 2015, and that was 1.5%, and that's up from 1.4% last year. And our pretax pre-provision ROE for 2015 was 22.5%, and that's up from 18.8% last year. For the fourth quarter our pretax pre-provision ROA went up to 1.6% and our pretax pre-provision ROE was up to 24.35%. So to get over much more in detail our financials, I'd like to hand it over to Bob Wahlman now.

Thank you Jay, and good afternoon everyone. Net income available to common shareholders, it was a very good quarter for -- and a very good year for 2015 and very good and strong period for Customers Bancorp. And with a strong Q4 2015, Customers is well positioned to reach its 2016 earnings targets that we had announced in the second half of 2015. This evening I'm going to quickly review full-year 2015 and Q4 2015 performance.

Net interest income. Jay had already reviewed the detailed information regards to the results, and I won't repeat that. So I'm going to drill down directly into the component pieces. For 2015 compared to 2014, net interest income increased $44.4 million, or 29.2% for the year ended December 31, 2015, or $196 million compared to $152 million for the year ended 2014. The increase in net interest income was driven by an increase in the average balance of loans and securities of $1.6 billion offset in part by a slight decrease in the net interest margin, a 6 basis point decrease in net interest margin.

The 2015 net interest margin of 2.81% -- was 2.81% compared to the 2014 interest margin of 2.87%. The decrease in the net interest margin was largely a result of the growth in the lower yielding segment of the portfolio, and that was the mortgage warehouse portfolio which end of the year that balances than what -- than what they had been in the previous year, and ran for the year with a higher balance than they had in the previous year.

The provision for loan losses increased $5.8 million to -- year-over-year to $20.6 million compared to $14.7 million for 2014. The 2015 provision for loan losses included that provision expense of $9 million for a fraudulent loan that was identified and discussed with the shareholders in part -- as part of second-quarter earnings. $5.3 million of the loan balance was charged off in the third quarter of 2015 and the residual balance was charged off in the fourth quarter of 2015. So in regards to that loan, the entire $9 million has been provided for or reserved at this point in time and the entire $9 million has been charged off the books. And that $9 million unfortunate set of circumstances cost us $0.21 in earnings for 2015.

Non-interest income increased $2.6 million during the year ended December 31, 2015 to $27.7 million. That was compared to $25.1 million for 2014. This increase resulted primarily from a benefit received on bank-owned life insurance policy, higher mortgage warehouse transactional fee of about $400,000 and was offsetting gains realized from sales of investment securities that was realized in 2014 of $3.2 million which we didn't get in 2015. We had a loss on investment securities of about $0.1 million in 2015.

Non-interest expense increased $16 million during the year ended December 31 to $114.9 million compared to $98.9 million for the year ended December 31, 2014. The increases in salaries, professional services and technology, which totalled $17.4 million, resulted from the growth of customers requiring additional people, services and support. So with the increase in the loan balances by 26%, we ended up with a increase in our operating costs. These increases were offset in part by decreased taxes and regulatory fees of about $1.1 million that we reported in an earlier period related primarily to an adjustment in the Pennsylvania shares tax expense and reduced loan workout expenses of about $600,000 resulting from lower levels of non-performing loans and some -- from some recoveries of prior expenses on loans that had been resolved during the year.

Income tax expense increased $9.7 million, to correspond largely with income, to $29.9 million compared to $20.2 million in 2014. The income tax expense was driven primarily from increased pretax income offset in part by the benefit received on the bank-owned life insurance policy. That was a gain of $2.4 million and that is not a taxable benefit that was received. Preferred stock dividends increased $2.5 million in 2015 for our new Series E preferred stock issued in May of 2015 from no comparable period for the prior -- no comparable expense or disbursement of funds in the prior period.

For the three months ended December 31, 2015 compared to three months ended December 31, 2014 net income available to common shareholders increased $3.6 million to $27.3 million (sic -- see press release "27.3%) to $16.8 million. Net interest income increased $8.5 million, or approximately 19% for the three months ended December 31, 2015 to $53.5 million. The increase in net interest income was driven by an increase of $1.3 billion in the average balances of loans and securities quarter over quarter.

Net interest margin was 2.83% for the three months ended December 31, 2015. So it was relatively flat compared to the 2.84% for the three months ended December 31, 2014. The net interest margin consistency between the periods resulted from a higher yield on the investment securities as amounts previously held in cash were invested in highly liquid US agency securities offsetting lower prepayment fees received for the three months ended December 31, 2015 compared to December 31, 2014. Prepayment fees were down in 2015 by about $1 million compared to fourth-quarter 2014.

The provision for loan losses increased $3.7 million to $6.2 million for the three months ended December 31, 2015 compared to the year ago period. The fourth quarter of 2015 provision for loan losses of $6.2 million included the $3 million to facilitate the full charge-off the remaining fraudulent loan balance that I had discussed in a little bit more detail a moment ago.

Non-interest income increased $3.6 million during the three months ended December 31, 2015 to $9.4 million. The increase resulted from a $2.4 million benefit received on the bank-owned life insurance that we have talked about previously and some higher swap premium fees of about $0.9 million that we received in the fourth quarter of 2015 on back-to-back swaps for our customers.

Non-interest expense increased $3.6 million during the three months -- the last three months of the year of 2015 compared to the last three months of the year 2014. The increases in salaries, professional expenses and technology were $4.5 million combined and reflect growth in new customers' business and the need to add base salaries, provide additional services, occupancy costs and they all to have the computer screen to work from.

A reduction in the fourth quarter 2015 expenses for other real estate owned of $1.3 million compared to a year ago, recognized the valuation adjustments on the three OREO portfolios in the fourth quarter of 2014 of $1.3 million compared to a $100,000 loss recognized on valuation adjustments in the fourth quarter of 2015. We don't have many properties in REO at this point in time.

Income tax expense increased $100,000 for the three months ended December 31, 2015 to $7.4 million compared to 2014. The increase in income tax expense was driven primarily from increased pretax income offset in part by the benefit received on the bank-owned life insurance policy of $2.4 million which was not taxable. Preferred stock dividends increased $1 million for the three months ended December 31, 2015 because we did not have preferred stock in the fourth quarter of 2014. So Jay, that is my summary of the financials. And I'll hand it back to you.

Okay. Thank you very much, Bob. And I'd like to, before we open it up for questions, I'd just like to cover a few points. One is credit quality. I just want to share with you that today we had a risk summit at our Company, and so some of the stuff is very current on top of our heads. And we are very comfortable with our credit quality. As Bob mentioned and shared with you, our -- we cleaned up pretty much all of our REO and we feel, and we've decided to take a very conservative view on the fraud and we wrote it all off. We provided extensively for the growth, as well as improved our overall coverage ratios. And we feel very comfortable with the credit quality.

We have no exposure at all in the oil and gas sector. I can't believe it, but I did get a call to ask us how is the [taxi medallion] business doing. I said, you're calling the wrong bank. We have none of that exposure. So we feel very comfortable with that.

From an interest rate risk point of view, we've done analysis in terms of [bear] flatness. It is happening. It is hard to imagine the 10-year below 2%. And so we factored in into our modeling a three to four more Fed increases in 2016, although it seems unlikely that it is going to happen. But anyway, we have that factored in in the guidance that we provided to you.

On the regional economy, we feel pretty confident that it's going to be a very slow but steady growth in the small business sector that we are dealing with. We are expecting a C&I book to show about 15% to 20% growth. And we remain very disciplined on our structure. And we believe this is a very important time to be cautious from a credit quality point of view. So we remain extremely, extremely focused on the credit quality of that book. And we are very confident that the kind of C&I lending that our teams are doing with their execution of a single point of contact that that will continue to be a growth area for us.

The second is on banking and mortgage companies. We saw a surge in that business of between the 30 -- the 28 of December and the 30 of December. Those -- somewhat those balances are down by about $150 million, $200 million already, but on an average we think in the first quarter we'll see the warehouse portfolio balances to be within $100 million to $150 million up where the averages were in the fourth quarter. And we think the flatness of the curve might actually give us some more outstandings in that business in the first half of the year compared to what we forecasted in our models.

As far as the multi-family business is concerned, we call it banking the high net worth families because we are very, very little exposure to the high-rises. And we really bank the families who own multi-family businesses in their portfolio. In New York area about 65% of our loans are to multi-family properties with rent control, which in New York and that's a very, very stable, strong credit quality niche. And so in the first half of the year we expect pretty good increase in those outstandings so that we are well prepared that for second half of the year we do expect the mortgage warehouse business to be slower. And so we will build up our earning assets in the first half of the year so that we can show and report consistency in earnings, and rather than face the volatility in earnings that normally goes with warehouse business. So we expect to become a seller of multi-family loans, perhaps in the second half of the year if not in the second quarter.

Let me talk a little bit about why we decided to charge off the fraud. We still are very confident that we're going to have a collection, and perhaps for the whole balance on that. But we felt that it would be prudent to take away any hangover from that. So we took an approach that because it's really the underlying collateral is land, and it's very difficult to come up with an actual valuation of that land. So we took an approach that we could justify a very low value of that and basically write it off. But I just want to assure you that nothing has changed in terms of the potential collectability of that loan. And it would be wonderful for us to report collection of somewhere between $6 million to $9 million on that rather than you questioning us, how is that fraud going? That was an unfortunate incident. That was just an isolated incident, but it is behind us.

Let me talk a little bit about Religare investment. We shared with you that it doesn't look like Religare investment continues strategic sense for us. So what we've done is, we've decided we took -- had some communications with the company. And at this time we decided that in 2016 it would make sense for us to perhaps keep it there and not look at it until end of the year for certain reasons based upon our dialogue. So we are -- it is not in something that we consider an imminent sale in the near future on the Religare investment, but we will monitor it on a regular basis. But for right now it makes sense for us to hold onto it during 2016.

BankMobile. BankMobile, you're very well aware that the Higher One disbursement and student banking business is expected to be merged with the BankMobile upon the closing of that transaction. Everything appears to be and is on plan, and we expect that it would be sometime in -- by end of February, early March that Higher One would receive their shareholder approval. So we are planning before we announce our second quarter earnings that we would have Analyst Day.

As soon as we know when the shareholder meeting date set up, we will set up an Analyst Day so that we could share with you in detail some of the thinking behind our being able to monetize the full value for our shareholders of BankMobile and our strategies for BankMobile Technologies. That is the name of the company that we've already set up. It is a wholly owned division of Customers Bank. And BankMobile Technologies is going to be a very, very important shareholder value creation option for us. And we are talking to several investment banks right now about different -- studying all the different options available to us. And we hope to share some of our analysis with you sometime before the second quarter (technical difficulties).

Bob shared with you a little bit about our 2016 guidance. I want to just reaffirm that. That in spite of sort of a bear flattener, or flatness in the curve and continued Fed increases, we are confident about our 2016 EPS guidance of $2.40 to $2.50 in core earnings outside of any one-time charge that we take for BankMobile integration with Higher One disbursement business. So we are very comfortable with that.

We ended the year, as you know, with 6.4% tangible common equity to average tangible assets and with Tier 1 leverage ratio of 7.2% and the holding company risk-based capital ratio of 10.5%. We are going to continue looking at ways to try to improve these ratios. One of the things we are looking at is that you should expect us to have somewhere between 7% and max of 10% growth rate in assets this year. And if you combine -- if you take a look at our $70 million to $80 million in earnings for the year, and we hope to supplement that with some preferred stock and be opportunistic with ATM if and when our stock is once again valued pretty close to its valuation, and we believe that we can raise a few dollars through ATM and without diluting our EPS, we will be opportunistic and do that.

So what we've did is in the month of December that will be announced, the ATM was that we had about $30 million left on our shelf. We were seeing a tremendous quarter. We were willing to try to raise some equity at greater than $28 per share. And why not take only but -- only limited to $25 million to $30 million? And obviously the market conditions in the equity markets have not been very favorable. So we only raised a couple hundred thousand dollars of capital from those of you who subscribed to it above $28 a share. And the rest of it, we're going to be pulling at the right time, within a day or two that ATM because we are very disciplined on the pricing. And we are not going to issue common equity at prices below what we consider to be appropriate. And that number for us today is $28 a share, because our stock we believe is worth somewhere in the $30s. And so that we still want to give some upside to those people who subscribe for the ATM. But we will not issue stock below $28 million -- $28 a share.

We will look at any other option to improve our Tier 1 equity. We are right now evaluating those. Don't be surprised if between sometime in the near future raise some other form of Tier 1 holding company capital.

With that, I'd like to -- Melissa, open it up for questions and answers.

(Operator Instructions)

We'll take our first question. Caller go ahead.

Hi. This is Bob Ramsey at FBR. Appreciate you taking the call.

Bob, how are you?

Hey, I'm good. Thank you, Jay. You guys had really good loan growth this quarter. I guess the flip side of that of course is capital, which you sort of hit on there at the end. I'm calculating end-of-period tangible common equity to tangible assets is now just a tick under 6%. I guess I'm just curious, is some of that timing around the mortgage warehouse? Is just some of that pull-back from end-of-period balances?

I know you talked about slower growth in the year ahead running 7% to 10%. If I heard you correct, I think you also said the growth would be more front-end loaded, that you were looking at earning assets sooner than later. I'm just curious, putting it altogether, does that number rebuild in the first quarter or does it head lower before getting bigger?

Bob, thank you for asking that question and for the clarification. We expect that number to be higher, like I shared with you. The mortgage warehouse business really bumped up in the last two business days of the year. So when I shared with you tangible equity to average tangible assets of 6.4%, that gives you an idea of where our -- for the quarter where our average assets were. And we expect that the number that you saw for December 31 would be an absolute floor, and we want to see better capital ratios than that. And we will manage the growth of our balance sheet in such a way so that we show you higher and better capital ratios in the -- for the March 31 numbers when we release them to you. Plus on top of that, like I shared with you, we are going to study ways that we can beef up our Tier 1 holding company ratios even before that in a non-common equity way, such as preferred.

Okay, got it. And then just -- I think I understand but just wanted to be clear, the earnings guidance, the EPS guidance you guys are reiterating, I'm assuming doesn't factor in common issuance. But you said you guys, if you do it accretively, would do it. So I'm guessing whether or not you issue more shares, that guidance still stands. Is that fair?

That is absolutely correct. We will not issue any common shares and then say as a result of that we will not be able to meet the guidance that we have given you. You are not going to hear that from us. So we believe that our growth opportunities, quality growth opportunities, are very good. The teams that we've attracted, Bob, last year are really very well structured and set up right now to show the core C&I growth for us. And we remain very, very disciplined in the multi-family business. The multi-family business, our average yield of the new business we put on in the fourth quarter was about 8.5%, 8.4%, 8.5% or so average yield.

We're seeing a huge pipeline. We're remaining disciplined because some of the folks, our competitors, have gone down to 3% pricing again. How crazy they are. We are not going to do that sort of a thing. So that you are to continue to see us being able to generate revenue growth faster than expense growth. And hence if we do raise some common equity because our stock is trading above $28 a share through an ATM, we will simply be doing it because we can show to the shareholders a higher ROE, and perhaps even higher EPS.

Okay, great. Question around margin. I know you all said prepayments were lower this quarter than a year ago, but I didn't catch, if you gave it, what they were on an absolute basis. Do you have that number handy? And then I'm just curious, nice to see a little bit of margin expansion this quarter. I get that was sort of an asset-mix shift. How are you guys thinking about the margin trajectory from here?

Bob, the prepayments that were received in the fourth quarter of 2015 were about $300,000. And as we look forward into 2016 we had pretty comparable margins, 2015 over 2014. We think that as we look forward into 2016 we're going to see -- we think that we're seeing relative comparability to 2015. So generally flat margins.

Okay, great. Last question, I'll hop out and give someone else a chance. But just curious why the shift in outlook around Religare? I know at some point in 2015 you all had said if they even get the license you all would exit in 2016, and obviously now you're saying it makes more sense to hold it. Just curious what drove the change in positioning.

Bob, there is a tremendous, tremendous acceleration of mobile banking in India. The growth rate of that technology in India is the fastest in the world. And so it shed some new light to us. And so we said, let's pause. Let's just see if that means anything, and this is -- rather than pull it with some short losses like -- because of the currency. And so it would be prudent in our opinion from a shareholder value creation point of view that rather than pay currency losses right now, let us look at the future and let us see if it makes a whole lot of sense for us in some way or another before we decide on strategic options for BankMobile that we can take advantage of this.

Okay. All right. Thank you, guys, for taking the questions.

We'll take our next question. Caller, go ahead.

Hey, good afternoon. It's Mike Pareto from KBW.

Hey, Mike.

Quick question for Bob on the BOLI, the $2.4 million. Did I hear you guys correctly? Did you say that was not tax deductible?

That is not taxed. That is income that is not subject to tax. It is an insurance payment. It is not subject to income tax.

Is the right way to think about it, ex that, that the EPS number in the fourth quarter was $0.50?

No, no.

Well, no, that's not, Mike. If you take a look at it, there is a couple of things that are going on, right? So there is about -- there is a $0.07, $0.08 benefit from that. But if you take a look, there is also this special provision for $3 million provision, which offsets that to -- essentially offsets that. So if you take a look at it the way I look at it, Michael, is there's two unusual items that both occurred during the same period, and my run rate was pretty close to what the earnings are I reported.

If you take that out, Mike, you got to take the provision out because we're telling we took a very conservative view of writing off the fraud but nothing had changed. And our collectability of the fraud is higher today than where it was at September 30.

Okay. And then maybe the next question after that is so -- it sounds like the actual balance-sheet growth is going to be limited a bit. So where does the provision expense go, maybe the next couple of quarters? It seems like it has been running around $2 million, $3 million ex the one credit that you guys provided for in 2Q and 4Q. Is that still the right near-term trajectory?

Mike, if you take a look at our disclosures in both the call report and in the Form 10-Qs and 10-Ks, we give a lot of detail in regards to the provision levels that we have for each component piece of the portfolio, so each product line of the portfolio. For instance, the multi-family loans, which is where our growth has been, is largely around 40 basis points. And so when that portfolio grows, we have to provide for it. So if we do $500 million worth of growth, $500 million at 40 basis points, it gives you $2 million of growth, That has largely been our provision expense, has been largely for growth in the portfolio.

So if you take down the growth in the portfolio, you would correspondingly see less of an expense there. Now, that's absent. We have been very fortunate in a very strong economy. We haven't had credit provisions. But we -- for credit deterioration, but we believe we have had strong underwriting standards, and we have maintained them without letting them slip. And as Jay noted, we don't have the two areas that are seeing the greatest -- we don't have significant investments in the two areas that we have been seeing the greatest loss in around the industry, which is the energy industry and in taxi medallions.

Our total non-performing loans, to that point, our total non-performing loans are only 15 basis points of our assets. I would also tell you this, and you can see it from the schedule we put at the back, about 40% of that are related to legacy loans, that is loans from [a weak] banks that were acquired some time ago and that we're still working through a little bit of the residual portfolio. There is only -- there is probably around 8 basis points of that, 8 to 9 basis points of our NPLs related to loans that we've been originating since 2012 and have established a pretty strong track record at this point in time in regards to their performance.

Provisions in 2016 will be substantially less than what you saw in 2015. No question about it, Mike.

Okay, thanks. And then maybe a higher level question, Jay. So the new balance sheet growth outlook, upper-single digits, 10% for 2016. How should I think about that in terms of -- I mean, the deposit growth you guys are seeing have been pretty strong. It sounds like a lot of the stuff you guys are doing strategically from a high-level standpoint with BankMobile and the Higher One transaction is to continue that pace of deposit growth. Are you guys going to have to take the pedal off deposit growth next year? Is that the kind of the message I should be taking away from the limited balance sheet growth?

You should be taking a message that our non-interest bearing DDAs will grow a lot faster than interest-bearing cost. The message should also be that our cost of deposits, if anything, in spite of the rising rate environment is going to be something which will get closer to the industry numbers. So we expect non-interest -- growth in non-interest bearing deposits, we are never going to take a pedal off of that.

We do have some wholesale deposits and we have broker deposits. If anything, we will be paying those down rather than taking the pedal off of core deposits, Mike. We are very focussed on getting to an ROA of 90 basis points or higher, because our two-year goal is 1%. You should be focussed on that, very much so. You should be focussed on putting our Company on your focus list. That is what I would say.

So from -- is there any numbers you could give me? It sounds like you would expect, then, for the non-interest bearing deposit mix to improve pretty meaningfully, I guess, over the next four quarters. It seems like it is about 12% today. Is there, like, any numbers you guys have made public as to what you think that can reach over the next four quarters, if there is run down some of the higher cost stuff in but continued growth in the non-interest bearing?

I think all I would say is, Mike, that our non-interest bearing -- our deposits grew by 30%-some and the non-interest bearing deposits will -- I expect our deposits to grow by another 20%-plus when we are talking about loan growth of 10% or so this year in 2016. If you're looking at some guidance, that is the way we put it. And our non-interest bearing deposits, we're not going to give any detailed guidance because we don't know, but into the exact numbers.

But we are very, very, very focused on having relationships with all our clients. Our clients base is very, very strong. Our talent pool and the teams that we have attracted are very good. And we've attracted a team recently, another team that we hope to announce from Signature Bank. And they will be very much oriented towards deposit growth. So we are very confident that non-interest bearing deposits grow faster than what you've seen in the past.

Okay. All right. Thank you. That was very helpful. Appreciate it.

We'll take our question. Caller, go ahead.

Yes, hi. It's Jerry Gladue from Merion Capital.

Hi, Jerry.

Just wanted to touch on a couple of the, I guess, growth initiatives. Maybe you could give us color on your progress on the SBA loan front?

Yes, Joe (sic - see analyst introduction "Jay"). On the SBA loan front, everything is on target. We expect to -- we have a very good team there. Our pipeline is good. And it should have a significantly higher non-interest income revenues coming from that sector in 2016 than what you've seen in 2015. We've obviously factored that into our numbers that we've shared with the street. But we're not going to give guidance by that line of business alone.

Okay. And anything started from the Biz2Credit alliance?

Yes. That is also in the works, yes. So, but nothing -- think that was the fourth quarter that we entered into that relationship and everything is on target. It takes time, but we are working with Biz2Credit in a partnership with them. They will be supplementing our growth rate in SBA loans, yes.

Okay. All right. And just you mentioned the loan pipeline was good. Can you -- you willing to provide any numbers on how the pipeline looks now versus three months ago?

Pipeline is very strong. I would say our pipeline today is just as strong as three months ago. But our pricing discipline, the market -- some of our competitors, to our amazement, are giving away and negotiating on the basis of not just price but also structure. So we will be much more cautious in every single aspect. We believe that these are the times where it is prudent to be cautious and be more selective and let the competitors pick the kind of stuff that they want to pick because they're not showing any growth. So our closings are probably not going to be at the same level that what you saw in the fourth quarter, even though our pipeline today is about the same.

Okay. All right. Thank you.

We'll take our next question. Caller, go ahead.

Good evening. This Matt Schultheis. How are you?

Hey, Matt. Good, how are you?

I'm doing well, thanks. Couple of questions, and I'm sorry if I missed these details. I was wondering if you could shed any light into the loan growth during the fourth quarter, which categories experienced the most loan growth?

Matt, we kind of covered that but it is a majority of it was in the C&I and maintenance of our mortgage warehouse business, which is where the C&I business we look at business lending and then also in multi-family. Those were the two growth areas.

Okay.

And then after the call is over, you can call up Bob Wahlman and he will give you all the details.

Okay. And then looking at the projected growth numbers that you're using for 2016 and 2017, that gets you pretty close, maybe even a little over, $10 billion in assets. And was wondering how you're viewing that as far as having to staff up for compliance reasons and DFAST testing and things of that nature? And if you've had those conversations with your regulators?

Matt, one thing you may have missed is that we said that we are talking about 7% to 10% growth this year and we're talking about strategic options for BankMobile. We talked about having the Analysts Day hopefully sometime in the month of March and that we would go over all that. So you should not expect us to cross the $10 billion mark until sometime in 2017, or 2018 even.

Okay.

So we are very focussed on capital growth. And, yes, we are -- we had a risk summit today. And yes, we are in constant communications with our regulators and with other advisors. So we're well aware of what we need to do if and when we decide to cross the $10 billion mark and how is the best to do that -- $10 billion mark, sorry. And what is the best way to do that.

Okay. (Multiple speakers) Thank you very much.

(Operator Instructions)

We'll take the next question. Caller, go ahead.

Hi, guys. It's Frank Schiraldi from Sandler. Just a few questions. One follow-up on loan balances. Of the $700 million, I guess, of end-of-period, quarter-over-quarter increase, could you just tell us how much specifically was mortgage warehouse and how much was other C&I?

Well, okay. Frank, we'll -- we don't have a detailed quarter-to-quarter, quarter-end to quarter-end balance sheet, at least I don't have it in front of me. And Bob has it. If you can just give him a call, he'll be happy to give you that. But like I said earlier, we did see an increase in the mortgage warehouse in the last two or three days. On an average it was pretty flat but it had about a $300 million increase in the last two, three days. Today that business is already lower, but on an average it was still higher in the fourth quarter than in the third quarter. C&I lending continues to increase, but we did see a very good quarter for multi-family.

Okay. That leads me to my next question. On the regulatory, I guess, reiteration or reiteration of guidance this quarter on CRE concentration, and they throw multi-family into that bucket. Is that an issue at all for customers in terms of spend on building systems, or ultimately have to shrink that book as a percentage of risk-based capital? Is that an issue?

Not at all. Not at all, Frank, not at all. Because that issue was no news to us. We have been operating in that fashion. We have a 300-page white paper on that business. We do a very detailed deep-down analysis on that business.

What the regulators want you to do is that you understand the risks of that business, you understand the details of that business, you do a very detailed [thorough] analysis and you do a tremendous amount of stress testing for that business. And that is their expectation. Otherwise they don't want you to have a concentration in that business or any other business. That is the -- and we think that is the right approach to take. We agree with the regulators completely and we don't see that an issue for us at all.

Okay. So it sounds like given what you've put in place, even building upon that portfolio further as a percentage of risk-based capital, is not necessarily an issue. Is that fair?

That would be correct.

Okay.

Today, Frank, if you break it down, our C&I loans, including the loans to mortgage companies which are specifically the C&I loan because it's 100% risk-related loan and it's a line of credit. So we have 40% of our balance sheet is in C&I loans with majority of those from an interest rate risk point of view also. Our -- we'll move up whereas if and when the Fed again moves their rates. And then 40% of our business is in multi-family. And only 15% of our business is in the so-called traditional commercial real estate. And then we have about 4% to 5% of our business in mainly CRA-type of consumer loans. That's it. And then 5% of our assets are in investments.

So you think about it from an interest rate risk, credit risk point of view and our thorough analysis that we provide and the stress testing we do. So we have room to grow in any of these. But we manage our balance sheet very prudently. Our expense ratios are about 30%, 40% less than that of our peer group. We can work with lower margins. That's why. And get to a 90 basis points to a 1% ROE.

That what you should expect from our Company. And then you can work those into EPS. You will see the value creation. And then you look at BankMobile valuation, and that should be the value creation that our shareholders should expect from us. We are very optimistic about the future.

And then just finally, just a modeling question, I guess. Or in the quarter it looks like you had other non-interest income grew to about $2 million. I think you said, Bob, that about $1 million of that was swap income? Is that the case?

Yes, this quarter we had some swap income as it relates to back-to-back swaps that we do to the benefit of our customers and ourselves.

Okay. Was there anything else in that line item that was kind of -- that you would just highlight as being a bulky -- creating some growth quarter over quarter there?

Nothing that wasn't particularly common. We always have a little bit of noise in there, pluses and minuses in the number of different categories in there, Frank. And it was just a little bit of movement up and down in the different categories.

Okay. All right. Thank you.

But nothing really that stood out.

Thanks.

(Operator Instructions)

Okay, Mr. Sidhu.

Okay, if there are -- okay, thank you, Melissa. If there's -- it sounds like there is no other questions, but please give us a call if you have any other questions. And I know, Matt, we owe you some information. So thank you very much for dialing in. We look forward to seeing all of you sometime in the first quarter. Thank you. Have a good day.

That concludes today's conference, and thank you for your participation.