Ted Haberfield - IR Jay Sidhu - Chairman and CEO Bob Wahlman - CFO.

Bob Ramsey - FBR Capital Markets Steve Emerson - Emerson Investment Group Kevin Mirise - Satuit Funds Frank Schiraldi - Sandler O'Neill Matthew Kelly - Sterne Agee.

Good day and welcome to the Customers Bancorp Fourth Quarter and Full Year 2014 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ted Haberfield, President MZ North America Customers Bancorp's Investor Relations firm. Please go ahead, sir..

Thank you and good morning everyone. Customers Bancorp's fourth quarter 2014 earnings release was issued yesterday just after the market closed and is also posted on the company's website at 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 that 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 could cause our actual performance results to differ materially including the risk of the results of 2014 results that are different than currently anticipated.

Please note that these forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward-looking statements in light of new information on future events except to the extent required by applicable securities laws.

Please refer to our SEC filings including our report on Form 10-K for the period ended December 31, 2014 to be filed with the SEC for more detailed description of risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website.

I would also like to remind our attendees that we have an updated PowerPoint on the Investor Relations website under news and market information. At this time, it is my pleasure to introduce Customers Bancorp's CEO, Jay Sidhu.

Jay?.

Thank you very much Ted, and good morning ladies and gentlemen. I too want to welcome you to this fourth quarter and 2014 call. As you know, 2014 was terrific year for us and we are very pleased to share with you the level and the trend of earnings and discuss with you a little bit about our thoughts and our opinion going forward.

Customers reported 2014 net income up for 32% over 2013. Our fully diluted EPS for 2014 was 155 per share compared to 130 fully diluted EPS for 2013 and an increase of 19.2%. Our Q4 net income was up 46.2% over Q4 2013 and 13% over Q3 2014. And our fully diluted EPS for Q4 2014 was $0.47 compared to $0.32 in Q4 2013 and $0.42 in Q3 2014.

We continue to execute on our single point of contact or a high touch model. And as a result we generated very strong loan and deposit growth in 2014. We added six commercial banking teams during 2014 including national small business administration team that we recruited from a major bank in New York City.

And that lays the foundation for continued strong C&I growth as well as other areas in 2015. And we also expect a stronger total deposit growth in 2015 as a result of recruiting all these teams. We support our loan and profitability growth. We supported that in 2014 with also continuing to raise some capital.

We raised 135 million of holding company capital and some bank debt in 2014 as you know that had some negative effect on our margin. But we believe that was an effective utilization and allocation of capital. So that as a result of our growth in earnings, and effectively managing capital we were able to achieve a 12% return on equity in 2014.

So the company ended the year with about 6.8 billion in assets and we only have about 13 or 14 branch offices with deposit generating our authority and on top of that we have six sales offices or LPOs From our profitability point of view, as I shared with you, our ROE was 12%.

We had said that at our Board for the next two to three years and we are pleased to report with you that the ROE goal has already been achieved. Our ROE was 0.8 and we had some unusual expenses also during the quarter and we are committed to achieving our ROE goal of 1% within the next two to three years.

Our demand deposits and total deposits have grown at a compounded annual growth rate of about 80% and 70% respectively since 2009.

Our margin has remained pretty constant in that about 2.75% to 3% range over the last few quarters and it was at about 2.84% at December 31, and we expect our margin to remain in that band of five to 10 basis points plus minus 280.

And our operating efficiencies were - our strategy is to always have the smaller margin compared to our peer group more than offset by our operating efficiencies so that we continue to stay on target to achieve efficiency ratio of about - in that 45% to 49%, and we expect to achieve that within the next 24 to 36 months.

From a credit quality point of view, our non-performing loans at December 31, were just eight basis points of our loans that we originated since 2009. But if you include all loans on the balance sheet, then including the covered loans by FDIC then the non-performing loans at December 31, were only 20 basis points.

We have had no charge-offs on loans originated after 2009 and our total reserves to total non-performing loans were about 290% and our reserves to non covered loans at December 31 were 425%. And there was – in one of the analyst report who reported our non-performing assets at 64% basis points. I wish to correct that.

Our non-performing assets to total assets including our covered assets were about 40 basis points and our non-performing assets to non covered assets were only 19 basis points. So with that, I’d like to hand it over to Bob Wahlman, our Chief Financial Officer..

Thank you, Jay and good morning everyone. And thank you for calling into our earnings call this morning. As Jay mentioned, Customers net income for 2014 up $43.2 million compared to $32.7 million for 2013, an increase of $10.5 million or 32%. 2014 was the fifth consecutive year of increase in core net income.

2014 EPS was $1.55 compared to 2013 EPS of a $1.30, an increase of $0.25 per share or 19%. For the fourth quarter of 2014, Customers is reporting net income of $13.2 million compared to $9 million for Q4 2013 an increase of $4.2 million or 46%. Linked quarters earnings of $13.2 million were up $1.5 million or 13%.

Q4 2014 earnings per share was $0.47 compared to $0.32 in Q4 2013 and $0.42 in Q3 2014. 2014 was a record setting year for Customers at many different respects. That is not surprising considering that just five years ago, Customers had total loans of $180 million and total assets of approximately $250 million.

Today, Customers has total loans of $5.8 billion and total assets of $6.8 billion. Most all of the growth for Customers has been organic. Key financial records set by Customers in 2014 include a net income of $43.2 million up 32% from last year. Total assets of $6.8 billion up 64% from last year. Total loans of $5.7 billion up 79%.

Deposits of $4.5 billion up 55% year-over-year. Net interest income of $146 million up 48%. Non-performing loans down to $11.7 million were down 39%. Our non-performing asset to total asset including the FDIC loans and OREO was 40 basis points. Excluding the FDIC number as they had noted it was 19 basis points.

Our reserves to MPLs including the FDIC covered loans is 290% and excluding the FDIC covered loans is 425%. These are very strong growth in asset quality numbers. Customers continues to refine the strategies that it has developed to build a strong bank with sustainable earnings and look for new strategies for the future.

The entire Customers team is proud of what it have accomplished today and is looking forward for to what we hope as an even better 2015. Turning back to the drivers of customers increased earnings year-over-year.

The primary driver of the $10.5 million increase in earnings resulted from the $2.5 billion increase in loan balances outstanding to $5.7 billion. Specifically multi-family loan balances were up $0.2 billion to over $2 billion in total. Secured to commercial loans to mortgage companies was up $600 million to $1.4 billion.

C&I loans including owner occupied CRE were up $400 million and non owner occupied loans were up over $200 million. The increase in balances on driving incremental earnings was partially offset by a decrease in interest margin over the course of the year.

Of the decrease approximately eight basis points resulted from the $110 million subordinated debenture issued by the bank and $25 million of senior debt issued by the holding company in late June 2014.

Other contributing factors included lower yields on secured commercial loans to mortgage company, commercial and CRE loans due to market competition and that was about 12 to 15 basis points. And intentionally extending liabilities to help move the bank towards interest rate neutrality in the event of higher short term rates or a flatter yield curve.

Net interest income for 2014 compared to 2013 was up $2.4 million. The 2014 improvement results from increases in multi family loan sales gains, were about $2.5 million.

Gains on investment securities of $3.1 million as we shorten the duration in a favorable market that was our first quarter event, an increase [borrowing] [ph] income as we increased the borrowing portfolio. Offset impart by decrease in transactional fees in the secured commercial loans to mortgage companies business area.

Non interest expense was up nearly $25 million for 2014 compared to 2013 and general due to increase cost to manage the larger bank and higher regulatory cost. Customers non-interest expense levels as a percent of revenues, ended the year at 55% , our efficiency ratio at 55% for the fourth quarter, a top performing company in the industry.

Employee's expenses were up $11 million, regulatory assessments and fees were up $6.2 million and occupancy was up $2.2 million. These are the larger increases all up in large part because of increase staffing, fee, capital and space requirements driven by becoming a larger and more profitable bank.

Included in the Q4 2014 expense are about $2.1 million of one time expenses related to legal settlement and some special one-time incentive accruals. In addition we incurred over $800,000 in write-downs of some OREO legacy properties. The properties acquired in legacy - related to legacy loans.

The provision for loan loses was $14.7 million in 2014 up from $2.2 million in 2013. The 2014 amount includes approximately $10 million, $11 million related to growth and loan portfolio with the remainder attributable to changes in asset valuation estimate.

2014 taxes of $20.2 million on pre-tax income of $63.4 million provides an effective tax rate of approximately 32%. The variance from our expected tax rate of 35% results from two one-time true-ups that were recorded in Q1 and in Q3 totaling about $2 million.

And if you recall there were other one-time events that were going on during those particular periods that were offsetting those costs, other benefits. Turning to Q4, customers reported net income of $13.2 million, our most profitable core earnings quarter ever with earnings per share of $0.47 per share.

The length quarter earnings were up $1.5 million with 13%. The improved earnings results largely from the 200 plus million increase and loan balances during the quarter and the full period benefit of the Q3 2014 $800 million increase in loan balances.

The benefit of the increased loan volume was further enhanced by the increase in net interest margin of five basis points to 2.84%. The net interest margin increase resulted from both from prepayment penalties received on multi family loans and the sales of loans to other banks with less - with yields of less than the portfolio average.

Q4 2014 non-interest income of 5.18 million was up 700,000 over Q3 2014 as well as a result of increased gains on sales of multi family loans as we sold $135 million in Q4 compared to $100 million in Q3, and obtained better execution. As mentioned earlier, Q4 2014 expenses of 27.9 million was up 3.2 million over Q3 2014.

The increase again – I’ll reference again, the $1.2 million increase in non-recurring charges for litigation incentive compensation in addition the significant write-down on OREO property on the pre 2009 related foreclose properties. The income tax expense for Q4 2014 was $7.3 million reflecting our expected tax rate of about 35%.

The Q4 2014 provision for loan and lease losses of $2.5 million was down substantially from the Q3 provision of 5 million. The decrease largely relate to the slow down in loan portfolio growth. As we noted earlier this year, most of our 2014 reserve provision comes as a result of a large asset growth that we were experiencing.

We had little deterioration in credit quality. When that growth slows as we have talked about, the provision will slow and you see that coming through in the fourth quarter numbers. Regarding capital, Customers capital ratios are estimated to be near or exceed the targeted floors.

Our ability to grow as we did in 2014 is limited without our capital raise. Customers has stated its intent not to raise common equity given the current stock price, intangible book value multiples, rather than raise capital at the current pricing of our stock, Customers has elected to reach its growth rate to maintain its current capital ratios.

Accordingly given our estimated earnings and risk waiting of our assets, we anticipate limiting growth to the 10% to 15% range. We don’t have to but may decide to raise some non cumulative perpetual for third capital sometime in 2015 as a buffer for our holding company and bank Tier 1 and risk based capital ratios.

Looking forward to 2015, here are few specific thoughts on key elements of 2015 performance. Regarding expense growth in 2015, we anticipate that expenses will grow in line with the assets of the bank. So, somewhere in the mid-teens and that includes our estimated net operating investment in BankMobile.

Regarding the NIM outlook for 2015, we look for NIM to be relatively flat. There is competitive pressures to reduce interest rates to retain customers or grow the portfolio but we have been and we'll continue to be a disciplined in our approach to interest rate.

What do I expect loan growth to look like for 2015? As I had already mentioned, we expect loan growth to be in the 10% to 15% range, a level at which we will be able to maintain stable capital ratios.

Well Customers continue to sell multi-family loans and this is been a very interesting experience and there has been considerable market interest in this high quality asset. We have a team that can originate more volume than we can hold and there have been a considerable amount of reverse inquiries.

We believe that we can comfortably sell $100 million to $150 million quarterly at approximately a 1% gain, where we have been operating up before and we are planning to do so. What do I expect to happen to the all provision in 2015? We expect the allowance loan lease losses will increase with the size of our portfolio.

As portfolio growth will be notably lower, the provision expense should also be notably lower. We do not see any real credit quality issues on the horizon as our short-term delinquencies remain very low and you don’t need large reserves on multi-family loans and CRE.

The average annual charge-off for the industry over the past 25 years been through credit cycles, is around 40 basis points for this product. And banks in the New England area, in the mid-Atlantic area have faired even better.

So, we are not saying that we will - we are not anticipating any credit quality issues but again the future often times has some surprises. Do we expect any change in our effective tax rate due to new or expand tax strategies or changes in tax laws? No, we’re not anticipating any significant changes in our effective tax rate.

And lastly, do we expect the yield curve to be consistent with today? And yes, we're expecting the interest rates will remain generally where they are today, neither raising - nor rising nor flat. But we continue to keep targeting customers to be interest rate neutral. That is the end of my comments in regards to the earnings result for the period.

And I look forward to any question that we may have at the end and Jay I’ll hand it back to you..

Thank you very much Bob. I will take a few minutes now before we open it up for Q&A to just share with you a little bit about our model for shareholder value creation. We look at three things. One is consistency of growth rate and earnings, return on equity and intangible book value accretion as a driver's for our shareholder value creation.

How we execute that is, number one, by building a very high credit quality loan portfolio. By marketing to what we believe to be high quality borrowers and because they are higher quality borrowers, they expect us to charge a little bit less interest rates than you would expect other banks to show as their average yields.

And then number two, we expect to fund those loans which are held for investment on our balance sheet with stable core deposits and because we don't believe that the future is all based upon bank branches, so we expect to have average deposits in excess of 200 million per bank branch.

And in lieu of paying rent to landlords, we would rather pay a little bit more for core deposits to our customers and attract core depositors and non-interest bearing demand depositors and then vow them with service which will also leads us to our extension of our strategy, which I will talk a little bit about later on which is the BankMobile strategy.

Number three, element of execution of our strategy is operating our business at a significantly lower cost.

Would this branch like a strategy and then having something what we call single point of contact or high touch strategy for the customer which is supported by hi-tech and by hi-tech we mean very good management information systems and customer management systems as well as profitability system so that we can compensate our teams based upon the profitability that each one of them is generating and also have a fully allocated cost structure in becoming their profitability.

Number four element of our strategy for creating shareholder value is continuing to use new technologies and product to both disrupt the market, as well as improve our operating efficiencies.

And we have on 14 of January introduced our digital consumer bank, which is the first full service digital consumer bank that operates completely out of the palm of your hand.

And we expect in the second half of this year or early part of next year to also introduce a digital bank for small businesses, which will also be a nation wide bank together core deposits as well as have deeper relationships with small and medium size businesses even inside our current market area as well as extension of our existing market area.

The next element of our execution of our strategy or number five is controlling our risks. You heard both Bob and I talk about credit risk but in addition to that interest rate risk, as Bob mentioned, we envision rates to be in the short-term perhaps slightly higher in the second half of this year.

But as a result of that, we expect the yield curve to get flatter. So we are very well positioned for higher short term rates and a flatter curve.

In addition to that, our risk management systems include managing compliance risk, managing cyber security risk, managing our attraction and talent and retention of talent which is a very important issue in this kind of an environment. And as a result of all these, we expect to continue to report sustainable above average return on equity.

And we expect to report above average growth rate and earnings. And even in a rising or if there is a stable interest rate environment as long as it’s not a huge short term impact should have no impact on our performance.

In terms of what our mix is, and how have we performed because there is some confusion and I’ll talk very specifically about one analyst who has materially incorrect information in the report that he issued this morning. So, but let me just share with you our deposit strategy. It is not as he calls it an adventure.

It is a very, very well [caught-out] [ph] and not environment strategy. Deposit gathering we call it concierge banking, which is looking at opening accounts by taking the banker to the customer using digital technology and as a result of all this, we have a model that are all in cost which are our interest expense plus the cost of gathering deposits.

When you add the two, and it should give us an opportunity to be operating at a lower cost than our competitors. And as far as our cost of deposits, they were 64 basis points in 2014. We expect that number to be somewhere between 60 to 64 basis points in 2015 based upon the way we see things going forward.

Our borrowings are about 29% of our total deposit in borrowing mix but our strategy is that we will keep our short term loan portfolio held for sale which is our mortgage commercial loans to mortgage companies. And we fund because that's a short term portfolio we fund most of that with short term borrowings and some deposits.

And as a result of that we think that’s a much more prudent strategy than having a large investment portfolio and we don’t consider that an adventure. As far as our deposit growth is concerned, as I mentioned earlier our DDAs have grown at about 88%. We expect our DDAs to continue to be the fastest growing portion of our business.

And our total deposits, core deposits, we expect that to continue growing too. In terms of our mix loans, 94%, 93% of our loans are business loans, commercial loans and our multi-family loans were 39% of our total loans, and our commercial C&I loans, as well as owner occupied loans were about 20%. Our non-owner occupied CRE was only 10%.

That's very, very different from what you see at most banks. And we expect our mortgage warehouse loans took a little bit of the bump at December 31, but we expect that to be somewhere in the 15% to 20% of the range.

And we expect our consumer loans, which are principally residential mortgage loans, and CRE loans to remain in the 5% to 7% of our total loan portfolio. Our yield on loans was 3.88% and the new loans that we are booking today there are also at 3.88% or in fact slightly higher than that.

So we expect to maintain the yield in our loan portfolio and like I mentioned to you, our commercial loans, this is a commercial bank, and our commercial loans were 93% of our total loans.

In terms of our strategy for this banking, we call it the banking the privately held businesses, we have added another area over there which is National SBA Lending Group. National SBA Lending Group is a business which had very little profitability in 2014 but we expect it to be profitable starting first quarter of 2015.

In the private and commercial banking, we target mainly businesses with revenues below $100 million. How we do that is, by continuing to recruit very experienced teams and executing on our single point or contact.

All of our lending is in New England, New York, Pennsylvania and New Jersey markets, that the total outstanding of C&I and non owner occupied - C&I and owner occupied rather. Our commercial real estate was little over $1.1 billion and that all is organic growth and in 2010 that number was only $342 million.

So the company has shown an extremely strong core franchise growth. In terms of what we call banking the high network families, it is not just making multi-family loans, it’s making loans to high network families that hold smaller multi-family properties in their portfolio, that’s why our average loan size is $4 million to $7 million.

Majority of our buildings do not have elevators. So they are like four-storied brown houses. In New York City, we keep the deposits, we keep the relationships and we are selling the excess of our originations as Bob mentioned to other banks that have gain. And again this is a core business and not an adventure as one of the analyst calls it.

In terms of our mortgage warehouse banking strategy, it is commercial loans to mortgage companies. This is a very, very good asset based lending business because these are all secured loans and they are also come with fees, and they also come with core deposits.

We have very strong credit relationships with somewhere between 75 to 80 mortgage companies. We bank not only the mortgage companies but also the owners of these mortgage companies who happen to be high network individuals.

And all the deposits that we get which are about 10% approximately of our loans outstanding are non-anticipating DDAs and we see this business to be somewhere between 15% to 20% of our loan portfolio and we see this to be a very strong core business and once again to the analyst, this is not an adventure, this is a core business.

As far as building efficient operations, our staff expenses were only 85 bases points of assets compared to the peer group which is at 146, so you can see that gives us an advantage. The main advantage is because we don’t have branches.

We pay our people better than what others in the industry are paid, but we do not pay higher rents to landlords, that’s why our occupancy expenses are only 21 bases points of our assets compared to 37 by our peer group and that gives us an advantage.

Hence our total cost as a percentage of assets are only 1.8% compared to 2.8% so that makes up for the lower margin and our total hands revenues for employees because we can work with lower number of employees is $421 million and hence -- sorry $421 million and hence, sorry, $421000 and our assets per employee are $16 million compared to only $6.5 million at other banks.

So going forward we expect to continue building on our business bank, we expect to continue showing about $150 million plus, minus a quarter growth in both C&I as well as multi-family loans and including owner occupied CRE or C&I and once again we expect to maintain our margins.

A little bit on Bank Mobil, today Bank Mobil we launched it two weeks ago. In the first two weeks with no marketing, we’ve attracted well over 500 new customers, relationships and that is more than what customer's bank would do in two-year period from the consumer banking sector.

So it’s off to a very good start and still we have done no marketing at all other than industry wise public relations efforts. And what does Bank Mobil do? It in essence is a strategy of no-fee banking and we pay 25 bases points higher interest rate than the top four banks in the country.

We offer lines of credit rather than overdraft fees and there are no fees at all. We offer 55,000 ATMs to all our customers. We offer a personal banker to every single customer.

You can open up accounts within five minutes from the palm of your hand and we believe that the main targets will be the technology dependant younger customers as well as middle income Americans as well as the undeserved and we at the same time are going to capitalizing on the one million plus student customers that we already have, which by the way again for the analyst are not local deposits.

If you open up account through digital means that doesn’t mean it becomes brokerage, so I want to correct it’s a factual misstatement by you to say that we have brokered student deposits, totally incorrect. And we expect to have the one million students being converted to our core customers through the Bank Mobil.

The government amendment is a very unique opportunity for Bank Mobil because our main source of revenue will be non-interest income, which happens to be through the interchange fee.

And that is another reason why we expect that our moderating groups rates in total assets is going to be a positive for us, that while we continue to improve our performance, continue to improve our shareholder value creation and we will continue to take Bank Mobil to a level that it becomes very apparent to our investors that we created a very relationship oriented, high quality digital bank that one day, we can spin off perhaps to our shareholders.

So with that Noah, I would like to request your help in opening it up for any questions that anybody may have..

Thank you. [Operator Instructions] And we'll take our first question from Bob Ramsey with FBR Capital Markets..

Hey. Good morning, guys. I wanted to talk first of all. I had a couple of quick questions on credit.

Do you have the $1 amount of net charge-offs in the fourth quarter?.

Yeah, Bob’s just looking for that. All net charge-offs were recovered loans, Bob, while he is looking for that, there were here in the covered loans or in the legacy portfolio and we’ve had no net charge-offs at all in our any loans that we made over the last five years..

Bob, I have the total charge-off year to date, I have to compare to the third quarter, which I don’t have it on my finger tips. But it was $2.1 million. Yes, $2.1 million was the total charge-offs for the year and if you compare that to the third quarter information, that's included in the investor materials, it's in there..

Perfect. I can fact that out and get there, that's great. And then as I think about provisioning on a go-forward basis, it looks like this quarter you all provisioned about $2.5 million for what about $200 million worth of loan growth, which is a little bit north of 1% maybe 1.25. That seems high, given your loan mix to me.

I’m just curious if that’s a good run rate for provisioning or how we should think about the level of provisioning in 2015 relative to your growth expectations?.

I think as Bob Wahlman mentioned provisions in 2015 was probably going to be less than even the fourth quarter level..

I think the information that’s in the -- that we disclose each period, Bob in the 10-Q that discusses our commercial and CRE growth. We reserve about 75 bases point.

For multifamily growth we'll growth, we will reserve an additional 40 basis points gets us out to our weighted average maybe about 60 to 70 bases point and this quarter there was a little bit of other charges relating to asset changed valuations that pushed that total number up..

Okay. Great. That’s helpful then. I guess sort of shifting gears to expenses I know you've highlighted this quarter had some unusual items related to OREO charges or litigation or what not. I know you gave good guidance around next year too.

How should we just think about the trajectory of expenses through next year? Are you flattish or may be down a little bit in the first quarter given some of those item maybe don't recur or is it a pretty steady build to the year or how are you thinking about that trajectory?.

While Bob is looking for that, I think the first quarter expenses should be little less than the fourth quarter..

Yes, that’s exactly right. It were little bit less builds up a little bit through the year. It runs a little bit less in the first quarter and the rest of the year we expect to run about same level..

Okay. Great. Perfect. And last question and I'll hop on out, but I know you all highlighted that the margin benefited a little bit from the multifamily loan sale and the loans were lower yielding than maybe the portfolio overall.

Just curious if you could share with us were these newly originated loans, were they more seasoned loans or what was the yield on the loans that were sold in the quarter?.

The yields on the loans that were sold was about 3% and 3.4%, 3.3% to 3.4% and the new loans that we're putting on right now are at 3.5%. They range between 3% and you know 3% and 3.8% to 3.75% overall. So that’s why that helped us to increase our margin by one to two basis points just from that action..

Great. That’s sound good. Thank you. I'll hop out..

If I could real quickly, the charge-off in the fourth quarter was $1.4 million..

Okay. Perfect. Thank you..

We’ll take our next question from Chris McGratty with KBW..

Hi Chris..

It's Mike jumping in for Chris..

Hi Mike..

Good morning, Jay I thought maybe we could spend a minute on capital. When I look your last common equity ratio, I think it was, maybe coming up on a couple of years ago. Your growth outlook looks very strong but the multiple intangible book value wasn't that different.

When we fast-forward to today, is it solely valuation that's kind of keeping you guys on the sidelines on the capital ratio perspective, or is it a combination of that, the growth outlook, maybe just not looking as profitable as it was in the past and the headwinds of Durban?.

Mike, let me say it again. We will not issue common equity and we have no plans to issue common equity at all in 2015. Why, number one, we issued last common equity in May of 2013, we were still a private company at that time. It was done just prior to listing on NASDAQ.

We have not increased our tangible book value as a result of common equity above book. We had a strategy to achieve certain scales. We wanted to take our mortgage warehouse business to less than 20% of our business.

We wanted to build our multi-family business, we wanted to recruit teams, we wanted to open an office in Boston and in Greater New York we wanted to add teams over there, we wanted to see our C&I business become a bigger percentage of our business than our commercial loans to mortgage companies because there is some volatility in that business.

We wanted to build a core franchise value. And we made public that you should expect our assets to be above 6.5 billion by the end of 2014. And that was made public by us in 2013. If you look at our Investor Day, that's what it will say. That's exactly what we done Mike.

So there has been a little bit of a confusion in the marketplace about our desires for capital allocation and our capital allocations strategy is 12% return on equity. And that should be done without taking interest rate risk. And that should be achieved with solid asset quality.

And at the same time, we should be building relationship oriented core franchise because that is the way we see that shareholder value being created. So, that's why we supplemented our equity capital raise in 2013 with some debt capital.

In 2014, and we will probably supplement some of that with somewhere between 25 million to 50 million of possibly that much of perpetual preferred in some time in 2015. And that will in our forecast of constrained growth will actually get us to earning above 12% return on equity once we get to that 1% return on asset range.

And you can see it will become a very high performing bank and the value creation is all going to be subject to execution.

And so we are laser focused on execution and we believe that we can return a well an excess of 25% average annual compounded shareholder value over the next few years for our shareholders as just as a result of sticking with this..

Okay. Maybe just a follow asking it a little differently, the - are you at all concerned or maybe concern is too strong word, but selling some of your originations would have maybe not a negative but hinder your commercial franchises growth or are you still confident that you can maintain those relationships in your balance sheet strategy..

Mike in our model we have assumed zero sales and zero gain on sales to be honest with you in the guidance that you’ve given to the street. So, Bob mentioned - because this is our core business is making sure that we build a core franchise. We do not expect.

We communicate with every single customer if whose loan is put in the package by us for sale to other banks. And some of these banks who are buying our products are by-rated banks by you. So these are high quality banks and we've now had interest also from REITs to buy our multi-family origination.

So, we will originate the high quality customer relationships and based upon the relationships that we have with customers, we will always serve them. And we expect that's why to show between 500 million to 600 million of multi-family growth on our balance sheet this year.

And if any of our customers ever have a problem with our selling it to someone else, we would just not sell. That's why it’s a core opportunistic strategy on our part. And it is not as one of your other analyst from another firm said, he called it an adventure by us.

He is dead wrong, this is – you’re raising a very important point, we will not sell if it negatively impacts our franchise..

Okay. Thank you, I appreciate that. And then Bob just one quick one on the margin guidance, the stable for 2015.

If we assume rates aren't going to move any time in the next or so, are you expecting some modest compression or will the selling of some of the multi-family lower yielding production really offset anything near term that could put downward pressure on the margin?.

I think Jay, further the margin guidance that I talked about, and that we do expected to be around the range of 288, 275, or 280 plus or minus. And we expected to be disciplined in our pricing. We’ve done a terrific job I think over the past year in terms of demonstrating our ability to generate loans.

And we think that we can maintained our portfolio and obtain our growth objective without compromising on yields for 2015..

All right. Thanks guys. Appreciate it..

Thank you, Mike..

We’ll take our next question from Steve Emerson with Emerson Investment Group..

First of all, congratulations on yet another great quarter and great mix rates..

Thank you, Steve..

Could you update us on the Religare, your Indian investment situation and what your current objectives are for possibly liquidating this $25 million investment which would allow faster loan growth?.

Sure, Steve, I’m glad you brought that up. First of all let me admit that in retrospect investing in Religare was a mistake on our part, because things have not worked out the way we expected them to work out. Our investment in Religare is today still at about a same value as what we book it at.

We did some diligence during the fourth quarter on the state of the banking industry, as well as on strategic partnership to build the deeper relationship with some higher royalty in families of Indian origin as well as companies who are doing business with India.

And the bottom line is that by the end of September we – if there is no banking license granted to Religare Enterprises we expect to by end of 2015 to get out of this investment. It’s like as I said, it was a mistake and we take full responsibility for that. And so either you will see a nice gain on this or you see us get our cash back..

Excellent. And I don’t know if you discuss this.

But what are realistic options for raising preferred or debt monies for year, what room do you realistically have?.

If I understand your question correct I think is what kind of debt we might raise this year, is that Steven or may I misunderstood?.

What type of room do you have?.

I think we mentioned – I think I mentioned just now, just a few minutes ago Steve that we think if we do raise its going to be perpetual preferred Tier 1 qualifying at the holding company that are to improve our Tier 1 ratios at the holding company and the bank and that in essence also raises and improve our cushion for risk based capital.

And we believe if we do raise some this year it’s going to be in the $25 million to $50 million range..

Thank you very much..

We’ll take our next question from Frank Schiraldi with Sandler O'Neill..

Good morning. Thanks.

Just a few questions, first on the margin, you talk certainly a lot about a flattish NIM going forward, I wonder if that has baked into it some expectation of prepayment penalty income picking up next year as – or this year I should say as the multifamily portfolio has seasoned a bit?.

I think it bound to happen, Frank, but we did not bake in any significant increases or any significant amount. In fact in our model we assume zero prepayment penalties in 2015. But we’ve already received some in January, it’s bound to be.

So we are just being conservative because what’s happening Frank is that certainly banks are waken up and saying, ops, we got to increase our running assets and how do we do that is? We got to make loans. You know they haven’t made any done loans over the last couple of year. So we are seeing some stupid thing from some stupid competitors.

That should not to be happening. And we are being very discipline. So we are going to stick with the strong credit quality. So we made some assumptions that there might be, you know, we would rather give up a little bit on the pricing but we will never give up on the structure.

So that is what we’ve modeled in to see and why we are not seeing continued increased in our margin, but we would rather have modest expectations and margins have a modest expectation on any gains and sale of loans and those kind of things and if all that happens that should be icing on the cake..

Okay.

Jay, I hope I heard you correctly that the prepayment in penalty income you’ve seen so far was in January, so there is nothing in the 4Q margin associated with loans income?.

No, no, no, no. There were some prepayment penalties given in fourth Q, but Frank as our portfolio matures and based upon experiences you’ve seen from others, you ought to see prepayment penalties actually accelerate going forward. You know although we have not factored any those and because it’s almost impossible to predict those..

Sure.

Just for modeling purposes, do you have the impact in 4Q from prepayment penalty income?.

That was about three basis points..

Got you. Okay. Great. And then secondly, just wondering on the BankMobile front.

The new accounts you talked about, does that reflect customers associated with Higher One deposits or other customers of the bank or those totally new customers to customers - those Bank Corp?.

Totally new customers. And these are all believe or not their average age into 35 to 40, which surprises that, you know, like as you know, you will say, we would expecting them to be millennial's and maybe that's because we haven’t done any marketing. This is only been in the business press.

So far our real marketing is going to start in March and reaching out to the consumers and everything else. And as far as our student checking accounts are concerned we are going to be targeting the 125,000 to 150,000 who are graduating in May. We will be targeting on them at that time..

Okay.

So in terms of like Higher One customers where deposits are obviously housed at customer’s bank, it’s more of a as a graduate, you hopefully you can entice them to come over to BankMobile?.

Yes..

Okay..

But let me clarify little bit Frank, even you and we have to take the responsibility of creating any confusion on when you say Higher One customer. They are not Higher One customers. They are our customers. And we own them. And so we – they bank with us. We use Higher One disbursement system to reach them.

And we sell them our checking account product to digital means and over to the internet and so that’s essentially how it is. So our objective is to continue to put our brands in front of them. Now it will be the BankMobile brand in front of them rather than customers bank brand.

But all these customers, student customers of ours and I want to correct the analysts who called them broker deposits. They are not broker deposits. All these customers can walk into a bank branch of customer’s bank and do business. They get free access to ATMs of all customers bank branches. They are checking account customers.

So that’s why Frank it to be very interesting once we are able to convert them from a student checking account of customers bank to a BankMobile offering of customers bank and that will start in the month of in the second quarter of 2015..

Okay. But I just wanted to clarify on as getting there as getting the student loan reimbursements, right on a customer’s checking account, or in a customers checking account. You don’t expect to convert them over to BankMobile deposits until after they graduate..

Absolutely, correct..

Okay..

BankMobile is for people who have a pay check coming and these students don’t have a paycheck coming. BankMobile has an average balance of $1000 plus assumption because of that in our model and there are student checking account customers have a $255 average balance. So that’s why we can’t offer them a BankMobile..

Sure, okay.

And then Bob just on the $1.2 million split between legal settlement and incentive true up, is that mostly incentive true up and could you share is the legal settlement related to CMS Bancorp?.

I’ll take that because I was involved in that legal settlement directly. And a majority of that is really they exited to about $700 million, $700,000 is related to a legal settlement and the rest is related to the incentive and but as a part of the legal settlement you know we cannot disclose to you the details of that legal settlement.

I’m sorry Frank, hope you understand it..

Sure.

And then just finally on Religare, so I’m not totally familiar with the liquidity of that investment, but is that going to be an issue as you maybe look to exit in 2015?.

No it shouldn’t be..

Okay. All right that’s all I have. Thank you..

Thank you, Frank..

And we'll take our next question from Kevin Mirise with Satuit Funds..

Coming to the topic of the uncertainty or the skepticism of some analysts or investors around the potential of a capital raise overhang, another aspect on which you’ve been very specific in the past is that you would not do an equity raise below the kind of I think you’ve said 1.6 to 1.8 type range on tangible book.

So you have said you have no current plans for an equity raise this year but if the multiple got a little more call it respect and recognition for your performance metrics is there an update on that you would offer on that trading multiple to tangible where you would be more likely to take advantage of raising some equity?.

I think you can never root say never but right now we have no plans to issue common equity because as Bob mentioned the seven that we are talking about moderating our asset growth in the 10% to 15% range or loan growth in the 10% to 15% range or deposit growth greater than 10% to 15% range for using our borrowing, improving our relationship with our clients, improving our profitability and allocating our capital in a way that improves our core return on equity, so that’s what we are very focused.

And so I think you should stick with it what we have given to you and what we have said is do not expect us to do any equity raise in 2015 and perhaps even beyond that..

I guess maybe one other aspect of it. It sounds like you didn’t want to step up to a range, but in my mind I guess I’m thinking you know only a very attractive acquisition would you know something like that would warrant a raise at least anyway in your words trading, I don’t know if you would step up and offer any color on that either..

At the present multiple acquisitions are out of question for us and we will not do any, because people are making some crazy offerings of prices and they are looking at four to five year tangible book value on that and our discipline is very clear.

If we cannot, if we do any acquisitions at any time we cannot even do acquisitions right now I’d say let me just be very straightforward about it that because of a multiple of our world class you know we still are not done with our CRE exam.

And so once we are done with those we might look at acquisitions, but with our multiple where it is right now, it would be crazy for us to do that. If we do any acquisitions we would only do them if the book value dilution and that’s going to be overcome with earnings from that target within a year or two, otherwise organic growth is beautiful.

We love it, we would rather acquire teams than buy bearings with legacy columns..

I appreciate that. The one small modeling data points at a BankMobile marketing launch you mentioned starting in March what kind of range of expenses should we expect to see this year associated with ramping that platform or traction of it..

We’ve given the guidance of $5 million to $6 million. We’ve spent about $1 million in the latter part of the third quarter and mostly in the fourth quarter and we expect to spend about $5 million which we’ve already baked in the guidance that we’ve given to the Street this year..

Okay. Thanks. That’s it for me for now..

And we’ll take our next question from Matthew Kelly with Sterne Agee..

Question just on your thoughts around how you are planning to fund you know the operation from a deposit perspective. I’m wondering if you can give us a sense just during the fourth quarter the cost and the composition of looks like you added about $250 million in deposits in the fourth quarter.

What was that? And then for the year ahead, your guidance basically suggests adding $500 million to $600 million of that of loans, how would you envision these deposit composition to support that looking right?.

Yeah, good question, Matt. Matt we expect like I just said we expect our loans to grow somewhere in the 10% to 15% range. Based upon our strategies we expect to grow our deposits by about 20% to 25% range. Our average cost of deposits could be added onto our balance sheet, to our total deposits in the fourth quarter were in the 55 basis points range.

They included $200 million increase in non-interest bearing or $150 million to $200 million increase in non-interest bearing deposits. There is seasonality to our non-interest bearing deposits. So we are looking at about $250 million to $300 million increase in non-interest bearing deposits in 2015.

So I think our focus is on core CNI growth, continue to grow our business deposit, that’s the biggest source of our deposits.

BankMobile is going to help us with our deposit growth, but it’s not being used by us for deposit growth, it’s being used by us to develop relationships with millennials and under bank and as well as middle income Americans we are assuming only a $1,200 average balance in deposits in the BankMobile and the majority of the income for BankMobile is going to be through the interchange income because we will take advantage of being below $10 billion as a bank.

And we expect BankMobile not to be profitable for two to three years. So it’s not going to be a major contributor but it’s going to be a major value enhancer for our franchise as such.

In terms of Matt, just one other thing which I think your question is making me think, by the end of 2015 we expect to convert our office, our loan production offices into deposit gathering offices also because that makes it easier for us to then to gather some deposits.

So the Philadelphia, LPO, the Melville Long Island LPO, the Manhattan LPO, the City of Boston LPO and the Providence LPOs they may all become deposit gathering branches also by the end of 2015..

Got it.

And then just to clear the air on the higher one deposits, what is that balance and to be clear you know the FDIC fees did have some recent guidance on what does constitute real good and your interpretation of the higher one deposit that you hold leaves you to believe that those are not brokered, is that what I’m hearing?.

They are definitely not brokered. And they are about 250 million of non-interest bearing DDAs. There are 1.1 million students. So that’s why I say that they are about $250 a little over that average balance. There is the seasonality to that math.

They go up to about $350 million you know after the – in the beginning of this year and of the student academic year and they go down to about 220 million, 200 million at the end of the semester.

Now our strategy is that we are also going to be going after the graduate students through our BankMobile and our net staff who are working and have an income coming. So we expect that truly our deposit gathering to get better from the student segment.

But I will correct that, please don’t call these brokered because that’s a materially misstatement and Matt please don't call our mortgage warehouse business and our multi-family sales as an adventure by our bank..

Sure. We can take that also we can go ahead to follow up with that. I will say though that, I would like to get your commentary at September 30, just right from your call report, 28% of your deposits were classified as broker, your classification on there.

Over the next year or two, as you grow loans at 10% to 15%, do you think that’s the high watermark for the percentage of broker and we'll see that come down or will that drift a little higher overtime?.

I think it will come down. No question about it. Sometimes Matt what happens, as we are lengthening our deposits, as we are lengthening our liabilities, it is easier for us to do with through broker deposits than to do with core deposits.

So we got to look at our deposit system inline and align it with our risk management strategies because interest rate risk management to us is very, very important and its very difficult to manage, to lengthen the liabilities of consumer or business core deposits..

If I could add just real quickly Matt that the strategy that Jay laid out, we are limiting the loan growth or the asset growth 10% to 15%, that doesn’t mean we are limiting the deposit growth.

We do look to grow deposit significantly at a greater rate and its that growth and deposits relative to those assets that will result in running down this dependency the broker deposits and warehouse funding over a period of time..

Okay. Got it. One other question, you brought Jay transitioning all those offices but I think we’re originally intended for mortgage banking, Phili, Melville, and Boston provenance, have you started that transition of hiring the people who are more geared towards collecting deposits.

I assume all the people in the mortgage banking side which I believe you, that's been shut down, you have the space and unit transition move, if you could tell us when you think you will be able to speed on that?.

Right now all our LPOs are small business lending LPOs, and what we call private to commercial banking. The Melville LPO is where we are operating out of the Melville Long Island, that's where we are operating our SBA lending team model. The Philadelphia LPO we also have a CRE related mortgage loans, single family mortgage loan operations out of that.

And in other areas of Pennsylvania and New Jersey we are doing CRE mortgage lending. But just to clarify we are not, we are completely out of mortgage banking other than CRE oriented loans and accommodation loans for our existing customers.

And so we will only recruit deposit gatherers for Boston, Melville, Manhattan and Philadelphia once we get as already from the Federal Reserve to convert those LPOs into deposit gathering. So right now we are only gathering deposits out of our branch offices and those are where we have a legal authority to generate deposits..

Okay. All right. Thank you..

And we currently have no further questions in the queue..

Thank you very much ladies and gentlemen. And if you have any questions please give us a call anytime or email us. And thank you again for joining our call..

And this does conclude today's conference. Thank you for your participation..