Dime Community Bancshares, Inc. (DCOM) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Dime Community Bancshares Fourth Quarter and Full Year 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. Before we begin, please note this call may contain forward-looking statements with respect to the financial condition, results of operations and business of Dime Community Bancshares. Actual results may differ from these forward-looking statements. Please remember to refer to the forward-looking statements disclosure on Page 7 of the Company's earnings press release. Dime Community Bancshares cautions you against unduly relying upon any forward-looking statements and this claims any intent to update publicly any forward-looking statement whether in response to new information, future events or otherwise. I would now like to turn the conference over to Ken Mahon, President and CEO. Please go ahead.

Thank you Garry and thanks everybody for joining us today. I have with me two folks from our finance department. You know both of them Avi Reddy, who runs Corporate Finance for us, he is also our Treasurer. And Leslie Veluswamy, who is our Director of Financial Reporting. Again thanks for being here. I think a good jumping off point for this conversation today is the article that appeared American Banker about Dime on January 19, by Hilary Burns. She talked about the transformation of the balance sheet here at Dime. And the folks who follow us know the know the story pretty well. And I thought, she did a nice job of framing, what's going on here. But just a few high level enterprise level observations. Number one Dime is in the process of lowering its CRE concentration percentage. Some of that is coming from the introduction of new asset classes on the balance sheet, mainly there has been a lot of focus on C&I and some SBA that will start to build. And then later this year the residential loans, we acquired a team from Astoria, you’ve read – you saw the press release on that recently. But in the fourth quarter a big portion have occurred from the loan securitization. We'll talk about that later in the call. So the CRE concentration percentage here is down to about 780% at year-end versus over 900% a year ago. Just wanted to remind you this is not purely a C&I build out. I've heard it referred to as that throughout the last year. It's not just C&I, it’s really, it's a relationship business, it's a community. What we said is community commercial bank, which is very much a relationship business. Number two Dime is not abandoning our traditional multi-family broker business. We still do a great deal of work with our brokers. And we encourage them to bring business to us. But as an example where over the many years, we've been referred to as a mini New York Community Bank. Today, I think we look at Signature bankers as our aspirational business model here. It's a relationship model, they do operate in the same segment of the lending business in New York City. They have continued to operate in that business that Dime did. But what they've done is they've over at Signature what you’ll know is that they will lend in that market but they want some self funding coming from their borrowers. And that requires some effort on the part of their relationship bankers and their business development officers. Number three, when we turn to liquidity you'll see through the securitization, that we did in the fourth quarter. We put some liquidity, significant amount of liquidity actually on the balance sheet. That does bring us more in-line with the regulatory guidance for liquidity. We'll continue to look at that, we look at our stress testing models. We feel comfortable with our assumptions and – but you’ll see that in the fourth quarter. I think it's almost 8% liquidity on the balance sheet. Number four for those of you are looking at your financial models and trying to project Dimes earnings for 2018 and 2019. We're really guiding toward no growth in assets in 2018. I know from looking at some of the financial models out there that's going to be some tweaking in some cases maybe a little bit more than tweaking. The size of the balance sheet as we looked at the build out, we'll talk a little bit about the how much of that has occurred in 2017. But this is really building a new balance sheet, inside the old balance sheet, and that will happen more quickly, if we don’t grow the old model. And so a lot of when we look at the assets and liabilities, we think we can do a better job of changing the margins on a go forward basis by keeping the existing balance sheet right, where it is. There's a page in our Investor Presentation anybody who's seen it last year you'll see the yield on loan portfolio. Dimes yield on loan portfolio was about 350. In the group of 12 or 14 or so banks in our market that we look at, those portfolios yields range anywhere from 350 to 450, that is a 100 basis points for banks, community commercial banks that look similar to Dime that are in this market. The median yield in there it's about 405 or so. So we have a lot of runway on the asset yields here that will produce growth in earnings without changing the size of the balance sheet. And similarly on the cost of deposits Dime has one of the highest cost of deposits. It's a very, it's been a very profitable model over the years. It had some Achilles heel to it, the loan to deposit ratio was one of them. Although when you look at credit costs here, credit costs have been very low for that period of time. It was a very low efficiency ratio model. Mike Schiffer [ph], who’s with Global Partners. I saw him in the fall of last year and he said to me that’s the big question, we get all the time how quickly you think this can happen, the transformation can happen? And I said to him that I thought maybe a couple or three years it would happen over and Mike said, well, in his experience it's more like four years. I think the reduction in the tax rate is going to help us make it happen a little bit faster than that so our goal at any rate. But ultimately, we're producing a higher quality balance sheet and I'll talk to you about that momentarily. And number five, turning to non-spread revenue, when you look at community commercial banks, you'll certainly see much higher level levels of non-spread revenue than you see in at Dime. Again another area with that Dime has underperformed, we think from our SBA platform and from the fact that we're going through our core conversion in the middle of the year in 2018. We expect to see more revenue coming from our commercial services. In fact, the frustrating part for me has been that some of the services that we've – some of the banking services that we're offering today. We don't even really have the platform that we can apply, our new fee structure to those customers because we don't have the core processing available to us to do that. So those are some of the high level things, some of the enterprise things that I want to say by way of introduction. When you turn to the press release, the earnings release that we put out today. I'm not going to go through it line by line, you'll have an opportunity to read, I just wanted to highlight some of the things that have gone in there. So we did make $51.9 million of earnings, last year $1.38 per share, diluted common share. The highlights though at the relationship banking that the build up that we've done that sort of balance sheet inside the balance sheet, $235 million worth of loans this year, of which $137 million are C&I loans or deemed C&I loans. But if you want to just look at that part of the balance sheet, out of those loans. Those loans have a weighted average rate of almost 4.7%, 23% of it is self funded $52 million of deposit balances there with a weighted average deposit rate of 0.95% so 9.5 basis point so clearly a much different balance sheet there and then Dime’s traditional balance sheet. And when we look to, we’ll talk later about this but in 2018, we expect to do about $300 million of that. But even in the traditional multi-family business, we started pricing ourselves in wider spreads in 2017 so where the rack rates for typical what we would used to refer to is typical Dime loans here would have been 3.5% that would have been a competitive rate 3.5% – say 3.5% and 3.8% would have been a competitive rate in 2017. By July of last year, we started pricing those – repricing here above 4% and it really did ding the business. But after having sat through at so many loan meetings in the first half of the year, we didn't see a lot of deposits from that business. And then we thought while we had – we need to make the business more profitable for us. And I think part of the build out, what you've seen in part of the build out, I think what gives me a lot of comfort is that we really chose a good time to build that business because we gave Dime an opportunity, another outlet for building loan production here. We weren't solely dependent on the multi-family model. Dave Martin, who writes for banking strategies in American Banker had a really great article and was very insightful. And he said something in there. He said, a lot of bank managers today understand the importance of changing, it's not so much that they don't understand that the change has to happen because that you've got to go from trying to fix the model without breaking it. And that’s I thought to myself that's speaks really for where Dime is today in the evolution of our model. So we go back to the earnings release, we have to do what we thought was a successful launch of that model or goal with $250 million of loans, we did $235 million. Our reported book value per share is $16 and $14.5 for tangible book value per share. In the fourth quarter, we completed the $280 million securitization of multi-family loans that was successful for us on many levels. One is that we created liquidity on the books, we have sold already a couple of portions of that CRA packaged loans and sold them at levels above the level that we held them on the books for. And we'll talk more about it at the end of the first quarter, we talked about the gains that we had out of those securitizations. But there were clearly CRA qualified loans in there that we are able to sell our securities and made a profit on them. The loan to deposit ratio as a result of that decline is 127% and the credit quality, we said in Page 2 the credit quality remains pristine, non-performing loans at one basis point, I sat in – we had our board meeting this morning and I sat on a loan committee meeting of the board. This is a loan portfolio of $5.2 billion, the majority of which as you know is pre-war multi-family loans in New York City. We had one loan for $480,000 that is in the zero to 30 day delinquent category. It’s a phenomenal track record. I know we can't duplicate it in this new build out. That's not the nature of what you'll see in commercial bank portfolios. We expect it to be a little bit higher with risk comes a significant reward and that's the model we're on the process of building. As far as the annual operating results increase of 6.5% net interest income last year, the NIM continue to shrink in 2017 that was mainly a result of the rising cost of deposits. Dime haven’t been too aggressive in raising our deposits, that’s why you saw growth in the borrowed funds portfolio. We’re trying to find a level – a good level for us where we can maintain our handle on the deposit costs. And because we’re not growing the balance sheet next year, I think we can find someplace good for that in 2018. I know there is a lot of pressure on that, but certainly if we were trying to grow the balance sheet and continue to do with deposits, we think the entire cost of the deposit pace would continue to shift up at a higher rate. Total assets, as I said, grew by $400 million in the growth in assets, most of that you’ll see in the securities portfolio of $338 million and some cash at $56 million. Originations were about $900 million last year, that’s lower than the $1.5 billion in 2016, but the 2016 was also a traditional Dime loan product. We expected – those of you who talked to me on the phone last year, we expected the 2017 was going to bring a smaller market before for our multi-family loan product, I think that’s turned out to be true. We expect that to continue, although we will still be less reliant from Dime on that part of the market. Deposits were relatively flat year-over-year, and as I said, lot of the increase, lot of the fundings came from – for the growth came from borrowings. Non-interest income of $21 million included a gain of $10.5 million. That was the second parcel over Havemeyer Street in Brooklyn. That was the Williamsburg property. We owned about three quarters of the block down there. We saw the way values were going. We talked about this when we thought the large parcel in 2016. In 2017 this is the last parcel closed here, that is the limestone building that we sold for $10.5 million. We had books for a very small number than we booked again in the fourth quarter. Turning to non-interest expense, when you exclude a lot of noise in non-interest expenses for various reasons, but when you exclude the noise the non-recurring – non-interest expense number year-over-year was 1.32% at the end of 2017 versus – excuse me, 1.32% for 2016 and 1.31% for 2017. We go to the NIM next. 2.53%, we talked about it a little bit higher for the year, but in the fourth quarter the NIM was 2.50%, that’s the trend sort of the trend number. We do expect some additional contraction in the, I would say, in the first and second quarter, probably a little bit more contraction there. A lot of that contraction will come from the liquidity, the additional liquidity that’s been put on the books. But some of them obviously is going to come from the rising cost of deposits, I think you’ve heard that from some of the other banks that reported so far this quarter and I expect that’s going to be continuing story for many of our peers in this market. So as we sort of wind up I would like to get into now our outlook for 2018. As we said, we expect total assets to be flat for this year. There might be – there could be a surprise there, depends on how the year goes in interest rates, but our goal is to keep it at around $6.5 billion for the year. We are widening our spreads that happened in the multi-family business. And as you can see, I mean, the portfolio yield is about 3.5%, the new loans that are coming on the books today are 4.60% million to over 5%. Those that aren’t in that range are adjustable rate loans, but even there a lot of our adjustable have 4.5%. There are some multi-family competitors out there that haven’t adjusted their pricing levels. I know many of them are driven by the Chase Manhattan which prices off the – tends to price off the curve. It’s been very aggressive rate in the community bank space. There are – some of them are still pricing at those levels. We’ll see as the year goes along whether the tax reduction has any impact on the back end of the curve. We’re setting the – we’re setting that as the kind of growth in the Dime’s business portfolio. We expect about $300 million worth of growth in that part of the portfolio this year. Let’s see, non-interest expense expect somewhere in the range of $84 million to $86 million as you build your models. And that actually includes of course the building out the residential mortgage business. That course, we’re not really going to see much recovery of our expense there. It’s a little bit of lead time as you build that out, we’ve brought in a really talented team from Astoria with that. But nonetheless, I wouldn’t expect to see any much production from that group until the third quarter and until the fourth quarter. Most of the run will come in 2019. And now we also see, we expect to see more business in our SBA Lending, we don’t have the SBA loans, we don’t have PLP status yet, that’s still in front of us, but that’s expected shortly, we have few more loans there. And then finally, the effective tax rate expect somewhere between 24% and 25%. It’s great compared to what it had been, but again, when you look at our peers, a lot of the folks are dealing with probably anywhere from, let’s say, 18% to 20% or 21%, especially those companies outside of New York City. So at that point that’s the end of my prepared remarks, and I’d like to turn it back to Garry. And if we have any questions we’re happy to take them.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Fitzgibbon with Sandler O’Neill. Please go ahead.

Hey, guys. Good afternoon.

Hi, Mark.

Ken, did I hear you right that you were saying that you expect business banking loans in 2018 to be another $300 million on what you’ve generated thus far?

That’s correct.

In the mix to be similar, do you think between C&I and relationship to CRE?

Yes, I would say so, Mark, that’s the way it’s shaping up.

Toward a 40-60, okay. And then how about on the deposit front, I think you had $52 million of deposits, and I think when you started this you said over time your goal would be to self-fund. Did the deposit down to sort of eventually catch up do you think to the loan balances in that business?

Well, yes, we expected them to self-fund. I don’t think – I hope you didn’t intend that to be a 100% self funding coming out of loans. But we thought the self funding should be in a range of 20% to 30%. We ended up at 20-some-odd-percent, 22% or 24%, yes, 22% I think in the first quarter. What we’re finding is that the deposits do lag, the deposits from [indiscernible] loan, but you get commitments from the borrowers at that point and then it takes a while to bring the deposits over so they do come in time. I’d like to see that number higher, Mark. I think 22% is a good number. I think it can be higher.

Okay. And then could you share with us your thoughts on doing additional loan securitizations to try to bring down that CRE concentration? And I’m also curious if you have sort of a goal in mind and a timeframe for driving that CRE risk-based capital ratio down.

We’ve been talking about possibly doing another securitization later this year. It does – it is impactful on NIM. As you can see, you saw a little bit in the fourth quarter, you’re going to see that somewhat in the first quarter of this year as well. Avi, is there anything you want to add?

Mark, I would just add that now we put the process in place. It was obviously a new experience for us, pretty small community bank to do securitization. We have the relationship with Freddie Mac. We have a good relationship with all the vendors who helped us. I think if we decide to do it, the process will be a lot quicker and a lot more streamlined than last time around. The one thing I would say about the securitization is there are certain fixed costs associated with it, so there’s probably a certain minimum size that we would need to do for it to make sense. So if you think about size, the size that we did last time would probably be the minimum size that would make sense from an economic perspective. The other option would obviously be selling more than one-off basis if we needed to do that to manage the balance sheet.

Okay. And then on the expense front, are you largely done with the sort of building of people and structure? Should we assume that sort of core expense run rate maybe in the low $20 million – $20 million, $21 million range is the right level?

Yes, I think to start the year out we’re going to follow the tax reduction this year. And there are some additional hires that we would – that would have taken us – we would have taken longer to do some more build out there, especially in the technology areas, and I think we’re done a nice job in the credit and compliance area maybe another hire or two there. But those are hires that actually would not have happened this year absent to tax reductions. So there are some things that we would kind of like to have. And I think in terms of building out the model it’s important that we get ahead of them now that we can. So I would go with that number for the first quarter and I will give you some guidance as the year goes along.

And lastly just to follow-up on a comment you made about the margin, can you say, it sounds like a little bit more pressure on the margin in the next – the first and second quarter. Is your modeling suggesting to you that the margin will turn in the third quarter and start to move in the other direction or you just haven’t – your crystal ball fuzzy out beyond the second quarter?

Yes. And you know, it’s really – it’s not even a crystal ball. When it comes to predicting the future, I mean, the bogey for everybody I think even more than the additional liquidity is what’s going to happen to deposit costs. You can see that in a lot of the releases that are coming out, wasn’t surprised to see some of what I read so far. So it’s really – we’re going to have to see where that goes. And also the wild card, it’s not even just trying to predict where interest rates are going, a wild card for all of this right now is what is the impact of the tax reduction going to be. It’s a huge reduction and it remains to be seen, Mark.

Okay. Thanks, guys, and thanks for hosting the call.

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

Thanks. Good evening, guys.

Hi, Collyn.

Hello. So I unfortunately hopped on late, only heard Ken your comment about not growing the balance sheet at all. So I apologize if you’re repeating yourself, but can you just run through again the dynamics of what is driving that? I mean, I just I’ve heard obvious comments about the securitization. So is the intention just to let the cash flows come due and the legacy portfolio is just paid down? And just trying to understand again the dynamics of how you’re going to keep assets flat, because I hear obviously the $300 million of addition, but that’s a fairly small number relative to the size of the balance sheet.

No, I mean, we’re going to keep it where it is, we’re not going to reduce the balance sheet. But Collyn, what I mentioned earlier on the call, we don’t have to – if you look at the investor presentation that we’ve had out there, last year investor presentation. One page we do have out there is where we compare our Dime’s yield on loan portfolio to maybe 12 other peers in our marketplace, and the portfolio yields range from 3.5% to 4.5%. Dime is at 3.5%, the median yield there is about 4.05%, the loans we’re putting on that we put on in the business banking area this year were 4.6%, that’s over 100 basis points above what Dime’s addition, what the existing portfolio is. So what I tried to express was that we have runway without growing the balance sheet there. Now what happens to the multi-family portfolio? What I did mention in the phone call – earlier in my prepared remarks, we’ve heard – we’ve talked to some brokers, clearly the brokers are going to watch the loan end of the market, they’re already talking to their borrowers about coming in and repricing in order to extend their rates where they are today. I think Dime’s given itself a great opportunity not to have to get back into that game if we choose not to this year. So I think if it turns out that the brokers start hearing that there’s going to be some upward movement in the back end of the curve, you may see more refinancings as the year goes along. Dime will not participate at those rates; we don’t have to now because we have another line of business available to us. I think if that happens faster than we expected to, we might see – might we see some pleasant upside surprises later in the year.

Okay. Along those lines are you managing to a certain net interest income level, just as you said, obviously the yield on what you’re originating is higher than what – where the portfolio stands? I mean, do you want to sort of maintain at least some level of earnings growth and net interest income growth over that flat line as well?

We think of it only in terms of trade composition of the balance sheet. We're at about 10% or so non-interest bearing deposits now. We don't have really a diverse balance sheet, that's been, we hear about this all the time. Dime’s concentration, the regulators have – see this balance sheet, they have known it for many years, it's been a 900% to 1000% concentration for a long time. I think, I've watched over the last couple of years some of our more diversified peers trade better. And I think Dime has gotten a – I won’t say punished, but I won't use that word but let's just say Dime has paled by comparison in trading ranges compared to the peers because of last lack of diversification on the balance sheet. So we're not managing to a net interest income as much as we are to a transformational change on the balance sheet.

Okay, so that's really the motivation here. I know this started, this strategy started last quarter and even before that. But this is truly a motivation on your part, your board’s part, your management’s part and not a regulatory pursuit.

If it were regulatory – you would have heard about it before now. Listen, I do think somewhere out there somebody looks at that concentration level and Dime looks like an outlier and you hear that all the time and nobody likes to get that kind of attention but, I think if there were an enforcement action, I'm sure you would have heard about it before now.

Okay, and then can you just remind us of the $300 million that you're anticipating putting on the balance sheet into the business banking portfolios. Just kind of some of the structures within those credits and size of those credits and kind of just what those types of credits are looking like.

Right now the median loan size is about $2 million. The average loan size is maybe $3.5 million. The largest loan we have today is an $18 million. And there are really four industry groups about 39% of it is real estate developers. Roughly 18% is the restaurant business, another 16% fell in nursing homes and then factoring about 16%. So those are the four concentrations there.

Okay, that is helpful. And these are presumed fit mostly fixed five year fixed.

On the C&I side they are pretty much all based on prime or LIBOR with a 4 or 4.5. I think we put out in the press release that around 43% of our business banking originations are floating rate. The piece that's on the commercial real estate side some of them will be fixed but on the C&I side a vast majority of them are floating rate.

Okay, and then just one other question on tied to this. I apologize Ken if I missed it. But what's the plan for securities. I know, you’ve talked about building liquidity. But how do we think about the securities growth as the year goes out.

Right Collyn, I think again, we've come up, constructed the balance sheet, come up with securities to assets of around 8% at this point in time. It's important, to note when you look at our liquidity, unlike many of our peers who actually encumber their securities and use that to either fund municipal deposits or other such fundings all our securities are unencumbered on the balance sheet. So it's really true liquidity, the 8% cash in securities to assets. So we've gone through a pretty strenuous liquidity stress testing on our front and we felt this was a good number to end the year at. We don't want to give any guidance for that going forward but to the extent that deposits grow we'll just reduce borrowings on the balance sheet in terms of keeping the balance sheet the same.

Okay and then just one final question. I mean credit quality has just been phenomenal but I just I noticed that the 90 day bucket jumped by about $20 million on the non-accrual loans. What was the driver of that?

We had an uptick, those are actually loans that have matured but are performing. So you have loans that are in the process of refinancing now but they passed a maturity date. So I think that’s the …

Yeah that is correct.

Collyn it also has to do with when borrowers submit things like financials it is not related to payments of P&I. So there was one are of syncretic event in there where we expect the financials to come in pretty soon and the loan will be either paid off or refinanced. So you probably should expect that number to tick down in Q1, the other thing to mention is it's really starting off from a very low base. So any increase jumps out over there.

Of course. Okay, alright that's helpful. Thanks guys.

You’re welcome.

[Operator Instructions] The next question comes from Matthew Breese with Piper Jaffray. Please go ahead.

Good evening everybody.

Hi Matt.

Hi, I just wanted to talk a little bit about the balance sheet outlook obviously flat $300 million of business banking. In growth but you also mentioned that you pretend to be planning to do another Q-deal at some point in the year. The last one was $280 million. So just curious how should we be modeling the multifamily segment throughout the year. Should that be coming down or flat with the expectation of a Q-deal at some point. Just wanted to get a better perspective of how that's going to move.

Well I think Avi has answered the question about the Q-deal and we haven't really come to any conclusion yet about doing another one. All we know is we have the ability to do it. So, I wouldn't necessarily model that in, without making a prediction for you. If you're making a commitment to I wouldn’t try to model that in. As far as regular runoff out of the portfolio, we've seen it full to the low teens, the amortization and payouts has fallen to the low teens in 2017. And I guess you could use that as a guide to see what kind of payoffs may come through there. But if you want to see an uptick there, I would watch the direction of rates. You'll start hearing noise in the marketplace if borrowers are starting to come in and refinance, when you hear banks talk about an uptick in new originations and so forth. That would be your clue that there's more activity in the market than we expect.

And as we work through this process of remixing the balance sheet, what is the ideal breakdown for the long portfolio you're shooting for?

When I first talked this to Stuart Lubow a few years ago and we were talking about maybe him coming in with his team. First thing I did was run to the community national balance sheet to see what does that look like and that was a bank that started from zero and go to a $1 billion roughly. As I was curious to see what that balance sheet will look like, they did have about 20% single family loans out there. I don't, I don't think we’d want to see that higher level on our balance sheet in the next couple of years. But certainly some portion of that some portion of owner occupied loans maybe some SBA loans out there multi-family will still end up comprising – I would say about – what do I tell you – you’re asking me to look out three years. Lets go a 50% of the loan portfolio, it is still a great asset class. The problem is it's not a very lucrative asset class right now that may change over time.

And the timeframe you're thinking to kind of get to these markets is about three years you think.

Yes, I would look for a three-year time horizon for that.

Okay. And as we kind of work towards that three-year time horizon in terms of profitability expectations during that time. And then the ultimate kind of goal of profitability, I don’t know if you want to measure it by ROA or ROE but maybe just frame for us, what we're looking at for the near-term and then the ultimate goal at the end?

The whole value – the whole reason to do this is core deposits. And so I mean, as we talking about in the board meeting this morning. If you want to look at any metric for Dime to see how much success we're achieving, it is the growth of that core deposit number. I mean your typical community commercial bank, I mean a good community commercial bank, I think we can agree tends to be in the 25% to 30% core deposit range. Some of them are higher, you get a bunch of that in the high teens but I mean that's a target that we would love to be at. And just a word about the multi-families in the payoffs and so forth, the idea having this line of business, these business development officers, which by the way you may see more of this year that's one of the year, Mark – if it's keeping asked earlier about the expense side, if we have the opportunity to grab more teams, we will do that. And we have the infrastructure now on the credit side, we hired Kevin Corbett came in from Astoria, a terrific credit administrator here. So we have the infrastructure here to underwrite the credits now that wasn't that didn't exist here at Dime before. If we do see more faster movement of payoffs and we have the opportunity to grow that $300 million more than above that good credits, we would take the opportunity to do that because the idea there is not to bring on more risk but get more self funding that you would out of the traditional Dime loan product.

But do you have any like ROA aspirations at the end of this?

It's the same answer you get from everybody, I think Matt and that’s make wide of it –everybody wants, they used to be – want to be a 1% ROA and low to mid teens in ROE, you got to tell me whether the expectations will be higher now that we all have a lower tax rate.

Right, understood. Okay. I mean the other question for me is really as you remix, obviously there is a bent towards higher risk loan categories away from traditional and regulated multi-family. How do you see the provision kind of working out and maybe talk about provision to average loans over time?

Yes, I mean we're provisioning at about – Leslie, its 1.5%?

1.15.

1.15, okay so, pardon me?

1.50.

1.50, all right. We are provisioning at about 1.5% now on the new product that's much higher than we were doing on the New York City multi-family level. So I mean I guess the wild card is going to be CECL in a couple years, although we run a parallel model on the CECL but there haven’t been any losses, most we can do is look at – again look at the community national balance sheet for a guide with same lenders over there that we have here and but I can’t predict the future there. I would just want to go back for a second, Matt, to the question asked me about the targets. Our strategic plan calls for those numbers. And again it's not an uncommon number, I think we will feel that if you get your company above 1% ROA and the higher above the better obviously but if you reached the 1% ROA and the low to mid teens ROE, you're doing a pretty good job and probably deserve to continue to run your company. So that's kind of the – that's the longer answer and some of that will be, also you know Dime’s income statement, it's at a very well level of non-spread revenue here. It's another element to this business that we want to drive to get – we want to drive that gets neglected when you look at the Dime model today.

Right, okay. And then can you talk about that, I know SBA will be a part of this story that comes with some fees and maybe frame for us, what kind of income that could bring to the table?

The SBA could be, I mean we've got a target out there of say, let’s quote $2 million in fees for 2018 from SBA. And but even with the core conversion that we're going through now. Just to give you an idea of what – how anachronistic this model was under the old model, the account analysis that typically commercial customers that used to, wasn't even optimized here. So and it won't be until we get to June when we get through the core conversion. So there's a lot of upside there and we want to – we would like to put as many good account analysis customers on as we can, we have to be able to careful not to grow too fast either but we want to get as many of those customers into account analysis as we can. But that ability isn't even there today. So there's plenty of room there for us.

Understood, okay. That's all I had guys. I appreciate the detail. Thank you.

Yes, thanks for the question.

The next question is a follow-up from Mark Fitzgibbon with Sandler O'Neill. Please go ahead.

Hi, guys just a follow-up on one thing with no balance sheet growth in 2018, capital is going to build faster than it has and your capital ratios will probably push up closer to 9% over the course of the year. So I guess I'm curious would you contemplate share repurchases is that part of the strategy here?

It's on the table, as we review the fallout from the reduction from the tax benefit. So we put out a press release, a couple weeks ago. And we talked about some things that we would consider, share repurchase is one of them, dividends of course is another and then some reinvestment in the business but yes.

Mark, I think the other thing we want to wait without acting too hastily is obviously there’s bills floating around in Congress via community banks get additional benefits if they keep certain leverage ratio constraints, I think the numbers thrown out right now are 8% to 10% that's a pretty wide range. So I think in terms of share repurchases specifically we can do it cautiously but as Ken said, everything's on the table.

So just at a high level, am I thinking about this the right way? So if you have no balance sheet growth, a little bit of margin compression, higher expenses but a lower tax rate. It kind of looks like the earnings are only up a little bit maybe even flattish from 2017, am I thinking about it the right way or am I missing something?

There's really I don't know how, it could be tough to come to that conclusion with a lower tax rate, would be my impression without trying to – when I try to analyze your model, I mean with such a big reduction in the taxes that even if we didn't move earnings here. And it’d be hard to get to the same place in 2018 that we ended up in 2017.

The offset is the narrower margin in the higher cost?

Narrower margin, higher cost what was the operating expenses this year about $83 million I think.

$82 million.

And we've got $84 million to $86 million, so its another $1 million a quarter. I'm not sure how your model takes you to a flat EPS number, Mark, year-over-year?

Yes. I mean its modest earnings accretion but just want to make sure I was thinking about it the right way.

Even modest, sounds very modest.

Okay. Thank you.

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Ken Mahon, President and CEO for any closing remarks.

Well, thanks folks for dialing in for first conference call since 2006, we haven't done in a long time. But a lot of action going on over here in the balance sheet and we are happy to get in front of you and talk about it. So thank you very much and thank you, Garry.

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