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Investors Bancorp Inc (NASDAQ:ISBC)
Q4 2019 Earnings Call
Jan 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Investors Bancorp Fourth Quarter Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

We will begin this morning's call with the company's standard forward-looking statement disclosure. On this call, representatives of Investors Bancorp, Inc. may make some forward-looking statements with respect to its financial position, results of operations and business. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Investors Bancorp's control and are difficult to predict and which can cause actual results to materially differ from those expressed or forecasted in these forward-looking statements.

In last night's press release, the company included its Safe Harbor disclosure and refers you to that statement. That document is incorporated into this presentation. For a more complete discussion of the certain risks and uncertainties affecting Investors Bancorp, please see the sections entitled Risk Factors, Management Discussion and Analysis of Financial Conditions and Result of Operations set forth in Investors Bancorp's filings with the SEC.

Now I would like to turn the call over to Kevin Cummings, Chairman and CEO of Investors Bancorp. Please go ahead.

Kevin Cummings -- Chairman and Chief Executive Officer

Thanks Sara, and good morning. Welcome to Investors Bancorp fourth quarter earnings conference call. Last night, the company reported in its press release net income of $48.7 million, or $0.19 per diluted share for the quarter ended December 31, 2019 versus $52 million, or $0.20 diluted share for the three months ended September 30, 2019 and $33.3 million, or $0.12 per diluted share for three months ended December 31, 2018. For the year ended December 31, 2019, net income totaled $195.5 million, or $0.74 per diluted share, compared to $202.6 million, or 72% -- $0.72 per diluted share for the year ending December 31, 2018. Included in the fourth quarter is $7.8 million of additional tax expense, resulting from the revaluation of the company's deferred tax assets related to the state of New Jersey's clarification in December to existing tax law. In addition, there were minor adjustments to severance costs, which we took in the third quarter of an additional $245,000 in expense recorded this quarter.

As a result of these items, core earnings for the fourth quarter were $56.8 million, or $0.22 per diluted share. As reported last quarter, core earnings for the quarter ended September 30 were $55.6 million, or $0.21 per diluted share, which reflected the impact of the Delaware litigation settlement and severance costs relating to the reorganization of responsibilities in our retail branch system.

The company also announced yesterday a cash dividend of $0.12 per share, representing a 9% increase from the prior quarter and reflects an annual yield of 4.1% based on yesterday's closing price. Since our second step in 2014, our quarterly dividend has increased from $0.04 in September of that year to $0.12 today.

In addition, in December, the company entered into a purchase and sale agreement with Blue Harbour Group and repurchased 27.3 million shares of common stock at a price of $12.29 for a total cost of $335 million. As part of this transaction, our Director, Peter Collins, stepped down as a Director effective with the completion of the transaction. We would like to thank Peter for his hard work and advice during his tenure with us. I would also like to mention the CEO of Blue Harbour, Cliff Robbins, who was also involved on many times and whose input and advice was always appreciated. We wish the two of them and Blue Harbour the best in their future investment activities. As reduction -- as a result of a reduction in funding costs, our net interest margin improved for the quarter by 8 basis points from 2.53% to 2.61%. Our margin has improved 16 basis points from the second quarter, which is primarily due to reduction in interest expense. Our net interest revenue increased $2.8 million for the quarter, or 1.7%, and our non-interest revenue increased $5.7 million to a gain in equipment finance business, cash management and deposit fees and interest rate swaps recorded in the period.

Overall, pre-tax income of $80.9 million is an 11% increase from the third quarter of 2019. On another note, our pre-tax pre-provision for loan losses income for the quarter was $82.4 million which reflects 17% increase from third quarter. Overall, it was a good finish to the year, where we executed on the things that we had to do with respect to operating expenses, investment in technologies such as Salesforce and nCino and improvement in our digital and treasury cash management products.

Yesterday, in two separate meetings, I met with our new business development team, where we have hired 29 Business Development Officers to focus on driving low cost deposits into the bank. During the quarter, deposits grew $188 million of which $39 million was non-interest earnings. This team spent the day with other leaders from the retail, financial advisory and lending to coordinate our plans for 2020, but more importantly, to execute on those plans. There was good energy in the room. And the one topic I'd like to highlight was the discussion that we had in detail over our partnership with ODX, a small business loan origination fintech, where we are partnering with to originate small business loans to help generate business deposits. To date, we have originated a small number of loans during the testing phase, but have reduced the approval time to originate and book the loan from two hours to 40 minutes. So in theory, using an iPad, walking into our branch, you can get a small business loan on the books ready to be drawn on in 40 minutes. This tool will help our retail teams to focus on a small business segment and provide a key product that the business owners can use to meet their cash management needs.

I also met yesterday with our financial advisory group, which had a very good year in 2019 and continues to work with our retail teams under the leadership of Rich Koll, who recently assumed responsibility for this group in 2019, our revenues increased from $7.4 million in '19, I mean in '18 to $8.3 million this year. With our commercial lendings doing a good job providing products, such as interest rate swaps and cash management services, our non-interest revenue increased to $20.5 million for the quarter ended December. The competition for deposits continues to be fierce in our markets, but we continue to evolve and improve our products and people to meet this challenge. At times, we are impatient with the results, but 2020 is a new decade and we are optimistic that we can drive deposits into the bank to fund our growth in business lending.

During the quarter, our C&I loans increased $270 million or 10% to $3 billion and our CRE loans increased $59 million, or 1.2%. The CRE portfolio was impacted by a large payoff in the quarter of approximately $50 million, and this was a participation that totaled $120 million in total outstanding. The loan activity continues to follow our plan of allocating proceeds from the residential portfolio and the multi-family portfolio into higher yielding assets in the CRE and commercial business originations. And this will reduce as the pressure on our cost of funding with respect to deposits and borrowing from the Federal Home Loan Bank.

Asset quality remained stable for the quarter. We saw an increase in the 30-day bucket in the multi-family loans to $45.6 million. All but one loan for $233,000 has made payments reducing its delinquency status of this date. There was one loan for $37 million that the borrower is looking to sell the property that we -- that has been a habitual late payer and we are monitoring this situation, but don't expect any significant loss. Our reserve to total loans remained flat at 1.05%, which compares favorably to our peers when you take into account the $13.5 billion of our portfolio was 62% is in residential, multi-family and consumer loans, which historically have a lower credit loss history than other types of lending.

During the quarter, we had charge-offs of $1.4 million versus charge-offs of $1.5 million in the third quarter. And our provision for the quarter was $1.5 million versus a provision credit of $2.5 million in the third quarter. This is the last quarter of FASB 5 for the calculation of the allowance for loan losses under generally accepted accounting principles. As we move into the implementation of CECL, effective January 1, we are confident and we are far along in our transition to this new accounting principle and we don't expect a material adjustments at this time.

With respect to our Gold Coast acquisition, we are waiting for regulatory approval and expect it to come any day. We spent a day last week with their retail and business teams, preparing the teams for client and customer transition. The acquisition we're looking forward to closing shortly and we will enhance our markets in Nassau and Suffolk County.

Overall, the last half of 2019 was a very busy and productive time here at Investors Bank. We have made significant progress in improving our products. We have made progress in expense control and continuing our investment in technology and our transition of our asset mix to a more profitable growth at the margin. We feel we're well-positioned to have a great 2020.

And now, I'd like to turn the call over to Sean Burke, our CFO.

Sean Burke -- Executive Vice President and Chief Financial Officer

Thank you, Kevin. Net interest margin was 2.61%, an increase of 8 basis points from the prior quarter on both a reported and a core basis. Interest-bearing deposit cost decreased 18 basis points from the prior quarter, which drove the net interest margin improvement.

Non-interest income totaled $20.5 million for the quarter, an increase of $5.7 million from the prior quarter. Our customer swap program continues to exceed expectations and was a bright spot this year, generating approximately $7.5 million in fees. Non-interest expenses totaled $106.8 million for the quarter, a decrease of $1.9 million from the prior quarter. On a core basis, expenses were up slightly from the third quarter due to an overdraft loss and expenses related to our customer swap program.

Our tax rate was elevated in the quarter to the tune of $7.8 million, due to a tax law clarification made by the State of New Jersey on how to treat investment company and REIT income on a combined basis. While the change will serve to lower our tax rate going forward, it caused the value of our deferred tax asset to decline in the fourth quarter.

Finally, I'd like to share some high-level guidance for 2020, inclusive of our pending acquisition of Gold Coast Bank. We are targeting low single-digit loan growth, but expect the continued remixing of our portfolio out of single-family of residential and multi-family into higher-yielding commercial and industrial loans.

Deposits are targeted to grow by low to mid single digits, with emphasis on non and low interest-bearing checking products. Net interest margin guidance is in the 2.65% area for the full-year 2020, assuming no rate cuts or hikes. Non-interest income is estimated in the $60 million range and expenses in the $435 million range. We expect our effective tax rates to be in the 27.5% area.

Now I'd like to turn it back over to Kevin for concluding remarks.

Kevin Cummings -- Chairman and Chief Executive Officer

Thanks, Sean. Last year this time, we had just gone through nine rate hikes from the Fed. Although we are a little bit troubled by the recent rally in the 10-year bond and the inversion of the yield curve, we are in a much better spot today than a year ago. We are disciplined in our deposit pricing, we're disciplined in our loan pricing and we are focused on improving our fee income and business lending to diversify our revenue streams.

We are working hard to drive profitable business into the bank at the margin. We are focused on improving our return on equity, the Blue Harbour transaction will certainly help us in that regard, and we look forward to 2020. The activities among our retail lending and advisory groups are strong. They live in our core values and we're getting great cooperation and teamwork and this will pay dividends in the year to come.

We have good momentum going into 2020. I want to thank all our teams for all their hard work and dedication to the success of this bank. We thank you our shareholders for your support.

And now, I'd like to open the call to questions. Thank you very much.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Mark Fitzgibbon with Sandler O'Neill & Partners. Please go ahead.

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

Good afternoon. First question is related to capital. I wondered if you could share with us what your target capital ratio is now that it's sort of getting down closer to a more leverage position? And also, whether it's likely that we'll see some additional buyback activity in 2020?

Sean Burke -- Executive Vice President and Chief Financial Officer

We target a tangible common to tangible asset ratio in the 8.5% to 9% area, Mark. And we aren't anticipating or budgeting any share repurchases in for this year, as the repurchase of Blue Harbour really accelerated our plans for 2020 on the repurchase front.

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

Okay. And then you guys obviously had good commercial growth this quarter. Could you perhaps size for us the commercial loan pipeline today and what the average rate looks like?

Domenick A. Cama -- President and Chief Operating Officer

Hey, Mark, good morning. It's -- the pipeline for C&I specifically is about $700 million. And on the CRE front, it's about $600 million.

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

And what sort of rates, Dom, are those?

Domenick A. Cama -- President and Chief Operating Officer

On the $700 million, we have a WACC of about 470. And on the CRE, it's about 390.

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

Okay. And then lastly, I wondered if you could sort of share with us any updated thoughts on the M&A environment. And I'm curious, you're seeing more books or less books these days more activity out there on the horizon?

Domenick A. Cama -- President and Chief Operating Officer

Yeah. I mean, there's certainly a pickup in activity, Mark. We are seeing a number of books. Of course, we, in an effort to, ensure that we are protecting tangible book and not introducing too much dilution into our stock price. And we are very careful about who we look at and what transactions we get involved in. Now, as you know, we trade at a level that's below 1.20% of tangible book, so it really doesn't give us a strong currency to use in this environment. But certainly, we're always looking.

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

Thank you.

Operator

Our next question comes from Tom Gilbert [Phonetic] with KBW. Please go ahead.

Chris O'Connell -- KBW -- Analyst

Hi, this is Chris O'Connell filling in for Collyn. I just wanted to circle back real quick on Mark's question regarding the buyback activity. I understand, you guys obviously did a big chunk here with the Blue Harbour transaction in the fourth quarter. But with TC above your target today and with the outlook for low single-digit loan growth. And admittedly, you guys mentioned, the -- not a strong currency as some peers. I guess, what's the thought process on not planning to utilize it at all during the next year?

Domenick A. Cama -- President and Chief Operating Officer

I don't -- and just going back to some of the things Sean said, I mean, obviously, we accelerated the buybacks that we had planned for the year with the purchase of Blue Harbour shares. But there are a couple of things. Obviously, you have a cycle that is impending, so we want to be a little -- we want to be judicious about the way we manage capital. I'll never say never on the buybacks, obviously.

We'll always be there to support the stock in the event that there's some significant price decline. But clearly, taking a $300 million of capital out of the balance sheet in one full swoop, it's got to be a concern for anyone and as we manage the environment, we just want to make sure that we continue to remain well-capitalized and be able to absorb any potential impacts from commercial real estate declines or economic declines in the market. But clearly, we want to continue to provide value to shareholders by efficiently managing capital.

Chris O'Connell -- KBW -- Analyst

Understood.

Kevin Cummings -- Chairman and Chief Executive Officer

Yeah, Tom, we deal with a lot of constituents, regulators being one of them too. And I think it was a big transaction and we're digesting it and then moving forward, and we will continue to evaluate our actions, increasing dividends, stock buybacks, reasonable acquisitions and organic growth. Again, we still want to grow the bank, but we want to do it profitably. And we're trying to do things prudently here using all the levers that are available to us, and we believe all four levers are available to us, but we're not going to do anything, that doesn't enhance shareholder value.

Chris O'Connell -- KBW -- Analyst

Got it. Thank you. And then just looking into deposit rates. Can you go through what some of your current offering rates are versus maybe what's on the books and where you have the most room to drive improvement over the course of the year?

Domenick A. Cama -- President and Chief Operating Officer

We're offering a short-term CD product at 1.80%, I believe a seven month CD. We do have an offering online also at either 1.75% or 1.80%. But the real benefits, I think, will come from our wholesale program. We have, in the first quarter, about $1 billion that is coming due and we expect to see a pickup of somewhere about on a conservative basis between 30 basis points to 40 basis points. We also have about $350 million in CDs that are coming due. And there, we expect a pick up of somewhere between 50 basis points to 60 basis points. So, there's clearly some room to improve funding costs, and that'll translate to a better NIM for the first quarter of 2020.

I don't think we'll have the pace at which the cost of funds got better between third and fourth quarter. But clearly, we still have some room to continue to improve NIM on funding costs. And then, obviously, offsetting that is, as Kevin mentioned, this latest routing in the 10-year treasury has really put a damper on loan rates. And so this inversion in the yield curve could offset some of that benefit.

Chris O'Connell -- KBW -- Analyst

Great, thank you. And then just finishing up if you could discuss maybe the dynamics between the multi-family book and what is sort of the yields that are coming off the balance sheet through the remixing? And to the extent that your refinancing or putting on some multi-family as well, what those rates are that you're onboarding?

Domenick A. Cama -- President and Chief Operating Officer

Yeah, I mean, if I look at the month of December, we funded multi-family like around the 3.5 -- in the 3.5 range. And if I look at what the average yield is on the multi-family book, it's about 3.80. So, there's a little bit of a decline there. On the commercial real estate book, the average yield is about four or five, something like that, and it's coming on at about 3.75. So, a little bit of pressure there also. The bright spot really is C&I. We continue to get good C&I growth. What we funded in December came on and they have something to do with structure and the deals we did, but came on at about [Indecipherable] and the average yield on the portfolio is about 4.50. So we have a little bit of diversion there in terms of higher yields coming on in the C&I space versus what the average yield is in the portfolio.

Chris O'Connell -- KBW -- Analyst

Great. That's all I had. Thank you.

Operator

Our next question comes from Steven Duong with RBC Capital Markets. Please go ahead.

Steven Duong -- RBC Capital Markets -- Analyst

Hey, good morning guys.

Kevin Cummings -- Chairman and Chief Executive Officer

Good morning.

Steven Duong -- RBC Capital Markets -- Analyst

So just going back on the loan yields, they held up pretty well this quarter. I'm assuming it's because of the C&I that you just mentioned in the remixing. And so is it safe to assume that that's not going to continue for the remainder of the year?

Domenick A. Cama -- President and Chief Operating Officer

No. We intend to continue to remix the balance sheet such that resi and multi-family portfolio should decline and well make up the difference with CRE and C&I. The multi-family book and the resi book are a little bit bigger. So some of the amortization that comes off that portfolio could outstrip the new production that we put on, but for the most part, we're trying to, as I think Sean said earlier, keep the balance sheet flat to plus single-digit growth, but there should be continued remixing in the balance sheet.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. And then I noticed your interest-bearing checking costs had a good drop this quarter. Could you just give some color on that?

Domenick A. Cama -- President and Chief Operating Officer

Yeah. We have a government portfolio here. We have about $4.5 billion in government deposits that have tied to Fed funds. So, the reduction in rates in the fourth quarter led to immediate declines in the cost of funds related to commercial to checking, with most of those accounts are in checking products.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. Okay. And then just to reiterate, you don't -- as of right now, you don't expect a material impact from CECL on day one and I assume similarly on day two as well?

Domenick A. Cama -- President and Chief Operating Officer

We don't.

Steven Duong -- RBC Capital Markets -- Analyst

Okay, great. I appreciate it. Thank you, guys.

Domenick A. Cama -- President and Chief Operating Officer

All right.

Operator

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah, hi. Thanks, good morning.

Kevin Cummings -- Chairman and Chief Executive Officer

Good morning.

Laurie Hunsicker -- Compass Point -- Analyst

Just going back to your muni deposits, $4.5 billion, do you have a cost on those for the quarter?

Sean Burke -- Executive Vice President and Chief Financial Officer

About $1.5 billion.

Laurie Hunsicker -- Compass Point -- Analyst

$1.5 billion. Okay, that's helpful. And then also, within the non-interest income line, do you have the actual dollar amount of what was swap income? And maybe if you have it versus last quarter as well?

Sean Burke -- Executive Vice President and Chief Financial Officer

For the fourth quarter, Laurie, it was $3.8 million.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. $3.8 million?

Sean Burke -- Executive Vice President and Chief Financial Officer

$3.8 million and then the second quarter was $2.4 million.

Laurie Hunsicker -- Compass Point -- Analyst

$2.4 million?

Kevin Cummings -- Chairman and Chief Executive Officer

Third quarter.

Sean Burke -- Executive Vice President and Chief Financial Officer

Third quarter.

Kevin Cummings -- Chairman and Chief Executive Officer

Yes.

Sean Burke -- Executive Vice President and Chief Financial Officer

Thank you, Kevin. Third quarter.

Laurie Hunsicker -- Compass Point -- Analyst

Third quarter, yeah.

Sean Burke -- Executive Vice President and Chief Financial Officer

And for the year, we had $7.5 million.

Laurie Hunsicker -- Compass Point -- Analyst

Thank you. And then just going back to CECL, how should we be thinking about your day two, your ongoing loan loss provisioning?

Sean Burke -- Executive Vice President and Chief Financial Officer

Well, I think the previous caller asked the question, Laurie. And I think, Domenick summarized it quite nicely. We're really not expecting of meaningful change on day one or day two. We have looked at the Street consensus for the year on the provision front that's out there, and that appears reasonable to us, Laurie.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. I mean, the Street consensus is pretty wide on loan loss provisioning. I don't know, if you could help us think about it a little bit further, as we look on a relative basis, obviously, your credit is very, very pristine, but there's a big delta between, obviously, what you did this year?

Sean Burke -- Executive Vice President and Chief Financial Officer

Yeah. I mean more specifically, Laurie, I was referring to the consensus mean or median estimate, which I believe is around $14 million for 2020, and I was referencing that that appears reasonable for us.

Laurie Hunsicker -- Compass Point -- Analyst

Got it. Okay, that's super helpful. And then I just also wanted to go back on buyback, and I love seeing, obviously, what you did in the fourth quarter. But can you just update us in terms of how much money is currently sitting at the holding company available for buybacks and dividends? And then just also what is your current authorization as it stands today?

Sean Burke -- Executive Vice President and Chief Financial Officer

At the holding company-level, we target to hold cash anywhere from $150 million to $200 million, Laurie, and that's where we are. And that money up there is obviously for share repurchase, but also to fund our dividends as well.

Laurie Hunsicker -- Compass Point -- Analyst

Okay.

Sean Burke -- Executive Vice President and Chief Financial Officer

In terms of share repurchase authorization, it's about $15 million. $15 million is authorized and would be available for us to purchase.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. And then great. Last question, Kevin, as we've seen a lot MOEs in the last year, how do you approach that as you think about forward looking? How do you approach the idea of MOE? How do you think about that? Thanks.

Domenick A. Cama -- President and Chief Operating Officer

Well, how do we approach the idea of an MOE?

Laurie Hunsicker -- Compass Point -- Analyst

Yes.

Domenick A. Cama -- President and Chief Operating Officer

I think carefully, when you look at what color there's been a around the other transactions that were done specifically, when reading about the CenterState, South State transaction, that deal was two years in the making. And it took an understanding of the cultures of the institution and the management teams and a lot of things had to fall in the right place -- fall into the right place in order for that transaction to be successful. As we think about it, it's certainly compelling theory for us also. We think, if anything to enhance shareholder value is a good thing and obviously, looking at potential MOEs is a lot easier said than done, right? I mean, there are a lot of things that you have to take into consideration, but we -- clearly, we have an open mind as to the benefits that those transactions have even versus going out and buying another bank. And you can look at the stock price performance of the acquiring institution with -- when they buy smaller banks and it's not good, these MOEs, the share -- the stock price reaction has been somewhat better. So, yes, we have an open mind and it's something we would consider, but it's easier said than done.

Kevin Cummings -- Chairman and Chief Executive Officer

Yes. Laurie, in a recent conversation with a banker, we looked at different things, different strategic options. And, of course, they're in here all the time speaking with us. And you look at an MOE, different execution risk and things of that nature. You look at an acquisition of us, buying a smaller bank upsize. And then even staying alone and just driving the performance of the company through organic growth and managing the cost line and all those good things. And basically, you evaluate them and how do we enhance shareholder value. And the question I have what gets me to $15 a year over the next 24 months, 36 months and executing on those three options. And that's the type of things we're constantly looking at. And I think we'll do what we feel is the safest way to get to that goal and of driving shareholder value.

Laurie Hunsicker -- Compass Point -- Analyst

Great, thank you.

Operator

Our next question comes from Brody Preston with Stephens Inc. Please go ahead.

Brody Preston -- Stephens Inc. -- Analyst

Good morning, everyone. How are you?

Kevin Cummings -- Chairman and Chief Executive Officer

Hi, Brody.

Brody Preston -- Stephens Inc. -- Analyst

Just wanted to quickly touch based on the expenses. Sorry, if I missed it at all. But just wanted to see if there are any potential opportunities, excluding the Gold Coast cost savings to maybe extract some incremental operating leverage and take some costs out from here?

Sean Burke -- Executive Vice President and Chief Financial Officer

We're always evaluating opportunities to take out cost. I think, the guidance we gave for the year was -- it's important to note, if you take out the cost from Gold Coast that we're relatively flat and we're projecting relatively flat expense growth for us as a stand-alone organization year-over-year. And we'll continue to look for opportunities, whether that's the branch network, the efficiency of our processes that we have internally here. We're also very focused as you can see in some of the results that we had on the fee income line.

There are a lot of efforts that we are involved or that went into that. And it wasn't just one line item. I know the swap program was a big part of that. But we're continuing to look for ways to enhance value both on the fee line and on the expense line item.

Brody Preston -- Stephens Inc. -- Analyst

Okay, great. And then on some of those fee income items, particularly on the equipment finance portion again there, do you expect that to be recurring or a portion of that to be recurring? Just trying to get a sense for fee income?

Sean Burke -- Executive Vice President and Chief Financial Officer

It's hard to predict that, because it is lumpy when it comes in. We did have a small gain last year, it was around $1 million, this year, it's around $2.6 million. I would have a hard time budgeting that in quite honestly. I do consider it operating earnings, but the timing of it is, it's hard to predict.

Domenick A. Cama -- President and Chief Operating Officer

It was a lumpy gain. When I looked at the gains in the portfolio over the last six months, this one was clearly much bigger than the prior six-month period.

Brody Preston -- Stephens Inc. -- Analyst

Okay. And then early stage bucket, the increase in multi-family, you noted that, I guess, maybe the borrower was a bit of a habitual late payer. Is there -- there's nothing else I guess within the portfolio that's happened, and I guess is impacting the rest of the portfolio from a change in the rent regulations?

Kevin Cummings -- Chairman and Chief Executive Officer

No, I think we talked about that pretty -- I didn't want to rehash what we talked about in the third quarter. So if you look at the third quarter commentary, I think, we beat it up pretty good and we haven't seen anything at this point in time. So I kind of didn't want to repeat the information that was provided in the third quarter. In fact, I think, our exposure, we were talking about maybe, it was around $1 billion, it's probably around $800 million to the stabilized apartments.

Brody Preston -- Stephens Inc. -- Analyst

Okay. It was $1 billion last quarter and now it's $800 million?

Kevin Cummings -- Chairman and Chief Executive Officer

No, I think that was an estimate at that point in time and even with it. We continue to monitor it and watch it and -- and in further analysis, it's slower than we had really disclosed earlier in the year.

Brody Preston -- Stephens Inc. -- Analyst

Okay. All right. And the last one for me, I guess, sort of stepping back a little bit, I think, last quarter, you had talked about getting to 10% RTC by the year-end 2021. Just sort of considering...

Sean Burke -- Executive Vice President and Chief Financial Officer

Fourth quarter.

Kevin Cummings -- Chairman and Chief Executive Officer

Fourth quarter.

Brody Preston -- Stephens Inc. -- Analyst

Yeah, fourth quarter. Just considering, the -- I guess, maybe slightly higher capital than I had -- than we had originally expected just with no buybacks budgeted for 2020. Can you sort of just help us...

Sean Burke -- Executive Vice President and Chief Financial Officer

Slightly higher capital, slightly higher capital you said?

Brody Preston -- Stephens Inc. -- Analyst

Yeah without any buybacks.

Sean Burke -- Executive Vice President and Chief Financial Officer

We have the Blue Harbour transaction now.

Brody Preston -- Stephens Inc. -- Analyst

Yeah. Yeah, I mean, that was in our model and I'm saying stripping out sort of the buybacks that, maybe we had expected for 2020 capital be slightly higher. So just sort of thinking about some of the puts and takes in getting to that 10% RTC. Can you help us sort of think about what it takes to get to that level?

Sean Burke -- Executive Vice President and Chief Financial Officer

Well, I think, first of all, when you put the Blue Harbour transaction in, I think, look, we can show ROE getting closer to that 8.7%, 8.6%, 8.7%. But I think what would be the catalyst is the continued remixing of the loan portfolio and bringing in more high-yielding C&I loans. Any help from the Fed, I mean, we sat with the Treasurer -- our Treasurer the other day, who talked about that they're starting to be some noise about perhaps another Fed cut in the mid -- middle of the year about 50% probability. So, continuing to manage the portfolio in a way that as, to use Kevin's term, to do more profitable business, not growth for the sake of growth, we think, will help get us to that 10% level in the latter part of 2020 -- '21.

Brody Preston -- Stephens Inc. -- Analyst

All right, great. And then, if I could, just real quick. The margin guidance, is that on a headline basis, or is that core?

Sean Burke -- Executive Vice President and Chief Financial Officer

That's on a headline reported basis.

Brody Preston -- Stephens Inc. -- Analyst

Okay, thank you very much everyone. I appreciate it.

Sean Burke -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Jared Shaw with Wells Fargo Securities, please go ahead.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi, good morning. This is Timur Braziler filling in for Jared.

Sean Burke -- Executive Vice President and Chief Financial Officer

Hey Timur.

Timur Braziler -- Wells Fargo Securities -- Analyst

Hi, guys. Just want to ask the fee income question a different way. I guess, if you look at fourth quarter and you annualize that and then dropping that down to your $60 million full year guidance, I guess, what's the expectation of the line items that you're expecting to see a reduction in 2020?

Sean Burke -- Executive Vice President and Chief Financial Officer

Number one, the item on the equipment finance portfolio, that totaled $2.6 million. No, I'm not necessarily budging that in when we provided the guidance. At least we're not expecting that. Also, we had some gains on loan sales that could be repeated next year, but being cautious about projecting that to happen. So, it was really the combination of those couple of items there.

Kevin Cummings -- Chairman and Chief Executive Officer

To counter that though, we are seeing some strong change in the focus of our mortgage company, where the mix of Fannie Mae versus what we take into portfolio, we've been doing a better job in the second-half of the year, and hopefully that will continue in 2020. But that give and takes on both sides as we move forward, but we're being conservative. We're not counting our eggs before they hatch.

Sean Burke -- Executive Vice President and Chief Financial Officer

The last point I would make in terms of the fee income is we do have a couple of items that are in fee income now that are a little bit more difficult to predict quarter-to-quarter. So I have more comfort in the number that we provided for full year of $60 million, and we could see some variation from quarter-to-quarter there and you're seeing some of that in the fourth quarter. So, we are self-admitting either to the fact that we are not going to have a $20 million fee income run rate every quarter going into 2020.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, understood. But the momentum you're -- you've achieved in the back-end of the year for customer swaps that's expected to continue and grow?

Sean Burke -- Executive Vice President and Chief Financial Officer

Yes, but swaps also are a little lumpier in nature. And so we do expect overall income to grow from that program year-over-year. But even this year, we saw some lumpiness to when it comes in quarter-to-quarter.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, that's helpful.

Sean Burke -- Executive Vice President and Chief Financial Officer

And it's certainly a focus of our business lending teams. Now they're becoming very proficient in cross selling different products, both on the cash management side. It's an emphasis of the company to drive non-interest income into the bank.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay, that's helpful. And then just looking again at that $37 million credit that crept into the 30 day to 59 day bucket. How long has that borrower been trying to sell the property?

Kevin Cummings -- Chairman and Chief Executive Officer

I'm not sure, but it's certainly come up probably in the last six weeks.

Sean Burke -- Executive Vice President and Chief Financial Officer

I believe the building is in the process of being sold right now and has a pretty substantial valuation relative to our loan amount.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay. And then just lastly, for me looking at the 10% return on tangible guide relative to the balance sheet remixing, is the implication that the balance sheet remixing should be largely complete by the end of '21 or is that a longer-term --?

Sean Burke -- Executive Vice President and Chief Financial Officer

It's a longer-term -- yeah, the balance sheet remixing is longer-term. We have $8 billion of multi-family assets on the balance sheet and $3 billion of C&I. So it's a longer-term proposition.

Timur Braziler -- Wells Fargo Securities -- Analyst

Okay. So as that further continues the implication --.

Sean Burke -- Executive Vice President and Chief Financial Officer

We continue to enhance return on equity and drive core deposits into the bank. The real goal is to be more relationship focused. Multi-family is transactional. It served us well. It's an excellent portfolio, it has served us very well in our transitions. When we started here, we didn't have a commercial real estate group back in 2004, 2005. And that multi-family group and the team that -- Joe Orefice and his team have done a great job in our transition. You can't keep doing the same that you did to get to where you are today and in the future. You have to continue to evolve and diversify the revenue streams and become less liability sensitive.

Timur Braziler -- Wells Fargo Securities -- Analyst

Thanks guys. Nice quarter.

Kevin Cummings -- Chairman and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Cummings for any closing remarks.

Kevin Cummings -- Chairman and Chief Executive Officer

Okay, thank you. And as we wrap up 2019, I'm -- we're very, very satisfied with the last two quarters. We have good momentum going into 2020. We expect 2020 to be a good year. We have a company with strong capital, a strong credit culture and an overall great culture of serving our customers. And more importantly, with all the discussion on with the Business Roundtable and stakeholders, we do an excellent job in our communities. We're out there being leaders who serve and really making a difference in the communities that we serve and creating a great culture here.

Our employees come to work every day with a passion for what they do. And I want to thank them for their efforts, and I thank all of you on this call for your time today. One thing I'd like to tell everyone to enjoy the Super Bowl, and I'll give you my prediction. Kansas City by six points. Go, Andy Reid! All right, everyone, have a good weekend. Enjoy the Super Bowl.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Kevin Cummings -- Chairman and Chief Executive Officer

Sean Burke -- Executive Vice President and Chief Financial Officer

Domenick A. Cama -- President and Chief Operating Officer

Mark Fitzgibbon -- Sandler O'Neill & Partners -- Analyst

Chris O'Connell -- KBW -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

Brody Preston -- Stephens Inc. -- Analyst

Timur Braziler -- Wells Fargo Securities -- Analyst

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