SBNY
#It's just reported expenses, Chris.
No.
I think, I mean, we're going to continue with our strategy on the securities side.
We're getting reinvestment yields in the low-3s, so that's really beneficial to the overall NIM.
Sure.
Certainly, the asset yields being up this quarter was helpful, as first quarter we've seen asset yields increasing quite some time, so the asset side is starting to catch up to the liabilities.
If looking at the first quarter, because of the day count, we should certainly be stable and maybe even possibly up 1 basis point or 2.
In future quarters, we're looking at a stable margin, big assumption there being that the yield curve stays similarly shaped to where it is today.
If we see a flattening of the yield curve, that will obviously put pressure on the margins.
I was just going to get to the deposit front.
Deposit costs are typically most pressured depending on the frequency and the severity of the rate increases.
If we see 2 to 3 rate increases next year, we'll have deposit pressures but nothing that we can't overcome.
If we see 3 to 4 and if they happen to be ---+ any of those are larger than 25 basis points, that could put undue pressure on the deposit front.
We're thinking both for our employees and the shareholders.
So although we have not solidified any of the plans, the first thing we're going to do is we have this saying, long-term health and wealth.
With the tax ---+ effective tax rate going to be 27% from around 37.5%, there's going to be a lot more earnings.
And with long-term health and wealth is, in all likelihood, we would ---+ we have a component of our 401(k) for the employees that is profit-sharing and we'll probably activate that profit-sharing component and put some extra dollars for our employees into the 401(k) through the profit-sharing component.
And at the same time, that's the wealth part.
The health part is that we're thinking also of ---+ at the same time, we do see medical expenses and having Signature Bank take on more of the expense for the employees.
So that's the health and wealth.
And seriously, for the first time, also we're going to consider instituting either/or a buyback program or paying dividend.
And, of course, it's going to depend upon the growth of the institution, but we are going to take that up seriously and make some decisions later on in the year.
And lastly, we'll make further investments by growing our business and establishing a full banking ---+ a full-service banking presence on the West Coast.
We don't want to give too much information at this time for competitive purposes, but we expect to be fully operating at least one West Coast office by year-end.
Okay.
The pipeline remains pretty solid.
It's not as large as the fourth quarter.
We do anticipate there being less activity or less growth in CRE compared to last few years because ---+ but we're happy that we'll have a more diversified balance sheet.
The changes we made in the fourth quarter by adding on a Chief Lending Officer allows us to really concentrate on an area that we hadn't been for the past several years and that's the C&I world.
So between ---+ the C&I and Signature Financial would be able to make up any shortfall that we would have in the CRE market.
Rates for our traditional 5-year fixed is 3.75% to 3.875%.
We'd like to ultimately push that to 4%, but we're clearly seeing credit compression there.
For other forms of CRE, it's at least 25, 50 basis points wider.
When you look at other asset classes, C&I is coming in, in the high-4s to 5% range, traditional C&I.
Signature Financial is in the low 4% range.
And in our securities, reinvestment rates are in the low-3s.
Correct.
That's the CRE where we think the rates should be higher, but we can't be 50 basis points.
Where we logically think the rates should be would be 50 basis points or more above where the competitors are and we would not be doing business.
So we have to stay within that 25 to 3/8s range above our competitors.
Further declines, but at a slow pace.
Sure.
We ---+ I'll tell you where we are as of the 16th of January, Tuesday.
We were up $778 million in total deposits, of which more than 50% were DD<UNK>
Good start.
What actually happened at the end of 2017, in the last 2 weeks, we had net outflows of $760 million.
That's why our averages were so high because we did have throughout the quarter a high amount of deposits, but the tax legislation had an effect and I'll give you an example on a cash basis paying on taxpayers.
We had ---+ one example as a client, on a cash basis, you want high tax rates to push as much as you can because the rates are going lower in 2018 into 2017.
So not only did some of our clients pay out all their profits in 2017 ---+ and sometimes they would defer it to the following year, but they didn't.
They paid out most of it, if not all of their profits in 2017.
And then, they, in some instances, they paid every expense they could possibly pay.
And then, in one instance we know of, one of our clients paid out the first quarter profits, estimated the first quarter profits of '18 and paid that out to his partners in 2017.
And that was all tax-related and so we saw quite a few net outflows in the last 2 weeks of the year.
Having said that, we have a pipeline of deposits that are fairly strong throughout at least the first couple of months of the year, but what happened in some of our initiatives during 2017, we were ---+ what used to be tailwinds became headwinds.
For instance, without getting in too much detail, we have one initiative that we've been working on for 5 or 6 years.
We have a great flow of deposits for the first 5 years of the 6 and then due to some government inaction in one of our national business lines, and it's ---+ again, they're kicking the can down the road in Washington, but until they finalize their move, there's a slowdown in one of our initiatives, which we had a reduction of $360 million during the year.
So the good news is that if Washington gets their act together on one of our initiatives, that spigot will turn on big time.
We have some new initiatives that we're working on.
And if you look at our growth throughout the year, it's significant in DD<UNK>
So what that means is we're still bringing in the core clients.
I'll remind you that in the last couple of years, we've talked about some fluff that we had because we moved some deposits from off balance sheet to on balance sheet and now we're up against the off balance sheet rates being higher.
So we're fighting some headwinds that used to be tailwinds, but it all looks good for 2018 for deposit flows.
There's not a minute that goes by that I don't think about it.
No.
We don't really see that meaningfully changing over time.
We're still going to make those investments for CRA purposes and we'll continue to do that.
Joe, I wanted to follow-up on the fluff deposit issue that you just mentioned.
Is there a way ---+ I'm assuming that that's mostly coming out of the money market as that was down quarter-to-quarter.
The DDA trends were very good.
Is there a way to quantify how much of this fluff there is to work through and then the DDA can sort of ---+ while the deposit trends overall can show better once you work through the fluff.
We really don't know.
You look client by client, we don't want to sit down and ask each client what that says.
Some of it is [set] for future investment and we think that, that we have a better handle on, but what's over and above that is hard to determine.
What we're looking at from a value standpoint is that if we continue to bring in DDA, even if deposits slowed from where ---+ we had ---+ in 2014, '15 and '16, we grew deposits $15 billion in that 3-year period.
It's going to be hard to grow $15 billion in a 3-year period ever again in at least the foreseeable future, but we're bringing in quality deposits as evidenced by the DDA that's being brought in.
So sorry if we really can't give you what that fluff number is.
Okay.
Understood.
And then, just on the funding strategy, the loan and deposit ratio ticked up.
Is there ---+ are we at a sort of ceiling here.
And then, similarly on the borrowing side, how much appetite is there to take that up from that $4.5 billion level from where we are today.
We're at a ---+ we're not at a ceiling, but we're close to a ceiling on the loan-to-deposit ratio.
On the borrowing side, we're still below our peers, but we really like to do everything ---+ every loan ---+ we like to make and every investment security we buy, we'd like to do it in a deposit.
So we're pushing some of our initiatives even further and quicker than we had in the past to bring in deposits, but one of the things we don't want to do is to pay up.
There's about 3 banks out there that are offering rates that just don't make sense to us and we won't pay up for them now.
Okay.
Last one for me, just on the capital management.
It's good to hear that you guys are entertaining capital return.
Can you give us a sense on how much excess capital you think you have.
And are you thinking ---+ I would think you would be more inclined to pursue the buyback than the dividend given where you are from a valuation perspective.
Just some thoughts about how you're thinking about capital return later in the year.
The only thing I'm prepared to say right now is I think that the stock is ridiculously priced low and there's a lot more value there.
That will certainly weigh in, but other than that, it's too early to give you more color.
Any expenses associated with that ---+ with them being installed and the amortization has been baked into our numbers already.
That's all contemplating our high single-digit expense growth if the $50 billion markets moved.
Probably we'll get a low double digits at 10% to the 14% range.
Just a little wider hopefully at the low end of that range.
The most recent write-down was really driven by sales in the marketplace combined with the increasing cash flows starting as the values on our cash flow models came down.
Overall, we've got a net exposure of $310 million and the average per medallion value in New York is at $305,000 and $45,000 in Chicago.
No.
I mean, we assume some degree of flattening in that.
We don't expect the 10-year to move lockstep with the front end of the curve.
That's right.
I think we're still approximating a 50% beta given a 1-year, 1% ramp scenario, which we managed to be under thus far, but we do anticipate betas to pick up with each rate increase.
I mean, that would flow through a little bit, but it's not going to be incredibly meaningful.
I think you have a decent amount of ---+ it's not going to be a ---+ shoot like a rocket ship, but we have a situation where we have a very experienced person running the side of the lending to grow it and his experience level will allow us to do things quickly.
So it's not a new initiative.
It's just taking what we have and making it better.
And I think there's a renewed interest in our bankers to go out and do business on the lending side on the asset side that wasn't there last year.
Well, with the earnings that we anticipate, with our effective tax rate being 27%, it would be enough capital just internally generated to grow the bank $7 billion to $8 billion on an annual basis, which we don't expect to do.
So if we have capital growing at $7 billion to $8 billion, allowing the bank to grow $7 billion to $8 billion and we grow $3 billion to $5 billion, it's an opportunity to return ---+ either return it to a dividend or increase the price through a buyback.
Yes.
It would be a traditional deposit-taking and C&I facility where we could also entertain doing some level of CRE, but it's predominantly for deposit-taking, Ken.
We do.
We expect ---+ there were several loans or packages that we expected to be paid in 2017 that were not, but the largest one out of all of them was actually, on the last day of the year, we had $111 million, 3-loan package paid back.
So the biggest one did.
And although we are going to have some paybacks ---+ prepayments in the first quarter, the large one was largely taken care of in the last day of the year.
Yes.
Not a strong as it was in the fourth quarter, but certainly it is strong.
No.
On the initiatives that we've had for a number of years, we're all set with the people.
On the new initiatives, we'll be hiring teams in 2018.
And so the ones that we've already been in, we're kind of set where we are with the number of teams that we have.
We'd love to give what the dollar amounts are if I knew them, but they're vastly ---+ well, look at it this way, maybe not big enough for multitrillion-dollar institution, but certainly significant to a $43 billion institution.
