Signature Bank
Q4 2018 Earnings Call Transcript

Published: 17 Jan 2019

[Operator:]

Welcome to Signature Bank’s 2018 Fourth Quarter and Full Year Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer and Eric R. Howell, Executive Vice President, Corporate and Business Development. Today’s call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

[Joseph DePaolo:]

Good morning. And thank you for joining us today for the Signature Bank 2018 fourth quarter and year end results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

[Susan Lewis:]

Thank you, Joe. This conference call and all statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on the statements, because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and may be beyond our control. Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operation, new private client team hires, new office openings and business strategy. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include those described in our quarterly and annual reports filed with the FDIC, which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made. Now, I'd like to turn the call back to Joe.

[Joseph DePaolo:]

Thank you, Susan. I will provide some overview into the quarterly and annual results. And then Eric Howell, our EVP of Corporate and Business Development, will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks. 2018 was a volatile time for the banking industry driven by a variety of external factors. However, we continue to perform in keeping with our founding mission to be a leader in serving privately held businesses. Our focused initiatives and proven capabilities should differentiate us from the pack, and we are prepared to address any challenges ahead. This year was highlighted by several achievements starting with hiring eight teams, including the fund banking division, growing assets by over $2.4 billion, putting the medallion portfolio behind us and increasing net income by 30% exceeding $500 million. Additionally, we ended the year with a really strong fourth quarter; assets grew $1.5 billion, driven by solid C&I growth; earnings topped $160 million; ROE was nearly 15%; and capital levels remain strong, while paying a solid dividend and buying back stock for the first time. Now, let's take a closer look at earnings. Net income for the 2018 fourth quarter was $160.8 million or $2.94 diluted earnings per share compared with $114.9 million or $2.11 diluted earnings per share reported in the same period last year. The improvement in net income is mainly the result of an increase in net interest income, primarily driven by strong average deposits and loan growth, as well as a decrease in provision for loan losses attributable to taxi medallion loan. The improvement was partially offset by an increase in non-interest expenses resulting from hiring new private client banking teams, including to fund banking division, as well as increased compliance costs. Looking at deposits, deposits increased $288 million to $36.4 billion this quarter, while average deposits grew by $541 million. For the year, deposits increased $2.9 billion and average deposits increased $2 billion. Non-interest bearing deposits of $12 billion represented 33% of total deposits and grew $653 million or 6% for the year. Our deposit and loan growth led to an increase of $4.2 billion or 10% in total assets for the year, which cost $47 billion. Now, let's take a look at our lending businesses. Loans during the 2018 fourth quarter increased $1.3 billion or 3.7% and for the year, loans grew $3.8 billion or 12%. The increase in loans this quarter was primarily driven by growth in commercial and industrial loans and specialty finance. This is the first time in at least 11 years that C&I growth outpaced CRE growth substantially, and speak of the transformation of the balance sheet to include more floating rate assets. Turning to credit quality, our core portfolio continues to perform remarkably well. Excluding medallion loans, non-accrual loans of $20.1 million was just 6 basis points of total loans. Overall, non-accrual loans decreased again this quarter by $26 million to $109 million as we further worked down our remaining medallion portfolio. Our pass through loans remained in the normal range with 30 to 89 day past due loans at $63 million, while 90 day plus past due loans remained low at $8.8 million. For the 2018 fourth quarter, we had net recoveries of $2.9 million compared with net charge-offs of just $11,000 for the 2018 third quarter. The provision for loan losses for the 2018 fourth quarter was $6.4 million compared to $7.4 million for the 2018 third quarter and $41.7 million for the 2017 fourth quarter. The allowance for loan losses held flat at 63 basis points of loans, while our coverage ratio climbs back over to over 200%. Now onto the team front. In 2018, we had eight private community banking teams, including the fund banking division. Additionally, we appointed eight banking professionals to our asset based lending business and specialty finance subsidiary. Looking ahead to 2019, the pipeline for teams is solid. In fact, we've already hired a team in 2019 and we look forward to the ongoing opportunities to attract talented banking professionals to our network. At this point, I'll turn the call over to Eric and he will review the quarter's financial results in greater detail.

[Eric Howell:]

Thank you, Joe and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the fourth quarter reached $335 million, up $15 million or 4.8% when compared with the 2017 fourth quarter and an increase of 3.2% or $10.2 million from the 2018 third quarter. Net interest margin on a linked quarter basis improved 2 basis points and compared with last year's fourth quarter, decreased 17 basis points to 2.9%. Excluding prepayment penalty income, core net interest margin for the linked quarter decreased 5 basis points to 2.8%. Let's look at yield and asset yields and funding cost for a moment. Interest-earning asset yields for the 2018 fourth quarter increased 14 basis points linked quarter and 28 basis points when compared to the 2017 fourth quarter to 3.99%. The increase was predominantly driven by a rise in loan prepayment penalty income and higher reinvestment rates. Yields on the securities portfolio increased to 2 basis points linked quarter to 3.28% due to a slowdown in premium amortization from reduced CPRs fees and higher reinvestment deals. Also, the duration of the portfolio came in a little to 3.3 years, given lower market rates at the end of the year. In terms of our loan portfolio, yields on average commercial loans and commercial mortgages increased 16 basis points to 4.21% compared with 2018 third quarter. This was mostly due to a rise in pre-payment penalty income. Excluding prepayment penalties from both quarters, yields increased by 7 basis points, which is our largest quarterly increase in core loan yields in many years. Now, looking at liabilities. Our overall deposit cost this quarter increased 10 basis points to 98 basis points. Average borrowings, excluding subordinated debt, increased $436 million to $5.3 billion or 11% of our average balance sheet. The average borrowing cost increased 24 basis points from the linked quarter to 2.41%, given the higher short-term interest rate environment. The overall cost of funds for the quarter increased 13 basis points to 1.19%, predominantly driven by increased borrowings this quarter. And on to non-interest income and expense. Non-interest income for the 2018 fourth quarter was $5.9 million, a decrease of $2.6 million when compared with the 2017 fourth quarter. The decrease was all due to an increase of $4.2 million and other losses from additional amortization of low income housing tax credit investments, which positively impacts our effective tax rate. Non-interest expense for the 2018 fourth quarter was $119 million versus $110 million for the same period a year ago. The $9 million or 8% increase was principally due to the addition of new private client banking teams, as well as further cost in our risk management and compliance activities. The Bank's efficiency ratio remains stable at 34.9% for the 2018 fourth quarter versus 33.5% for the comparable period last year, and 35.6% for the 2018 third quarter. And turning to capital, in the fourth quarter of 2018, the Bank paid a cash dividend of $0.56 per share. Additionally, during the 2018 fourth quarter, the Bank repurchased approximately 358,000 shares of common stock for a total of $41.8 million. The dividend and share buyback had a negligible effect on capital ratios, which all remained well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet as evidenced by a tier 1 leverage ratio that improved slightly to 9.7% and total risk-based ratio of 13.39% as of the 2018 fourth quarter. And now I will turn the call back to Joe. Thank you.

[Joseph DePaolo:]

Thanks, Eric. In summary, in 2018, we grew deposits to $2.9 billion or 9%. We increased total loans by $3.8 billion or 12%. Commercial and industrial loans comprised 42% of the increase for the year and 85% for the fourth quarter alone. Total assets increased by $4.2 billion or 10%, slightly above the midpoint of our guidance of $3 billion to $5 billion in asset sales. We significantly reduced our exposure in taxi medallion loans, while maintaining exceptional credit quality in the remainder of our loan portfolio. To this end, non-accrual loans, excluding more medallions are only 4 basis points of total assets. We added eight private client banking teams, including the fund banking division, which is the equivalent of several banking teams and established a full service banking office in San Francisco. We launched Signet, a new proprietary blockchain based digital payments platform, allowing our commercial clients to interact in real time in transparent manner. We maintained our already superb efficiency ratio at 34.9% for the year, while continuing to invest in our risk management and compliance function. We maintained a robust capital position while instituting our inaugural quarterly dividend and stock repurchase program. And finally, focusing on the power of our franchise, we delivered an outstanding $505 million in net income, an increase of 31% and a 12% return on equity in spite of medallion rights. We welcome 2019 as we plan to strengthen our foundation by continuing to make major investments in our loan systems, payments architectural platform and new foreign exchange system. We also look forward to expanding our presence in San Francisco where we have climbed synergies. Finally, we will continue our focus on increasing floating rate assets as a percentage of our balance sheet, predominantly through the growth of our newly added fund banking division. Now, we are happy to answer any questions you might have. Christy, I will turn it over to you.

[Operator:]

Thank you. The floor is now open for questions [Operator Instructions]. And your first question is coming from Ken Zerbe of Morgan Stanley.

[Ken Zerbe:]

The first question I had was just on the stock buybacks. Obviously, you guys have a fair bit of approval still remaining. Can you just talk about your plans or expectations for repurchasing shares throughout 2019? What might change that? Thanks.

[Eric Howell:]

I think we will be repurchasing a similar level per quarter as we did this quarter, and I would say $30 million to $50 million range. The binding constraint on how much we can repurchase there still our commercial real estate concentration, which we were able to bring down by 8 basis points this quarter even with the dividend and the buy back. So we’re pleased with that effort. But that’s is going to be mitigate as to how much we can buy back, because we do want to bring down that concentration level and we want to increase the mix of assets that we have at our balance sheet.

[Ken Zerbe:]

And then in terms of -- when we think about 2019, I know last year I think you were targeting that $3 billion to $5 billion roughly of total asset growth. Is that a realistic target this year? Could it be lower and higher end of that, especially given your new private equity gains?

[Joseph DePaolo:]

The $3 billion to $5 billion is realistic, particularly on the loan side. I think the most important thing is funding it with deposits. And we know that the competition is pretty strenuous out there, but we are confident that we will be able to be in that $3 billion to $5 billion range.

[Ken Zerbe:]

And I guess just last question to follow-up on the deposit comment that you just had. Looks like deposits with the growth trialed loan growth by a fair amount this quarter. Are you comfortable -- if that were to continue and maybe it doesn’t. But if it does continue, looks like you increased your borrowings to fund some of those variable rate loans. Presumably they are also duration borrowings funding shorter durations loans, so it of makes sense from the spread perspective. But does there come a point where if deposit growth doesn’t meaningfully pick-up that you would be uncomfortable or choose to scale back on funding loans with borrowings?

[Joseph DePaolo:]

Well, we are pretty confident -- well, let me rephrased it. We're fairly confident that we're going to be able to fund the lending side with deposits. In terms if not a comfort level, we are not really where we want to be at 99%, we'd like to be lower than that. And we have a plan with the number of initiatives to increase the deposit growth. One of the initiatives is the Signet platform that should help us. We also have some -- we have teams including these fund division, fund banking division. And traditionally where they came from, the bank or banks that they came from, they self funded. Although, it lagged and takes time. So we are confident that the out standings that they have in loans will be covered by their own deposits that they will bring in. And they have actually done a fairly good job this quarter with bringing in a number of deposits. And then we had the digital banking team that came on-board about a year-ago. And then we have six other teams that are new and really have not yet contributed, and we expect them to contribute this year. And then we have the whole West Coast and San Francisco. Our office is officially opening up on Monday, and we'll start bringing in some more business.

[Operator:]

Your next question is from Dave Rochester of Deutsche Bank.

[Dave Rochester:]

So you guys obviously had some great growth in C&I this quarter, good start for new fund banking division. How does the overall loan pipeline look at this point heading into 1Q? And then what do you guys see as the -- division in particular as we look out over this year?

[Joseph DePaolo:]

Could you please repeat the second part, the last part again?

[Dave Rochester:]

Yes, I was just wondering how the loan pipeline how that looks heading into 1Q, and then what's the growth potential for the new fund banking division, in particular as you look out over 2019?

[Joseph DePaolo:]

Well, the potential is pretty enormous. They've hit the ground running. They had just in this one quarter, have over a billion dollars in lines. They have about $650 million in outstanding, and that's just hitting the ground running. So we're very happy about that. The loan prospects for them and for the other areas are pretty robust. That's why we have to make sure that we fund with deposits, because we have a robust pipeline.

[Dave Rochester:]

And then just turning to the NIM, I was curious what you're seeing now on new loan pricing for all the different buckets. And then how you're thinking about that NIM trend overall for 1Q?

[Joseph DePaolo:]

Well, I'll start off with commercial real estate. We're seeing five year fix came down a little bit with 4.5. We were at four and seven eights and 1.4 in three quarters, so we're 4.5 right now on the five year fix.

[Dave Rochester:]

And that's for multifamily?

[Joseph DePaolo:]

Yes.

[Dave Rochester:]

And then -- so the CRE would be I guess 25-35 bps wider than that?

[Eric Howell:]

Correct, yes.

[Dave Rochester:]

And then how about capital call lines and Sig Fin at this point?

[Eric Howell:]

Thus far, we're seeing the capital call facilities come in at L plus 170 to 200, Signature Financial is coming in these days right around 5% in the 0.5% range, traditional C&I is coming in north of 5%. The asset yields are still quite accretive to what's existing on our book.

[Dave Rochester:]

And how do you think about the NIM for 1Q?

[Eric Howell:]

Given the Fed move in December, we expect to have a little bit more pressure in the first quarter, so we're looking at 2 to 4 basis points NIM compression in the first quarter, hopefully, closer to the two basis points, especially given day count in the first quarter. And then from there, it's all going to be Fed dependent. If Fed doesn't move, we'll see NIM stabilize to really go up.

[Dave Rochester:]

And suppose we do get a mid-year hike or whatever. Would you expect that the better spacing of hikes to maybe translate into a little bit of a lower deposit beta going forward in that situation?

[Eric Howell:]

Yes, Dave.

[Operator:]

Our next question is from Brock Vandervliet of UBS.

[Brock Vandervliet:]

Could you give us a look under the hood on the pre-pay fees in terms of where they've averaged, where they came from short-term and how you look at that going forward? And then I've got a follow-up.

[Joseph DePaolo:]

We look at this particular quarter where we had a significant amount of pre-pays. We look at it as something that we didn't expect, because we had a number of large packages pay down early, in particular one was fairly large. But they were all in low 3s, three and three eights. So when we refinance them or they refinance out, we were happy to get rid of the loans that we're paying at three and three eights. One of them in particular wanted 10 year money. We keep everything on our balance sheet so we don't do 10 year fix, we really do five year fix and on a rare occasion, we do seven year fix but that's the one area that's very hard to predict prepayments. So to give you an idea of what would happen in near future is very difficult. We just on the thought it was going to slow, it actually sped up.

[Brock Vandervliet:]

And this is -- is it fair to say this is a mix between your outreach to clients to potentially pull them toward a refinance decision, as well as a reaction by clients to look to reprise for fear of having the rate tick up at the refi date?

[Joseph DePaolo:]

The interesting thing is those that we pulled in, we rate the pre payment penalty. We rate the pre payment penalty, because they weren’t expecting or projecting to prepay now the refinance. And when we point out certain aspects of what’s going to -- we think is going to happen in the market then all of a sudden they'll refinance but they don’t pay a prepayment penalty, because they’re the ones that pay the outreach so that helps because even though we raised the prepayment penalty, it helps us because they're all from three and three eights to four and three eights or four and half.

[Operator:]

Thank you. Our next question is from Casey Haire of Jefferies.

[Casey Haire:]

I wanted to follow-up on some of the NIM line of questioning. So the loan to deposit ratio obviously near 100%. Is there internal limit where you guys would not want to see that internal ceiling where you would not want to see that go above?

[Eric Howell:]

Casey, we do have broad approved limits for that, we don’t disclose what those are. And it's safe to say that we’re at the high end of the range that we feel comfortable with, so our focus is really to grow core deposits.

[Casey Haire:]

And it sounds like the capital call is really off to a strong start here and my impression is that’s a very liquid lending vertical. Are you guys seeing strong deposit growth in that along with that product, or is that more on the comment underlying your confidence on the deposit growth?

[Joseph DePaolo:]

I would say that it's both. We have strong deposit growth. Usually, it lags little more than what we've had but we’re very happy with the growth thus far. Our expectation is that it really will take a year.

[Casey Haire:]

And on the expense front, is the outlook still 10% growth and is that off of the 486 GAAP number in 2018?

[Eric Howell:]

Its 10% growth, but you do have to normalize because we did have some quarters where we have some large write downs on repossessed medallions cases…

[Casey Haire:]

So that’s 25 in the -- so strip out the 25 in the first quarter of '18 for the fair value adjustment and then -- so 10% off of that?

[Eric Howell:]

Correct.

[Operator:]

Thank you. Your next question is from Jared Shaw with Wells Fargo Securities.

[Jared Shaw:]

So as we look at the -- was that 10% growth, that was 10% growth in C&I or that was -- I missed the end of that last question…

[Eric Howell:]

The 10% in expenses…

[Jared Shaw:]

As we look at C&I growth through 2019, do you think that that's going to be able to continue to outpace and take share from the other components of growth, should we see the C&I continue to outpace CRE growth in 2019?

[Joseph DePaolo:]

Yes, because that's part of our plan to transform where we had a predominant amount of fixed income. We want to have a better balance of fixed and variable or floating rate loans, and we have the capability and the teams to do that.

[Jared Shaw:]

And then looking at the deposits, look like the average non-interest bearing DDA was higher than period end. Were there any flows happened at the end of the quarter there that could be reversed? And should we be looking at growth off of the average DDA for first quarter?

[Joseph DePaolo:]

The fourth quarter is a quarter that's hard to predict, but in terms of growth it's the quarter that we have the least amount of growth. And there were lot of outflow just simply because it was a build-up of partnership dollars that didn’t get distributed at the end of the year. There were some escrows where they needed to have closings before the end of the year, so it was typical.

[Jared Shaw:]

And then on the fund's business, do you think that ultimately that could -- could that be a billion dollar deposit business for 2019 do you think as the teams get up and running?

[Joseph DePaolo:]

Yes.

[Operator:]

Thank you. Your next question comes from Ebrahim Poonawala of Bank of America.

[Ebrahim Poonawala:]

Just a follow-up on what Jared just said in terms of the fund team up and running. My sense is they are up in running, like the growth that we saw in loan growth, fourth quarter was very strong. And I recognize that you would like to be conservative in thinking about deposit growth from that team. But if pipelines are strong, 4Q is any evidence of the capacity of this team. Do you think that there's potential for billion dollar plus growth coming from that team next year in '19?

[Joseph DePaolo:]

Yes.

[Ebrahim Poonawala:]

And just switching Eric for a second in terms of provisioning between the CRE capital call line book assuming they're all low credit risks books. So should we expect results to stay around the 60 basis points incrementally, if you could just talk about that a little bit?

[Eric Howell:]

It certainly seem too reasonable, the capital call facilities are extremely well secure and well structured, and have little to no history of the losses over many decades. So it's a pristine asset class and we certainly feel our CRE as we've talked about for a long time now is also a pristine asset class. So we don’t really anticipate seeing a meaningful change in our provisioning, going forward.

[Ebrahim Poonawala:]

And on that like in Signature Financial, can we talk about the type of loan growth that's coming through there in terms of -- is it an industry vertical that you are targeting? And I just want to understand that better from a credit risk standpoint?

[Eric Howell:]

It's really all forms of equipment finance, and we focused on revenue producing equipment that businesses have to have to run that business and to produce revenues. So that's extremely protective and in times downturn, but it's a lot of yellow metals, trucks, buses, trailers, manufacturing equipments as such. But we feel very good about what they've done thus far here since 2012 and the level of losses that we see in their portfolios even when we include the oil and gas and obviously, excluding taxes has been well below what we anticipated from that group.

[Operator:]

Thank you. Your next question is from Chris McGratty of KBW.

[Chris McGratty:]

Eric, on the deposit betas, they came in a little bit this quarter. Wondering, one, can you speak about competition for deposits little bit more, I may have missed it? And also the spot rate, where the spot rate was in December?

[Joseph DePaolo:]

The way I described it at a conference in December was it was a steel cage match, wrestling. It has gotten more competitive. I haven't seen it this competitive in my lifetime anyway. Lots of deposits and the lack of liquidity out there makes it very, very difficult but we have on our side; we think we have the best teams; we think we have the best equipment financing group in Signature Financial; we have the commercial real estate group constantly at for deposits; and then we have now the fund banking division. And everyone is focused on deposit growth and that's what actually gives us somewhat of an advantage along with the fact that we get large deposit and not single dollars but millions and sometimes billions. So, I'll paint it this way. It's very difficult out there but we're ready for the challenge. We also have a number of initiatives that Eric and I had cited like a few years ago that we would not disclose some of the initiatives just simply because we don't want the competition to know what we're doing. But they could move us quickly into another deposit generating machine that we were a few years ago.

[Chris McGratty:]

And do you have where the deposit costs were in the month of December versus average for the quarter?

[Eric Howell:]

We don’t have averages.

[Chris McGratty:]

In terms of -- a modeling question, the tax rate and the adjustment in the non-interest income. Is it fair to assume that your go forward rates for both items?

[Joseph DePaolo:]

For taxes 25% effective tax rate, that's what I would view going forward.

[Operator:]

Thank you. Your next question is from Steven Alexopoulos of JP Morgan.

[Steven Alexopoulos:]

Joe, to follow up on your comments on the deposit environment, which you described now as the worst in your lifetime, tell us what's changed in the market. Are these new entrants -- what's really driving this level of ferocity around deposits?

[Eric Howell:]

The biggest driver is really the reversal of quantitative easing, second trillions -- at least it's trillion last year, 600 million I think over the course of the coming year, or billion. So that's creating quite a bit of headwind.

[Joseph DePaolo:]

For a lot of banks that lead to fund the asset size that have retail groups even that was cheaper, still you have to have this massive amount of branches to attract all those dollars. And what we're finding is that they're getting -- there is some desperation there because just return on the light in all their locations, you have to make some revenue. And with the yield curve the way it is and the amount of expense that they have, you came to a situation where they are starting to raise rates to point that with so far away from what we think is fair and normal. For instance, we are now talking about rates in the 2% range, but we assume banks that are going close to 3% range but it makes no sense to do so. That’s why I feel that it is so difficult out there. Because you could tell a client on at least 25 basis points, or somebody is offering me 225, I should be able to pay at 195, 200 because of the like of treatment that can get but it's hard to tell a client as team offered 50 to 55 basis points more than what you’re willing to offer.

[Eric Howell:]

And then quite frankly, we’re seeing clients utilize their deposits again. And they're investing in those businesses which they hadn’t done for quite a while. And we’re also seeing all balance sheet alternatives, which we haven’t had to compete with for a decade. And so there is other place for our clients to put their money and they are starting to put it into their businesses, which ultimately will be good.

[Joseph DePaolo:]

We’re pretty proud of the fact that we just under $3 billion in deposit growth, because one of the areas that was big initiative for us is EB-5 and we're down a billion dollar in EB-5. So we’re bringing in the money but like Eric said, some of the areas the money is being used, we have strong 10-31 that’s down a bit, bankruptcy is down a bit and we came all those headwinds and still had nearly $3 billion in deposit growth.

[Steven Alexopoulos:]

I want to understand Eric your response to Casey's question. Did you say that you guys are unlikely to push the loan to deposit ratio above 100, is that what you said?

[Eric Howell:]

What I indicated was that we’re really not going to get into our limits, but 100% would be pushing it for us.

[Steven Alexopoulos:]

And then just on the Signet, sounds like you're not charging customers for that as a deposit opportunity. Could you give us a rough sense like how meaningful business deposit opportunity, and are those managers bearing deposits? Thanks.

[Joseph DePaolo:]

In non-interest bearing deposits, it'd be hard for me to framework an amount but it nearly depends upon the number of ecosystems that we can fit our payment platform in with various ecosystems. We could tell you that at least in the crypto world, which I hate using that terminology, it's really the digital world. In the digital world, we see an enormous opportunity but that’s not going to be the only ecosystem that we will be in but it's in the billions, it's in the billions.

[Operator:]

Thank you. Your next question is from Matthew Breese with Piper Jaffray.

[Matthew Breese:]

I was hoping to get a little bit more of a dynamic view on the margin and the margin outlook. I think you suggest that with no Fed hikes, perhaps we see stabilization or some upside by the midpoint of this year. Does that include the yield curve being basically flat where it is now?

[Eric Howell:]

Yes, that includes the yield curve being similar to where it is now, that’s correct.

[Matthew Breese:]

And so any steepening would be beneficial?

[Eric Howell:]

Correct.

[Matthew Breese:]

And then could you give us just a sense in terms of your multifamily commercial real estate book, what the backlog is of loans that have reprised this year? And what the pricing gap is that will help the margin as well?

[Eric Howell:]

It's very hard to predict what's going to reprise this year, and we've talked about that and discussed in the prepayment penalty income. It's very difficult to predict client behavior. 2014, 2015 and 2016 were at a huge years for us volume wise. So you would anticipate that we have quite a bit coming to many, many billions should reprise this year. Most of those were being low to mid 3% range and we should see that pricing to the mid-fours.

[Matthew Breese:]

My last one is I guess if we rollback to tape a year or year and a half, many the initiatives that we're talking about now whether it's digital asset teams, Signet, capital call lines. They were really not part of the discussion. And so I know you're hesitant to say what the deposit balances on any of those items will be. But maybe you can give us an outlook for forecasted deposit balances as a whole from those items as we look out to the next year or two years. And then secondly, could you give us an idea of what you're working on that might be outside to these items that will help loan to deposit growth beyond 2019?

[Joseph DePaolo:]

We won't project or predict probably what our thoughts are, it's too difficult. But one of the things that I will say is we believe that our geographical growth in San Francisco and one of the things we mentioned it in the past that didn’t come up today that we'd love to open up in Los Angeles as well, that will help us. And the expectation in both accounts would be that we have more deposit growth and loan growth.

[Matthew Breese:]

Is M&A part of the discussion as you think about the west coast expansion?

[Joseph DePaolo:]

Every time I discuss M&A, it just gets me in trouble so we never say never. I think it would be more likely if we ever did M&A, it would be outside our market and not in our market.

[Operator:]

This concludes our allotted time and today’s teleconference. If you’d like to listen to a replay of today’s conference, please dial 800-585-8367 and refer to the conference ID 3184218. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your lines at this time, and have a wonderful day.