Jan 18, 2018
Executives
Susan Lewis - IR Joseph DePaolo - President and CEO Eric Howell - EVP, Corporate and Business Development
Analysts
Chris McGratty - KBW Ebrahim Poonawala - Bank of America Dave Rochester - Deutsche Bank Casey Haire - Jefferies Steven Alexopoulos - JP Morgan Jared Shaw - Wells Fargo Ken Zerbe - Morgan Stanley Lana Chan - BMO Capital Markets
Operator
Welcome to Signature Bank’s 2017 Fourth Quarter and Year End 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. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.
[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 2017 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 oral 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 those 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, operations, 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.
Signature Bank delivered another year of solid growth and performance, notwithstanding challenges in our taxi medallion portfolio. Additionally, for the fourth quarter, we again delivered strong average deposit growth and robust loan growth.
We expanded top line revenue and maintain credit quality leading to a healthy quarter of earnings. I'll start by reviewing earnings.
Net income for the 2017 fourth quarter was 114.9 million or $2.11 diluted earnings per share, compared with $113.9 million or $2.11 diluted earnings per share reported in the same period last year. The modest improvement in net income is mainly the result of an increase in net interest income, primarily driven by strong average deposit in loan growth.
These factors will largely offset by increases in the provision for loan losses attributable to tax medallion loan. And non-interest expenses resulting from higher and new private client teams as well as increased regulatory and compliance form.
Now excluding the taxi medallion charge-offs of 36.8 million and the net tax benefit of 2 million. 2017 fourth quarter net income would have been 132 million or $2.43 diluted earnings per share.
Looking at deposits, deposits decreased 238 million or 0.7% to 33.4 billion this quarter while average deposits grew by 647 million. For the year, deposits increased 1.6 billion and average deposits increased 3.4 billion.
Non-interest bearing deposits of 11.4 billion represented 34% of total deposits and grew 833 million or 8% for the year. Our deposit and loan growth coupled with earnings retention led to an increase of 4.1 billion or 10.4% in total assets for the year which crossed 43 billion.
Now, let's take a look at our lending business. Loans during the 2017 fourth quarter increased 1.4 billion or 4.6%.
For the year, loans grew 3.6 billion and represent 75.6% of total assets compared with 74.4%, one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate and multifamily loans as well as strong showing in both commercial and industrial loans and specialty finance.
Turning to credit quality, our portfolio continues perform well notwithstanding the taxi medallion loan. However, we did make some progress in the medallion portfolio this quarter.
We continue to work with our borrowers to refinance their debt. In fact, in 2017, we refinanced over 400 medallions for more than 40% of these loans.
All payments including interests are now apply towards paying down principal. As such, non-accrual loans decreased this quarter by 50 million to 327 million or 100 basis points of total loans compared with 377 million or 121 basis points for the 2017 third quarter.
Taxi medallion loans comprised 95% or 310 million of the non-accrual loans. Therefore, for the remaining portfolio of over 32 billion in loans, there were only 17 million in non-accrual loans or just 5 basis points demonstrating again the pristine quality of our portfolio.
Our pass-due loans remained stable with 30 to 89 day pass-due loans increasing 3 million to 42 million while 90 day plus increased slightly by 1 million to 6 million. The provision for loan losses for the 2017 fourth quarter was 41.7 million compared with 14.3 for the 2017 third quarter.
Net charge-off for the 2017 fourth quarter were 38.8 million or annualized 48 basis points compared with net charge-offs of 3.8 million in 2017 third quarter. And the allowance for loan losses was 60 basis points in loans versus 52 basis points in the 2017 third quarter.
Now onto the team front, in 2017 we added four teams. We also appointed several veteran bankers to existing teams.
Looking ahead to 2018, the pipeline for team is solid, in fact very solid. 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 319.8 million, up 23 million or 7.7% when compared with the 2016 fourth quarter, an increase of 3.5% or 11 million from the 2017 third quarter. Net interest margin on a linked quarter basis improved 2 basis points and compared with last year’s fourth quarter, decreased 7 basis points to 3.07%.
Excluding prepayment penalty income, core net interest margin for the linked quarter decreased to 1 basis point to 2.98%. And let’s look at asset yields and funding cost for a moment.
Interest earning asset yields for the 2017 fourth quarter increased 5 basis points linked quarter and 10 basis points when compared to the 2016 fourth quarter with 3.71%. The increase was predominantly driven by a rise in loan prepayment penalty income and higher reinvestment.
Yields on the securities portfolio increased 2 basis point linked quarter to 2.99% due to a slowdown in premium amortization from reduced CPR speeds and higher reinvestment deals. Also the duration of the portfolio remains stable at 3.3 years notwithstanding the rise in rates.
Turning to our loan portfolio, yields on average commercial loans and commercial mortgages increased 6 basis points to 3.97%, compared with a 2017 third quarter. This is mostly due to rise in pre payment penalty income.
Excluding prepayment penalties from both quarters yields remained stable. Now looking at liabilities, our overall deposit cost this quarter increased to 3 basis points to 58 basis points.
Average borrowings excluding subordinated debt increased to 395 million to 3.5 billion or 8% of our average balance sheet. The average borrowing cost increased to 6 basis points from the linked quarter to 1.54% given the higher interest rate environment.
The overall cost of funds for the quarter increased 4 basis points to 71 basis points. On to non-interest income and expense, non-interest income for the 2017 fourth quarter was 8.5 million a decrease of 1.6 million when compared with the 2016 fourth quarter.
The decrease was predominantly due to an increase of 1.9 million in other losses from additional amortization of low income housing tax credit investments. Non-interest expense for the 2017 fourth quarter was 110 million versus 95.9 million for the same period a year ago.
The 14 million or 14.6% increase was principally due to the addition of new private client banking teams, as well as further cost in our risk management and compliance related activities. The Bank also incurred increased FDIC assessment fees.
The Bank’s efficiency ratio remains stable at 33.5% for the 2017 fourth quarter versus 31.3% for the comparable period last year and 33.3% for the 2017 third quarter. And turning to capital, our capital ratios were all well and excess of regulatory requirements and augment the relatively low risk profile of the balance sheet as evidenced by of a Tier 1 leverage ratio of 9.72% and a total risk-based ratio of 13.3% as of the 2017 fourth quarter.
And now, I'll turn the call back to Joe. Thank you.
Joseph DePaolo
Thanks, Eric. In summary in 2017, our Chief Credit Officer retried and we created two positions in his place, Chief Lending Officer and Chief Credit Officer.
Two positions better reflects the proper credit structure for our bank our size as well as our commitment to expand P&I lending to further diversify revenue streams and increase asset sensitivity. P&I loans increased 1.2 billion or the 25% this year along.
We increased total loans by 3.6 billion or 12%. Most now account for 75.6% of total assets.
We grew average deposits 3.4 billion or 11.5%. We significantly reduced our exposure in taxi medallion loans while maintaining exceptional credit quality in the reminder of our loan portfolio.
To this end, non-accrual loans excluding all medallions are only 5 basis points of total assets. We expanded net interest income by 19 million or 8% truly top line revenue growth.
We added four product lines banking teams and several seasoned bankers to existing teams and established an accommodation office in San Francisco. We maintained our already superb efficiency ratio at 34.2% for the year while continuing to invest in our risk management and compliance function.
We maintain a robust capital position. And finally, focusing on the power of our franchise and setting aside the episodic issues of taxi medallion and tax reform, we delivered an outstanding 485 million in core earnings.
With tax legislation becoming law and our effective tax rate declining to approximately 27%, we now look forward to the 50 billion SIFI threshold potentially moving higher, to at least 100 billion. This will allow the Bank to slowdown the pace of non-revenue related expense -- non-revenue related expense growth, excuse me.
Realistically, Signature Bank, with its uncomplicated and straightforward balance sheet, should not be held to the same standards as a truly complex, systemically important $1 trillion financial institution. We welcome 2018 as we plan to strengthen our foundation by making major investments in our loan systems, payments architecture platform and new foreign exchange system.
We also look to expand our geographic presence in areas where we have significant client synergies, such as the West Coast. We successfully tested the waters in San Francisco in 2017 with the appointment of a team and the opening of our new accommodation office.
Now, we are happy to answer any questions you might have. Paula, I'll turn it over to you.
Operator
The floor is now open for questions. [Operator Instructions] Our first question comes from Chris McGratty of KBW.
Chris McGratty
Joe, if I start on expenses, I think in the past you've been optimistic about the 50 billion moving higher. I think this is the first quarter you really stressed in the earnings release.
In the past I think you talked about potentially high single-digit expense growth, if these synergies come through. I'm interested in kind of your updated thoughts especially considering the build out not only of the growth operations but also the West Coast?
Joseph DePaolo
It's the 50 billion -- good morning, Chris, by the way. It's Happy New Year.
It's the 50 billion threshold moves up and even with the investments that we're having in on the West Coast and the investments in systems, we should be in the high single-digit for expense.
Chris McGratty
And I know there were some adjustments earlier in the year with the taxi sale. But what's the -- Eric, maybe the starting point that we should lift off that high single-digit number?
Any adjustments that you've made to the full year expense or is that just reported expenses in '17?
Joseph DePaolo
It's just reported expense, Chris.
Chris McGratty
And maybe if I could sneak one onto the securities portfolio, with the tenure of up to 60, Eric, I guess any thoughts of change in the strategy in the investment book, maybe where new money has been put to work? And kind of how you're thinking about, how it all contributes to the near-term margin?
Eric Howell
No, I think, we're going to continue with our strategy on the securities side. We're getting reinvestment deals in the low threes, but only beneficial through the overall NIM.
Operator
Your next question comes from Ebrahim Poonawala of Bank of America.
Ebrahim Poonawala
Just a very quick follow-up on the margin, Eric. Is it safe to assume that when we look at the core margin at 298 in the fourth quarter given the steepening and the curve?
Is your sense that margin still sees some compression quarter-by-quarter as we move to '18 or should we see relative stability given that asset use and now beginning to re-price higher? This would love some color there and also in terms of what you are seeing on the deposit pricing front?
Eric Howell
Sure, certainly the asset yields being up this quarter was helpful, this first quarter where we've seen asset yields increasing quite some time. So, the asset side is already a catch up the liability.
If looking at the first quarter because of the account which is certainly be stable and maybe even the top the upper base point or two. In future quarters, we are looking at a stable margin.
The big assumption there's being that the yield curve stays similarly shaped where it's today. We see it flattening up the yield curve though obviously put pressure on the margins.
Ebrahim Poonawala
Got it and just in terms of -- yes.
Eric Howell
I was just going to get to the deposit front. Deposit costs were typically most pressured depending on the frequency in the severity of the rate increases.
We have seen two to three rate increases next year. We will have deposit pressures but nothing that we can't overcome, if we see three to four and if they happen to be plenty of those are larger than 25 basis points that could put undue pressure onto deposit front.
Ebrahim Poonawala
Got it. And just moving I guess when we think about your capital ratios today, obviously increased earnings from the tax rate.
Any change in terms of how you are thinking about capital be it initiation of a dividend or using capital for inorganic reasons, any sort of color there?
Joseph DePaolo
We are thinking both for our employees and the shareholders. So although we have not solidified any of the plan, the first thing we are going to do is, we have the same long-term health and wealth with the tax -- effective tax rate down to be 27% from 37.5% is going to be lot more earnings.
And the long-term health and wealth is in all likelihood we have a component of our 401K for the employees. That is profit sharing.
And we will probably activate that profit sharing component and put some extra dollars for our employees into the 401K to the profit sharing component. And at the same time that’s the wealth's part.
The health's part is that we are thinking also of at the same time reducing medical expenses and having this Signature Bank take on more of the expense for the employees, that’s the health and wealth. And seriously for the first time, also 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 -- 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.
Ebrahim Poonawala
Understood, and if I could sneak in one last one. Just Joe in terms of the health of the CRE market, a lot of headlines around how the tax reform could have an impact and what we've seen in terms of foreign investment coming into New York.
Any color in terms of how you look at sort of your core multifamily market activity levels there and just a competitive pricing environment?
Joseph DePaolo
The pipeline remains pretty solid. It’s not as large as the fourth quarter.
We do anticipate there's being less activity less growth in CRE compared to last few years, but we are happy that we’ll have 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 loan.
So between C&I and Signature Financial, we’d be able to make up any shortfall that we would have in the CRE market.
Operator
Your next question comes from Dave Rochester of Deutsche Bank.
Dave Rochester
Just back on the NIM, we’re just curious where you are seeing 5/1 multifamily pricing and CRE pricing as well. And how does that compare to where the traditional C&I and Signature Financial loans coming on?
Eric Howell
Rates for our traditional five year fixed is three and three quarter or three and seven eight, we'd like to ultimately push that forward. We just clearly see credit compression there.
For other forms of series 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 our securities reinvestment rates are in the low 3s.
Dave Rochester
So you really are seeing a nice upward re-pricing in terms of new loan yields it sounds like.
Eric Howell
Correct, that’s right.
Joseph DePaolo
Which except CRE where we think the rate should be higher, but we can’t be 50 basis points where we logically think that the rate should be, would be 50 basis points or more above where the competitors are, and we will not be doing business, but we have to stay within that 25 to 38 range above our competitors.
Dave Rochester
Right, that makes sense. Are you guys factoring in any rate hikes into your NIM guide for stability at this point?
Was it like two to three hikes you mentioned in more like a base case scenario?
Joseph DePaolo
Yes, we are factoring at least two hikes and one happening in March.
Dave Rochester
Great. And then what was your assumption for securities pre-NIM going forward?
I know you said that just a little bit this quarter. Are you expecting further declines to help support that?
Joseph DePaolo
Further declines, but at a slower pace.
Dave Rochester
Great. And then, can you just give an update on the deposit front.
I know occasionally you throw a balance and what not, I am sorry if I missed that. But can you just give us an update on where we are right now?
And how you are thinking about deposit growth overall for the year or still goes in that 3 billion to 5 billion range?
Joseph DePaolo
Sure, I will tell you where we're as of the 16th of January, Tuesday. We were up 778 million in total deposits of which more than 50% in DDA.
Dave Rochester
That’s great, it's start.
Joseph DePaolo
What actually happened at the end of 2017, in the last two 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 will give you an example, cash bases paying tax payers. We had one example as a client, on a cash bases you want high tax rate, it pushes much as you can because the way to go lowering 2018 and in 2017.
So not only did some of our clients pay out all their profits in 2017, in sometimes they will differ to following you, but they didn’t -- they paid out most of that, that's not all of their profits in 2017. And then they -- in some institutes, they paid every expense they could possibly pay.
And then in one instance you know of one of our clients paid out the first quarter profits, estimated the first quarter profits being paid debt out to its partners in 2017. And that is all tax related and so we saw quite a few net outflows in the last two weeks of the year.
Having said that, we have a pipeline of deposits that are fairly strong throughout at least the first couple of month of the year, but what happened in some of our initiatives, during 2017, we were what used to be tailwind become headwind for instance without getting too much detail. We have one initiative that we've been working on five or six years.
We have a great flow of deposits for the first five years of the six. And then due to some government inaction in one of our national business line, and it's -- again, they're kicking the can down the road in Washington.
But until they finalize their rules, there is a slowdown in one of our initiatives which we had 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 would actually 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 DDA.
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 talked about some fluff that we had because we move some deposits from off-balance sheet on-balance sheet.
And now, we're up again 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.
Dave Rochester
Great that’s great color, are you still thinking that 3 billion to 5 billion range holds for this year?
Joseph DePaolo
There's not a minute that goes by that I don't think about.
Dave Rochester
Just one last one and if I could, it's on the tax side. With the tax reform now in place, how should we think about your tax credit strategy from here?
Should we still expect to see that 3 million plus hit another income? Or is that going to change over time?
Eric Howell
No, we don't really see that meaningfully changing overtime. We still need to make those investments for CRE purposes.
We'll continue do that.
Operator
Your next question comes from Casey Haire of Jefferies.
Casey Haire
Joe wanted to follow up on the fluff deposit issues 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 worked through the fluff?
Joseph DePaolo
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 caught 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 the value standpoint is that, if we're continuing to bring in DDA even if deposit flows from where -- we had in 2014, '15, and '16, we did deposits 15 billion in that three year period.
It can be hard to grow 15 billion in the three year period ever again at least in the foreseeable future, but we're bringing in quality deposits as evidenced by the DDA that's being brought in. So, sorry, we really can't give you what that fluff number is.
Casey Haire
And then just on the funding strategy, the loan to deposit ratio ticked up. Is there -- we add 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 where we're today?
Joseph DePaolo
We are not at a ceiling but we're closing to a ceiling on the loan to deposit ratio. On the borrowings side, we're still below our peers.
So, we really like to do everything -- every loan we like to make and every investment security we brought in by doing the deposit. So, we're pushing some of our initiatives even further and quicker than we had in the past we were to bring in deposits.
But one of other things we don't want to do is payoff, there's about three banks out there they're offering rates that is don't make sense to us and we won't payoff them enough.
Casey Haire
Last one from 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 then the dividend given where you're from valuation perspective, just some thoughts about how you're thinking about capital return later in the year?
Joseph DePaolo
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.
Operator
Your next question will come from Steven Alexopoulos of JP Morgan.
Steven Alexopoulos
So I'll just start on expenses. Can you give us more color you talked about some major investment being made in loan payment, FX systems?
Can you talk about what you are doing and maybe quantify those in terms of dollars being spent?
Eric Howell
Yes, we are putting in a new front-end loan system and approval system. Certainly, it's going to cost us several millions to implement as well as new core operating system on the loan side.
Again at north of 5 million to implement that system as well, but if those cost would be amortized over the life loan system when we do put them into place, a foreign exchange system is also going to cost us few million dollars as well. All three systems, we anticipate will go end in the latter half of this year to potentially even early 2019.
Joseph DePaolo
Any the expenses associated with that is with them installed and the amortization has been baked into our numbers already.
Eric Howell
That’s all contemplating high single digit expense growth, if the $50 billion market move.
Steven Alexopoulos
Just a follow-up on that, the $50 billion level did not move I agreed. I think it would move.
How much of that impact that high single digit where we would be?
Eric Howell
Probably get a low double digit at 10% to 14% range, although wider hopefully at the low end of their range.
Steven Alexopoulos
And then on the tax fee, can you guys talk about you took the additional write-down this quarter or was it exactly that drove that? And where the medallions now written-down to post the most recent write-down?
Eric Howell
Yes, the most recent write-down was really driven by sales and the marketplace combined with the decreasing cash flow starting 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.
Steven Alexopoulos
And Eric, maybe I could -- thank you, if I could ask you one more on your margin guidance, which is going for relatively stable, you talked about the two rate hikes. But do you assume that the five year moved up around 50 bps also?
It sounded like you needed the curve to maintain the shape for stable?
Eric Howell
No, I mean we assume some degree of flattening in that. We don’t expect the tenure to move a lot step with the front-end curve.
Steven Alexopoulos
So, you would be maybe following the forward curve in terms of the five year?
Eric Howell
That’s right.
Operator
Your next question comes from the Jared Shaw of Wells Fargo.
Jared Shaw
Looking at the deposit side, it's great growth on the DDA side and hopefully that continues through and drive that mix shift, but when we look at the interest bearing deposit side, if we do get those two rate hikes this quarter -- I'm sorry this year, where should we assume beta is on the interest bearing deposit side?
Eric Howell
I think we are still approximately a 50% beta given a one-year 1% ramped scenario, which we managed to be under thus far. But we do anticipate betas to pick up with each rate increase.
Jared Shaw
And then on the asset side, if we still look at that $3 billion to $5 billion balance sheet growth and the incrementally higher growth coming from C&I and Signature Financial. Should we see that drive a higher level of provisioning?
Or is that relative basis just rolling up that it shouldn’t necessarily flow through to a higher provision level?
Eric Howell
I mean, it will flow through a little bit, but it’s not going to be incredibly meaningful.
Jared Shaw
Do we think that -- do you think that 2018 is a year where you see some big jumps on the C&I? Or is that more building year that flows through into 2019?
Joseph DePaolo
If I think you will have a decent amount of -- it’s not going to be like a rocket ship, but we have a situation where we have a very experienced personal 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 all bankers to go out and do business on the lending side, on the asset side, that wasn’t there last year.
Operator
Your next question comes from Ken Zerbe of Morgan Stanley.
Ken Zerbe
Just going back to the capital return piece, the dividend buyback we're now considering or will consider, just more fundamentally, right. The way I understood it was, you then do a buyback for dividend because you were going so fast, you needed the capital.
And what I've generally heard on the call is the C&I and especially will kind of replace some of the CRE. So, you're still broadly talking about that 3 billion to 5 billion of asset growth.
Like, isn’t there -- help me address the disconnect between the fact that you're still or presumably still a fast growth company versus doing this, I am going to say slower growth company type capital return, if that all made sense?
Joseph DePaolo
Well, with the earnings that we anticipate, where our effective tax rate being at 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 it to. So, if we have capital growing at 7 billion to 8 billion, allowing the bank to grow 7 billion to 8 billion and we go 3 billion to 5 billion.
There is an opportunity to return -- returning through a dividend or increase the price through a buyback.
Ken Zerbe
And -- sorry, just to be really, really clear on the 3 billion to 5 billion. I heard a bunch of analysts say 3 billion to 5 billion.
Is that your explicit guidance 3 billion to 5 billion of asset growth next year?
Joseph DePaolo
Yes.
Ken Zerbe
Okay, got it. And then just last question.
I terms of the West Coast, you mentioned like the full service office out there. I guess, what’s ultimately the plan?
Is that much more a C&I kind of reg -- I am going to say regular bank, a regular bank branch and office? Or is that -- or you’re doing more of sort of the New York City CRE of rent multifamily type business out there?
Eric Howell
It would traditional deposit taking in C&I facility where we could also on a bank doing some level of CRE, but it’s predominantly for deposit-taking, Ken.
Operator
Your next question comes from Lana Chan of BMO Capital Markets.
Lana Chan
On the loan side given how strong the loan growth was this quarter, I know you had previously expected some prepayment activity that seem like it didn't happen. Can you talk about going to the first quarter, if you still expect to move that prepayment activity to flow through?
Joseph DePaolo
We do, we expect several loans or packages that we expect to be paid in 2017 that were not, but the largest one of all of them. What actually on the last day of the year, we had a $111 million three loan package paid back.
So, the biggest one did and although we’re going to have some payback prepayment in the first quarter, the large one was largely taking care of last day of the year.
Lana Chan
Okay, but otherwise you've had I think that the pipeline headed into the first quarter was still pretty strong?
Joseph DePaolo
Yes, not strong as it was in the fourth quarter, but certainly it is strong.
Lana Chan
And second part of the question on deposits, some of these national deposit initiatives that you're talking about. Is that already built out with teams and the systems in place?
Or is there incremental hiring and build-out that needs to be done?
Joseph DePaolo
No, the initiatives that we have to a number of years, we're all set with the people. On the new initiatives, we'll be hiring teams in 2018.
But for the one set we've already been in, we're kind of set where we’re with number of case that we have in the teams that we have.
Lana Chan
And any color in terms of how much the national deposit platform? What the opportunity it could be in terms of dollar amount?
Joseph DePaolo
We love to give what the dollar amounts are, if I knew them, but they’re vastly -- well, let's look at this way, maybe not good enough for multitrillion dollar institution, but certainly significant through a $43 billion institution.
Operator
Thank you. 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 conference ID number 2874578. 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.