© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and thank you all for joining the management team of New York Community Bancorp for its Fourth Quarter 2018 Conference Call. Today’s discussion of the Company’s fourth quarter and full year 2018 performance will be led by President and Chief Executive Officer, Joseph Ficalora together with Chief Operating Officer, Robert Wann; Chief Financial Officer, Thomas Cangemi; and the Company’s Chief Accounting Officer, John Pinto.
Certain comments made on this call will contain forward-looking statements that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those the Company currently anticipates due to a number of factors, many of which are beyond its control.
Among those factors are general economic conditions and trends both nationally and in the Company’s local markets; changes in interest rates, which may affect the Company’s net income, prepayment income and other future cash flows or the market value of its assets, including its investment securities; changes in the demand for deposit, loan and investment products and other financial services; and changes in legislation, regulation and policies.
You will find more about the risk factors associated with the Company’s forward-looking statements in this morning’s earnings release and its SEC filings, including its 2017 Annual Report on Form 10-K and Form 10-Q for the quarterly period ended December 30, 2018. The release also includes reconciliations of certain GAAP and non-GAAP financial measures that maybe discussed during this conference call.
As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. You will have a chance to ask questions during the Q&A following management’s prepared remarks. Instructions will be given at that time.
To start the discussion, I will now turn this call over to Mr. Ficalora, who will provide a brief overview of the Company’s performance before opening the line for Q&A. Mr. Ficalora, please go ahead.
Thank you, operator. Good morning to everyone on the call and on the webcast and thank you for joining us as we discuss our fourth quarter and full year 2018 operating results and performance. This morning, we reported diluted earnings per common share of $0.19 for the three months ended December 31, 2018 compared to $0.20 for the three months ended September 30, 2018.
For the full year 2018, we reported $0.79 per diluted common share compared to $0.90 for the year 2017. Please note that in 2017 our results included a number of items related to the sale of our covered loan portfolio. The sale of our mortgage banking operations and tax reforms that should be considered in any analysis of the company’s year-over-year performance. Adjusting for these items full year 2017 earnings per diluted share would have been $0.77.
Before turning to the financials, I would like to point out a number of other positives which occurred during the fourth quarter. First, we received regulatory approval to merge our commercial bank subsidiary into our community bank. This merger closed as of November 30. Second, we were notified by our regulators that we are no more subject to a CRE concentration limit of 850%. And third, the Federal Reserve Board approved our $300 million share repurchase program. Under this program we repurchased 16.8 million shares at an average price of $9.57 per share. We were very proactive in repurchasing shares given market conditions during the fourth quarter.
We also announced today that the Board of Directors declared a $0.17 cash dividend per common share for the quarter. The dividends will be payable on February 26, to common shareholders of record as of February 12. Based on yesterday’s closing price this represents an annualized dividend yield of 6.3%.
Turning now to the financial highlights for this quarter. The company’s performance in 2018 is reflective of two major factors. First, it reflects the successful execution of the strategy we put into place in late 2017. And second, it reflects the changed regulatory environment since early 2018, which arouse from the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The act among other things re-defines the manner by which banks are designated as a SIFI, by increasing the asset threshold to qualify for the designation to $250 billion from $50 billion.
This was an important change for the company as we were one of only a few banks which were hovering just under the $50 billion threshold over the past few years. This passage set us selling loans to stay under $50 billion we resumed our loan growth and increased the levels of securities on our balance sheet.
We were also able to reduce our operating expenses especially those costs related to regulatory compliance for SIFI banks. In 2018, we grew the balance sheet through the addition of loans and securities originated $10 billion of loans of $1.1 billion or 13%. Redeployed over $2 billion of cash into higher yield of securities and reduced our operating expenses by a significant amount.
Total assets increased $2.8 billion or 6% over 2017 levels and now stands at just under $52 billion. Total loans rose $1.8 billion or 5% to $40.2 billion while securities increased $2.1 billion or 60% to $5.6 billion. Our loan growth continues to be driven for our flagship multi-family product and by our specialty finance loans. Multi-family loans increased $1.8 billion or 6% on a year-over-year basis to $29.9 billion and our portfolio specialty finance loans increased $405 million on 26% to $2 billion.
The current pipeline is approximately $1.1 billion comparable to the pipeline for the prior quarter and includes $800 million of multi-family loans, $94 million of CRE and $182 million of specialty finance loans. Our market interest rates declined over the course of the fourth quarter, our current loan pricing remains relatively stable. New multi-family loans are currently pricing at an average coupon of 4.375% approximately 180 basis points over the five year treasuries while new CRE loans averaged about 4.5% during the quarter. As our multi-family and CRE portfolios come up on their contractual re-pricing date we’re looking forward to a coupon on these loans increasing by approximately 100 basis points above existing portfolio coupons.
Also during the quarter we continued our reinvestment strategy and redeployed more of our cash into higher yielding investment securities. The average yield on our securities is currently 3.88%, as securities currently represent 11% of total assets. Additionally one-third of the portfolio is now adjustable rate.
Another positive for us in 2018 has been deposit growth. Throughout 2018 it has been the company’s strategy to increase deposits organically. To this end totally deposits increased $1.7 billion or 6% on a year-over-year basis to $30.8 billion.
Turning now to operating expenses, total non-interest expenses for 2018 declined $95 million or 15% to $547 million compared to full year 2017. The $547 million was better than management expectation of down $100 million compared to our peak operating expenses run-rate of $660 million as of second quarter 2017.
Now onto the net interest margin. The margin this quarter came down at 2.09% down 7 basis points compared to the third quarter of 2018. Repayment penalty income ended 8 basis points to the margin while our sub-debt issuance in November reduced the margins by 3 basis points. Excluding these two items our fourth quarter net interest margin would have been 2.04% down only 4 basis points compared to the previous quarters’ margin and slightly better than management’s expectations.
On the asset quality front, our asset quality metrics improved over the course of 2018, non-performing assets decreased 38% to $56 million or a 11 basis points of total assets. Excluding non-accrual and repossessed taxi medallion-related, non-performing assets decreased 64% to $12.6 million or 2 basis points of total assets.
Net charge-offs were $16 million or 4 basis points of average loans for the 12 months ended December 31, 2018. The majority of net charge-offs aroused primarily from taxi medallion-related loans. As of December 31, 2018, our remaining taxi medallion exposure was $73.7 million, excluding taxi medallion the asset quality metrics of our core portfolio remain pristine and rank among the best in the industry.
On that note I would now ask the operator to open the lines for your questions. We will do our best to get to all of you within the time remaining. But if we don’t, please feel free to call us later today or this week. Operator?
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ebrahim Poonawala with Bank of America Merrill Lynch. Please proceed with your question.
Good morning guys.
Good morning, Ebrahim.
Good morning.
I guess, first question Tom, when we look at sort of on the name, on the core name X ex sub-debt let's call it 201 and prepay stayed the same. Two questions I think, given what Joe said about the low nils coming in between 4, 3.75, 4.5 what's the cost of average deposits coming in right now? Is it around 2.25, 2.5 like what's the expectation there? And we saw signature have a decent uptick in prepay income when they reported reports. You didn't like, is there anything going on? Should we expect prepay to pick up over the next quarter or so?
On the stock, obviously on the prepay side it was relatively flat from quarter-over-quarter but we are seeing an uptick going into Q1 already. So that's encouraging. So a lot of I guess, yields that were scheduled to be done in fourth quarter now it's coming through in the first quarter of prepayment. That’s a positive signals, so we’re seeing a slight uptick on prepay into early, typically Q1 as well prepay quarter so it's unusual to fall out to Q1. But given the volatility that we had in the fourth quarter with markets in general, I think it was just a slow quarter overall.
And we are expecting the overall cost of funds and obviously the significant funding mix for our liability side on the retail has been predominately CDs. In 2018 for the year, our cost of reporting was about 212 so CDs came on a 212 for the entire year and I would say the ramped growth in 2018 in the second half, CDs came on about 234. So if you look at that as a possible as we’re going forward assuming there was not a significant change in interest rates somewhere between 230 to 240 is kind of the level that we see right now in the CD market assuming the Fed is not going to be further tightening. But with that being said we haven't raised our interest rate offerings since September. So we have been healthy steady since the September rate hike, so obviously the fourth quarter rate hike that can take place in December we do not change our CD offering rates to give you approximate of what type of cost of funds that we are seeing, delivering on the retail side. And the wholesale side, obviously that's a uniqueness given the shape of the curve and obviously if there is less pressure on tightening perhaps the wholesale market was quite to see lower cost of funds going through it as well.
Got it. Tom, I know you have given previously the margin outlook on the core name for the forward quarter. Just wondering with the debt maturity in December, in 1Q you expect the margin to be relative to like the 201 in 4Q?
Yes. So obviously we were pleased given fourth quarter results it was slightly better than what we anticipated in Q4 about 2 to 3 basis points better than management’s expectation. Going into Q1, we have the rate hike that happened in December. We had the sub-debt that we issued which is a 590 coupon that being said I will give short term guidance in the margin maybe down 6 basis points to the quarter consistent to the previous guidance from last quarter. But again, depending on loan growth, depending on how much money we put to work before we have lots of liquidity left on the balance sheet that we have to deploy overtime and as you saw in the previous quarter we are building up that securities book to more of a industry norm level by now we are sitting around 11% and I would say probably maybe half a billion dollar a quarter to the next few quarters of growth there in anticipation. And again this is early in the quarter but loan growth is, say mid single digits again and so we see better direction or visibility for production. But that's a reasonable assumption.
That helpful and just one separate question. I guess for Joe, we saw MOE strategic transaction being announced earlier this week. You talked about a lot of regulatory relieve that you guys have received last year and you think about potential for such transactions in market. Can you just talk through like a CRE concentration still an issue when you think about this and is it too soon for us to think about NYB getting involved with some sort of transaction over the coming quarters?
No. I think that clearly we are poised to execute on a highly beneficial transaction. That has been our business model for our public life. We had a very long period that we not have embedded to the restructuring our balance sheet through a transaction. That is on the horizon for sure. And the benefits that we derived in the past are certainly probable in the future. There are many choices. And we don't need the NIM market choice in order for us to be highly accretive. So the likelihood that we do something in the period ahead is high.
And concentration is not going to be an issue because in all transactions that we do, we dispose most of their assets in any event and we create more of the assets that are well received by everyone including our regulator. So as the only bank that doesn't have a concentration limit, we in fact would look to keep our asset quality as pristine as it has been and in every deal we have done, we have effectively accomplished that by disposing of the assets of others and creating more of the assets that we’re totally comfortable with.
Ebrahim, I would just follow up on Joe's' commentary that obviously it’s refreshing to see transaction that is done in the market where they looked at it as a one in one is a three scenario not a premium type transaction. So doing market deals in the market where you see no premium transactions and looking at coming together on MOE perspective is very encouraging. I say for our perspective what we would look at somewhat different is that we would really look at the protection of our tangible book value evaluation. So clearly, as our currency evolves going forward we are very focused on not diluting our tangible book value on a business combination basis, but clearly the no premium MOE concept is a true value created with the right partner.
And reality is that we’ve never had such an opportunity to create new Co with a performance currency that lose up ours significantly because we have never been so discounted to the market. So when we look at transactions prospectively, the currency that matters is the acquiring currency and our currency is that the lowest plateau it's even been at and therefore a accretive transaction will be received extraordinarily well and our currency will react in the way it has historically always reacted and therefore the upside to a deal is pretty clear cut.
Got it, thanks for taking my questions.
You are welcome.
Thank you. Our next question comes from the line of David Rochester with Deutsche Bank. Please proceed with your question.
Hey good morning guys. I know, as a party your NIM guide you have the role of those borrowings. So I was just curious, can you remind us what the rate is on the borrowing sort of maturing and then what the new rate is that you are looking at if you are going for overnight or two to three year type stuff?
So again, $4.6 billion in 2019 that's a large slug of what's left in the lower cost funding that we have in the balance sheet. So that's interesting given the direction of the remaining portfolio. That's the lowest level that we have. When that burns down and get refinanced throughout 2019 we are obviously depending on interest rates here on, with the tightening cycle. If they’re done with the tightening cycle, we are at position to see our NII growth towards the end of the year given what we have left in maturing. And we say that as indicated many, many quarters of NII down as we had some pressure given the margin and pressure given the rising rate environment with the liability tends to balance sheet. So we are encouraged by, obviously the change in sentiment for tightening but in the event the Fed doesn't move on interest rate we can look at NII growth towards the end of the year and margin expansion maybe late 2019 or early 2020. So that's what’s left as far as the lower cost funding and to answer that pretty much the liability book is around the market. So rates go lower then we get a bigger benefit. If rates stay flat and stay around this level and you will see NII growth in 2020 versus 19 margin expansion.
Yes. Based on what you are looking at in terms of whether it's overnight or two to three year type stuff you want to roll into what's the rate differential and the stuff coming offers as the stuff coming on that you are placing with?
I guess, I said on our previous commentary that the offering at the home loan bank and the street is looking at the full, we’re currently looking at the market place. It's relatively expenses to retail CD. So we have been very proactive in the deposit market. As I indicated last year in 2018 we took in on average basis 2.12% with our CD cost and moving all CDs into new rates and new CDs coming on. So with that being said, if you are looking at let's say a short term liability with the home loan bank it's somewhere between 250 to 270 or 280 as high in being the market with CDs maybe 20-30 basis points below that. So we are focused on bringing money at our 253 locations at the branch level and obviously as we – if there is a shortfall we will have to go to home loan bank and borrow money for the street depending on what's more attractive.
Okay. And it looks like the cash may have been a little bit higher than you are expecting this quarter. Are you guys expecting the rest of that to be deployed in 1Q as you grow the securities? I am just wondering what you are assuming in your NIM guide for that?
So, in my NIM guide I have no securities growth. So obviously if you put on securities from cash you have a better NIM. I think it’s fair amount, we took on a 590 coupons in Q4 for the sub-debt. If you back that out you are looking at almost a flat margin quarter-over-quarter. So, we're getting close to margin being flat. Now, the last rate hike had a negative impact, it's obvious as the liability sensitive but clearly going forward here. It's getting to a point where we think that depending on what happens with our short-term interest rates, if we remain relatively flat, we're getting close to that stabilization and it's been a long time waiting.
So, clearly we're in a unique position with our funding book and so as cash. We were very clear on what we're going to deploy last year. Q3, Q4, we said a $1 billion per quarter. I'm giving you guidance for Q1 that we anticipate approximately $0.5 billion but in our current NIM guide there's no growth on securities.
So, that one -- enhance the possibility of benefits. Margins have changed, Dave, significantly. And as far as securities, we were very proactive at a much high rate and volume. So, we're taking a step back and reassessing interest rate environment right now.
Okay. Yes, that was my next question as where are you seeing those securities and investment rates today. And then, what are you generally buying, is it does paper that you had historically or other stuff?
We've been pretty much focused on trying to reorganize in a portfolio to module floating rate instruments. So, we really historically had a fixed rate structure throughout our public life, we move towards, now 1/3rd of the assets are now floating rates. So, it's a blending security yield. Security yield is it's very attractive where we are today.
We were very proactive in Q2, Q3, and Q4 last year, taking advantage of the anticipation of a higher rate environment. So, our security yields on the floating side were attractive. That environment now has tightened, right, because there's been a somewhat of a change in sentiment.
Yes.
So, we've been move -- inclined to buy floating rate securities when available and we've been staying out of the fixed rate margin because we feel that the yields are not as attractive given the shape of the curve. And it's all been predominantly government.
Okay, got it. So, for the variable rate stuff, what are you guys seeing today for that pricing?
So, today it's probably in the high two and last quarter was in the low threes.
Okay, great. I'll step back. Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.
Good morning, Ken.
Good morning, Ken.
Not to sort of deliver the point but Tom your 6 basis points of core NIM expansion, like I think you were very clear you're not assuming any redeployment of cash and securities but you're also very clear that you will definitely redeploy cash into securities.
So, is it fair to assume, I mean we should be benchmarking some --.
There'll be some augmentation.
Well Ken, let me make it clear. We can, we're sitting on cash. Cash is an attractive yield six months. Right, we were up quite a bit on interest rates. So, we're going from cash to securities. Cash from earning, approximately 240 to 245. So, we have to take under consideration, we're not sitting at a 0% yielding as you're about a 2.5% yielding asset. That's my point.
So, you got to take that into consideration as we move into cash and securities.
Got you.
I think it's largely more and more in securities.
Right.
Than you would or more. Yes, great.
That's right. We were earning a lot more two quarters ago because there was an expectation of a much higher rate environment. So, we took advantage of that as I indicated with the growth. So, there's a possibility for a 500 and that would be anywhere from where the current cash is currently yielding at versus where the new market on securities yield or what are lowered in the previous quarters.
Just keeping centered.
Okay. So, it's all less of a benefit but still some benefit so the core NIM down six is probably something like core NIM down four. Or like assuming you do the full 500 million.
We do core NIM, Ken unlike --.
Fair enough. We can do, we'll do the math. It's I just wanted to make sure we're -- did that.
That being on time being conservative, Ken.
Yes, fair enough.
We're hopeful that we're getting to a point that NII will start seeing growth towards the end of the year and its current rate environment and we're talking about margin expansion next year. Even as the back end of 2019, potentially.
Alright. And then, just in terms of the share buybacks, congrats in getting that thing started. Can you talk about your desire, how quickly may want to repurchase the remaining part of the 300 million?
Again, we're going to be very proactive given market conditions, it was a very volatile fourth quarter. I mean, to take Lora's commentary was on his prepared remarks. We had our stock priced at was probably never see it. Once we go very proactive on buying back the shares, which in a long-term we'll look back as a tremendous opportunity.
If that continues, we'll be finishing it up. It's slightly where we are today, we'll still be active but we were much more proactive when this stock was below 10.
Got it. And then, is there any restriction on you guys for like let's say let's presume that you buyback the remaining full 300 million this quarter. Could you be back in the market in second quarter with another buyback or is there any restrictions on your ability to repurchase more?
Again Ken, be bare minded, restrictions that we have is that you always got to your regulars for what any capital instrument that you're going to anticipate on issuing and or utilizing in the capital markets. So, clearly that would take any and will take regulatory approval but clearly we went to the fed and they were very accommodative for us and there's always the possibility with our capital planning process.
Understood. Okay, thank you very much.
Thank you. Our next question comes from the line of Brock Vandervliet with UBS. Please proceed with your question.
Good morning, Brock.
Good morning. Tom, if you could just kind of walk through the debt reprising. It seems a little surprising that you could actually see some lift in the margin by the end of the year but clearly the debt repricing is a key part of that. So, if you could just kind of go through the amount you've got to do in the cadence of repricing. That'd be really helpful.
Yes. Again, I'm not going to get into let's say the quarterly detail but we have 1.74% cost of funds for 2019 for our maturing borrowings and I would just spread that over four quarters to be reasonable. And comparative market conditions, I think what we have to take stock in is that you have a change in the coupon of the multifamily CRE portfolios.
So, we have for example Q4 we had a 50 basis points uptick in what originating and what paid off. That's the highest we've seen in years. So, we've been struggling over the past three four years of a much substantial decline. This is the largest movement from what we had paid offers is what originated.
So, we originated 433 in the quarter, we paid of 382 at a 50 basis points delta there; very favorable. That trend we believe will continue. More importantly, if you look at the portfolio on aggregate and take the current coupon to the current offering yield, that's a 100 basis points on a portfolio that has about 14.4 billion of multifamily CRE with that has an average coupon of 337, that's expected to be come up to their option.
That's not prepayment, that's just coming up to their option and maturity. So, we believe that as each year goes by, we won't see as much significant prepayments. Eventually everybody will have to pay a higher coupon given where the average coupon is in the portfolio.
Unless rates go down a 100 basis point from here, every loan that we've originated in the past three years are below the water. That’s a tremendous upside pricing opportunity for the average asset yield that are coming on in the future. Even if the portfolio remains flat, our asset yields are going up.
Okay, that's helpful. Just as a follow-up, you mentioned the CPR speeds in the deck with the fed looking like they may be stepping aside here. What's been the incremental feedback from some of your borrowers in terms of the level of engagement and willingness to prepay and come to market ahead of your repricing date?
I will just say big picture we say a unique change in January versus fourth quarter. So, fourth quarter was very small. Volatility, I would say in general business was slow given market conditions. However, we did see quite a few prepayments coming in and a lot of them going to the agency.
Obviously agency is attractive offering right now and they are our probably largest competitor. If the slope of that curves off the shape and we start seeing a more normalized curve, that should benefit us greatly and I believe customers will react very aggressively in trying to lock in in next five to seven years in financing.
But no question that the shape of the curve is the advantage of the government offering which predominantly isn’t interest only type structure. And we tend to do very little and just only type structure, we're traditional amortization flag when it comes to the bread-and-butter multifamily portfolio.
There's no question that the Fannie Freddie participation in this market is in fact detrimental to all bank participants. The reality is that there is a defined expectation that Fannie and Freddie will be changed with regard to its positioning in this market place.
When that happens, however is not certain.
Okay, thank you.
You're welcome.
Thank you. Our next question comes from the line of Steven Alexopoulos with JPMorgan. Please proceed with your question.
Good morning to you.
Good morning, Steve.
Hi, good morning everyone. Just to start out the deposits. If I look at the average balance is saving some money market decline to around 260 million in the quarter. CD's were of obviously are very sharp. First, are you deemphasizing growth in money markets here and how much of the 990 million growth of CD's was from your current customers just moving balance is over?
Yes. I would say we've been very focused on being in the market, not above the market. And historically the company has been over this public light, a low rate payer. So, for the first time on our public ledge, giving that we're now growing post to if we change to bring in funding as an alternate and going to the wholesale market that we have a meaningful trend in the markets that we serve.
So, that being said, being in the market for a brand structure that has a long history, very follow retail presence, we've been very focused on bringing in additional money within that marketplace or there's been consolidation in our bank here which is to our advantage we believe. It's probably about half you know 50% of the money coming in. it's probably new money versus existing customer base.
And I think it's been an attractive alternative in this environment given the shape of the curve and other offerings as an alternative financing vehicle for our business model. Obviously, if we had our prior priority focus is what we can do growth of acquisition has been the company's historical meanings on getting funding.
And we believe that we're well positioned today than previous years to be more active in that market as we evolve into the changing regulatory landscape. There's no question that 50 billion or 250 for us is a significant benefit. So, we have a unique opportunity ahead of us, obviously our currency is not that attractive but we start to regain some of our currency we could be in a very unique environment to augment the funding next to acquisition.
The transition you're observing however is very consistent with the past when CD rates are being very competitive in the first sector in particular, it will move from money market into CD which we're demonstrating a significantly better return than their existing money market. This is not an unusual occurrence.
Uh-huh, that's helpful.
Well, I will give you a color as far as, right now we try to be within eight within treasury, so in the short end of the curve we're probably an eight below treasuries and then back into the curve we're probably close to treasury. So, that's a choice. The customer has a choice to go buy a treasury or put a CD that's insured.
And it's been relatively consistent throughout 2018 and we've had some good deposit growth as a business strategy for us.
Yes. Okay, that's helpful. I wanted to follow-up. Looking at the loan repricing slides that you guys have in the deck. So, if the current coupon rate and the 14.4 billion is 3.37. The two options you outlined looked very expensive, right? Once they were over 8% once over 6%, how much risk do you have, these loans just pay down.
I don’t understand why customers won't just payoff their loan and with a flat curve, just go with Fannie and Freddie.
They may. And that's slightly depending on their needs. They have a business model that has cash flow that's going to be significantly higher based on work in the cash flow. They're probably going to avoid the agency because the getting out of an agency loan of a long-term structure is very expense.
Doing a traditional portfolio win with NYCB or competitors is very accommodative to them so they can access their capital given the current environment. As they build in cash flow, unless he want to do is go back to Fannie and Freddie three years out and pay 12 points to exit your new financings.
They were very accommodative, five, four, three, two, one is an accommodating structure for the rent regulated cash flow players.
At this end in the cycle, people that are making these kinds of decisions need to recognize to do that the marketplace is likely to change and they are going to have the opportunity to acquire in the discounted marketplace and a Fannie loan is much more costly to get out of to refinance than our loan.
So, our loan is very attractive from a standpoint of available funding for acquisition. Our guys are the winners in cycle term and clearly our structure lend itself to successfully being able to do that.
Yes Steven, I just wanted to just expand upon one point. The delta between origination payoffs is 50 basis points, that's a significant change from down 150 two and a half years ago. So, this is a unique situation of all loans in the portfolio on average are substantially below the current market coupons. So, at 100 basis points change between what's on the book versus what the market is is very attractive to us.
So, which flow to with our growth, you're going to have an asset yield change going forward.
Right.
Because everybody has to pay on the way out, if they stay with us or either if they stay with us or they go elsewhere. We will see an asset yield shift upward in this environment.
Okay, then -- thank you. And then, just one final and Joe I want to follow-up on the M&A commentary. Some other banks have said seller expectations appear high. I'd be curious on your thoughts there. And then also I mean you guys have had among the best credit quality in the industry, what are your thoughts on combining with another bank just laid in the economic cycle? Thanks.
I think the important thing is that in every acquisition we made, we've greatly disposed of the assets acquired. So, whatever trouble the assets met it existed in the cornered bank, we've priced them before we've closed the deal. And for the most part we sold them as soon as the deal closed.
So, the ability to have the type of portfolio that we're comfortable with is not something we have to wait two or three years for, in many case is we'll accomplish that within the first few months of the consolidated equity. So, your point very valid. This is a bad time to be picking up other people's losers but at a particular price given all the other matrix we have at a particular price, we can make that work and we've demonstrated time-and-time again that we have.
So, I don’t want to overly specific at so the whose but we required banks that had very bad assets and we just closed those assets priced into the deal. We knew where we were selling them at when we did the deal. So, in likelihood that new co is going to be structured with bad assets, assets below the quality that we are comfortable with is extraordinarily remote.
But Joe, if you're talking favorably about an MOE, is it realistic you could do an MOE and dispose of that the other banks assets. That seems realistic for a small deal but you think even for an MOE that's a feasible option?
Sure. We've actually done that. And in other deals we required banks bigger than us and disposed off their assets. They had more assets than we had, we disposed off their assets, restructured the new co asset base and created a great return for shareholders.
So, I'll just make it very simple. The very first deal we did, they had a portfolio of very bad assets, we just sold all of their assets, not all but almost all of their assets in the first months of the transaction. And then we redeployed that over the period ahead and we created great value for shareholders.
Okay. Thanks for taking my questions.
Sure.
Thank you. Our next question comes from the line of Jordan Hymowitz with Philadelphia Financial. Please proceed with your question.
Good morning, Jordan.
Good morning, Jordan.
Thanks for taking my question. You mentioned that the margin could stabilize, slightly expand by the end of this year. If there's no more rate increases, what type of margin expansion could there be in 2020. I mean, is 10 basis points to 15 basis points too much. Could it be as much as 20?
Thomas here, Jordan. I share your enthusiasm, I don’t want to be too forward-looking as far as 2020 but obviously it's been a very difficult struggle with having a liability sense of balance sheet over the past few years and the fed tightening very aggressively here.
So, obviously this could be a meaningful shift in 2020 versus 2019. So, we very much depended upon the behavior pattern of the loan book, right. As I indicated, everyone's under water right now. So, if there's a shake and sloping curve, it could be very meaningful difference from '19 versus '20.
If the curve stays where it's at today, we still should see margin expansion. So, I'm really I'm going to go on air and saying depending the slope of the curve in that period, we'll really dictate how meaningful the change would be because right now the curve is relatively --.
And what would be very meaningful?
I'm not going to back into a specific number but I appreciate your enthusiasm. I'm enthusiastic as well. This has been a few years of a relatively difficult environment watching the NII go down but clearly if we go look back three years ago, we were struggling with keeping the balance sheet flat and not to cross over 50 billion.
So, that's behind us. We're very excited about going the business; we are the largest portfolio renter for the rent regulated market in New York City. We intent to be continuing to be the largest player and we're seeing some good opportunities but obviously at a much higher rates and a very difficult slope in the curve.
So, rates start to move and it's more normalization, we have a reasonable slope, a parallel shift or even this one from here, very attractive in future periods. Because historically, the company's return on average assets was substantially higher than we are today. We think we had a low plane.
Okay. And onto the expense side for a second. We're now we're getting down to that frank levels of efficiency ratios. But by 2020, what do you think a normalized range could be?
So again, I gave some guidance for as here what our expense base would probably end up at 2019. I think we have more room to go lower here on a year-over-year comparison. I quoted last year low-500s. I stand by that for 2019 and from there I think we'd stabilize.
I mean, that's probably the low point from there, we'll have a much bigger balance sheet which we get a better efficiency ratio. So, loan some efficiency ratio should be in the low-40s where we stand by now we're being pressured by NII.
So, as NII starts to grow, as it start to grow, I think our expenses will bottom out somewhere in the low-500s in '19 and from there a very nominal expense growth and we'll see hopefully revenue growth offset the potential of additional expenses in the future years.
But we saved over a $100 million year-over-year on our expense base. Now, substantial amount of that was due to the mortgage banking exit but in addition to that we're still enjoying the benefits of the different regulatory environment. We're not a c-core bank, we're not so much as the LCR mandate. So, regulatory changes has occurred, we intend to continue to be viewed upon as a non c-core bank.
So, all of the technology business that we've done in the past, we want to start getting efficiencies from. So, a lot of money is in spending the technology and processes. We should be able to get some more efficiency from that in the years ahead.
So, to sum up like 2020, it really should be almost now expense growth and the margin growth could be material by your words and material I would imagine as more than 5 basis points or 10 basis points.
That material is a material. I would say that because category is a long-term history to the bank. We're not used to running an ROA below 100 basis points. This is not customary for us, this has been only the high performer and we're in a very unique spot in our public life and we hope that as the assets starts return again, we will see a very meaningful change in the yields and assets and funding cost should over time stabilize to one-on-one right level especially if we're able to effectuate the ability to change the funding mix to a deposit acquisition, some form of funding mix there.
That's the game changer for us.
I think the important thing to recognize is that we have a long history of restructuring our balance sheet to acquisitions. Every acquisition we've done has been accretive. Every acquisition we've done has facilitated not only the change in the assets of the acquired but also the assets of the whole. Meaning, that our assets are also very favorably impacted by the opportunity to deploy large amounts of money into new co.
The upside to deal for us has never been greater than it is at this moment in time because we've never been trading at such a discount a new trading today.
And Joe, and I would just share on specific lot of commentaries that we have this very large wholesale liability book. We love to slot that with core deposits; that will be a game changer for any partnership.
So, that is clearly an immediate benefit if we were to associate ourselves with a very large funding mix and change the wholesale to retail and through customer deposit; that will be a meaningful benefit towards the bottom line.
Thanks, guys.
You're welcome.
You're welcome.
Thank you. Our next question comes from the line of Matthew Breese with Piper Jaffray. Please proceed with your question.
Good morning, Matt.
Good morning, Matt.
I really just wanted to focus down the securities book. Yields quarter-over-quarter went up 17 basis points to 388. And so, kind of a two part. So one, was that mostly driven by the floating rate portion repricing with the fed height or there are other securities being put out of accretive yields and what were they?
Yes. The number of fact is that no question and we put on some floating rate early on in the year that we had two rate hikes say that helps. It's a 50 basis points movement on a very large meaning a portion of the portfolio.
And secondly, the home loan bank had a very attractive dividends; we do have a very large investment in a home loan bank and that also had a positive impact towards the overall yield to the securities portfolio.
Okay. What was the size of the dividend and how often they curve?
Getting over 619 total dividend for the year.
For the quarter.
Yes, for the quarter. I think that be if we normalize that, it'll probably about a 347 ex-prepayment that we received in our thus portfolio which is insignificant; 2 basis points. And the home loan bank dividend which was and if you take that home loan bank out of the equation, we're on a 347.
How often does it curve?
Every quarter.
Every quarter. They have a very consistent means of literally paying this very high dividend but they're extraordinarily well positioned to earn.
Okay.
A quarterly dividend, not much. It's been relatively attractive over the few years. So, and then take sense the if we look at where they are economically in the margin place, a little of expenses, so they're doing well right now. They can afford to pay a stronger dividend.
Okay. All else equal, no fed -- no additional fed hikes and the floating rate paper you're putting on. We should assume securities yield start to come back in, correct? - just given what you're putting into it?
Again, that could be a meaningful change. I think I gave guidance a 500 million depending on market conditions. We may buy 600 million depending on market conditions. We had a very attractive market in Q3 and into Q4 rates were much higher. We took advantage of that, we had a preset public position that we'll get probably a $1 billion a quarter for next two quarters.
And those investments were very attractive. We believe we hit the market at a good position and timing and right now with the yields are lower. So, we're going to be very mindful of where we are. The $500 million in securities portfolio is not going to meaningfully change the entire portfolio yield.
We're going to be proactive, we want to try to look at the flowing rate market as a balance for interest rate risk going forward.
Understood, okay. Now then, turning to the borrowings. The borrowings were up $360 million $370 million quarter-over-quarter but you also had I think a $1 billion for reprice. So, what were the types of borrowings you put on and what were the rates they were put on at?
The average for the quarter we put on here, we have a 2%.
Third quarter was, I think low twos in the fourth quarter, we did some with the street, so it was like really low twos, three year structure, 10 non-core three. So, even going to put on a magnitude of that going forward it's an option for us over time.
So as we think about 2019 is that a product that you think you will need in 2 or go more towards fix rate advances?
We are going to, it will be blended depending on market conditions. Obviously we are very excited about the retail deposit growth. Remember the retail deposit that we bring in is less of an FDIC expense on the assessment. So we are moving up that billion 60 last year is not tax per say from the FDIC as wholesale volatility. So that does give us a better overall bottom-line benefit. When we look at deposit pricing versus wholesale liabilities pricing to take into account the assessment tax we get for wholesale versus retail. So it's going to be blended.
And then thinking about your expense guide for 2019, the low $500 million range when do we start seeing you get to that level on a run rate basis? Should we see a substantial step down on the first quarter or more gradual throughout the year?
I would say typically as you can go back historically, the first quarter is always the high points for the quarter. So we are going to be probably around 133, 134 let's say for first quarter 2019 and that should be the high point. We have a number of initiatives that we believe will benefit throughout 2019 and we should be in a run-rate, we should be in the low 500 as an absolute number by the end of the year. Is it 510, is it 505 we are working real hard to make this bag more efficient and focus on where we can, focus on what we built in technology and processes and we hope to continue to focus on every aspect of the institution to drive cost lower especially given the current profitability for the bank like I said before, we are not accustomed to running institution sub 100 basis points in ROI.
So we think we have some meaningful benefit there. There will be a point where the end of 19 where we can no longer drive expenses down and we will run flat on that. And when you look at that with the revenue growth going into the end of 19 to 2020 the efficiency ratio that just start to see a meaningful shift lower. So somewhere in the low 40 percentile is where we should historical go into the new norm for us as a $50 billion institution. When I see institution perform or anymore so that clearly is going to give us a much better expense base to manage from.
Understood. And then, just going back to M&A obviously it sounds like you are much more positive on that front. If you look back quarters ago, the types of deals that you were talking about range from small to big but given some of the changes on the regulatory front would you think the likely of a largely deal as higher today than it was six months ago? And is that the possible?
It's all a matter of relativity. It's got to do with our currency versus the currency of the target. It's got to do with the upside that the new balance sheet creates. There are many reasons why we buy bank A versus bank B. And low and behold taking all of those nuances into consideration we could do still a smaller deal first and then follow with a big deal or because of the difference in currencies we couldn't elect to do a larger deal because it's still a highly accretive deal and the opportunity for us to restructure our balance sheet is such that with the greater value of dollars that we have available to us we feel that that makes more sense.
So every deal is considered relative to alternatives in the market at that time. We don't care what happened three years ago or five years ago or ten years ago we are looking at the restructuring of new Co in the period ahead and each deal represents a different opportunity.
Pricing relativity matters, but there are also opportunities with regard to the assets that can be created in the assets that need to be disposed off. So I will say to you that we probably have more deals in consideration today than at any time. And we always had deals in consideration, but there is clarity that there are plenty of banks that have expressed a desire to consider literally having the benefit of our currency. Our currency is deep discounted and people that are in the business know that. So getting our currency at its current pricing levels is a significant upside to anybody that participates in new Co.
Understood. Last one is just the tax rate for the past two quarters has been a little bit lower than anticipated. What should be using for 2019, is it still that?
It could be conservative with the 25% effective tax rate for 2019 all in for the year.
Great, thanks. That's all I had.
Sure.
Thank you. Our next question comes from the line of Christopher Marinac with FIG Partners. Please proceed with your questions.
Good morning.
Good morning. Tom, did you say 25% for tax rate this year?
Yes. 25% is the reasonable range for the 2019 calendar year.
Perfect, thanks again for that. When you look at the consolidation of the two charters to what extent is that going to drive a cost lower in Q1 or you are simply just going to just blend into the other normal cycle cost that you have endorse seasonally?
So Chris, it’s all part of our big picture plan of being more efficient. That's part of the reason why we did the consolidation. It took us some point in time to get it done but we are very pleased that we are able to forget that transaction completed at the end of last year. But clearly it's not a meaningful advantage but there is a cost benefit there. It's part of our 2019 initiative of getting to that low 500 level. And that was part of our overall plan.
That was actually planned three years ago. The rationale was this more efficient. It's a one less regulatory process you have to go through and its one core reporting and people and processes, its whole another bank that we have to manage. So that gets consolidated into the community bank. So for good reason, good business purposes and now we are very pleased that it's behind us and it will be further efficiencies in 2019.
Right.
Not a material number, but clearly adds to our overall budget and forecast for 2019.
I think exclusively what Tom is saying is it also makes our operating executives more efficient and that they only have to focus upon one regulatory process rather than two. The effort is significant and certainly it is clear to us that our people need to manage the bank and need to be in conformance with regulatory expectations having two banks meant that there was a significant amount of extra effort at every levels including the executive level. So I think this is a very good thing for the future and clearly as you might imagine we are very pleased to have this behind us.
Got it, thanks for that Joe and just a follow-up on your capital approval that you said, does that last you through this year or is that only last you for the 300 buyback?
I think my initial reaction when we publicly announced this in the fourth quarter was that you want to decrease the cost initially depending on marketing conditions which was about $100 million. We accelerated that given market conditions. We did about two thirds of it already given the stock was below 10 that was a very attractive long term opportunity to buy the stock at those levels given the dividend that we were paying on the shares and what we’re financing to the buyback.
The math wrote very nicely for us. So we have about a third left. So that depending on market conditions will be very active in worse conditions may be less active in better conditions. So it's about one third that's remaining and maybe subject to market conditions.
Great, thanks very much guys.
You are welcome.
Thank you. Our next question comes from the line of Mark Kehoe with Goldman Sachs. Please proceed with your question.
Hi, it's Mark Kehoe here from Goldman Sachs. Good morning, it’s Mark Kehoe from Goldman Sachs Asset Management. Just a question, when I look at your kind of the point of capital whether it would be loan growth, destinations stock buybacks or in the M&A. Can you talk to me where the floor is on your 2C ratio and your commitment to the IG rating particularly at Moody’s? Thank you.
So, I think it’s a big picture with capital; we look at adjusting capital based on credit risk so we have a very proud history of a very long credit loss, history of losses. So we look at adjusted for the rest space with respect to potential risk within the portfolio and as you know historically, we can match that against any institution in the country we have by far the best asset quality in place for the multi-family space so we are very pleased with that.
So when you look at the absolute capital levels we think we have a very good capital process. We have very high threshold. We have more room to grow the balance sheet and clearly we are just doing the sub-debt opportunity but it is also illustrated by the acceptance from our regulator is that we have adequate capital in this, we pay very strong dividend but also in excess of that go out in the market and buyback shares at a very attractive level.
So I am not going to give an absolute capital level position but I will tell you we look at more the risk adjusted base capital in particular for risk base capital for us as a meaningful number given that when we try to originate we get a 50% risk rating on our position. So traditional commercial real estate vendors are 100% risk rate vendors, we are traditionally a 50% risk rate vendors, so we are more focused on the risk based capital position of the bank.
And then just kind of the follow up in terms of the commitment to the investment rating particularly kind of retaining the Moody's rating?
We want to have the best possible rating agencies obviously we made a business decision when we looked at the marketplace in the fourth quarter and we had a down rate from the other rating agencies. But clearly our goal is get us all of the rating in that investment grade all the time.
Thank you.
Thank you. Our next question comes from the line of William Wallace with Raymond James. Please proceed with your question.
Good morning, Wallace.
Good morning, guys. I just have one quick question. it’s a follow-up. Tom, earlier in the Q&A when asked about M&A you said that protection of tangible book value dilution is really a key determinant. Could you help us quantify what level of dilution you would accept? I guess the best way would probably be in terms of payback.
So I will tell you Wallace. You can go back and look at all that deals, remember we’ve done a tangible side deal, so the tolerance is zero. Obviously, we are very protective of that and we look for partnerships. Partnerships are important, we pay a very high dividend as long as institution head that merges with us and we look at our currency we might have institution that maybe trading at a lower price to tangible book value. We can create real value that way and that the partnership opportunity. So we look at the reshuffling of the balance sheet on an announcement basis we look at on a stock to stock basis tangible book value should go up while it be neutral, not down. We are not looking to talk about earn backs. We don't want to have a conference call let's say six months down the road, we are talking about how many years we are going to earn back or something that we purchased with our stock. That's not who we are, we are very large shareholders. We are very protective of our tangible book value.
And I think the most recent year that was announced which was fairly large transaction for 2019 the merits of that interesting, we have two large companies coming together at a no premiums. That makes a lot of sense and then value creation. If you can imagine that scenario with tangible book value creation, wages are down side risk. So as long as you can execute and consolidate and ultimately strip out the risk of the combined company we don't think we have a lot of risk so we will be really looking at the assets of the target. We think it’s some of these values that can be created and we’ve done it historically. It's been a long time since we have announced and closed those acquisitions but clearly our discipline has not changed. We are not going to be aggressive on pricing transactions. We will be patient.
I think there is no escape in the fact that we have never had as much upside potential in the new Co as we have today. Our currency is that a deep discount so the opportunity to create real value in an accretive deal is something that's smart partners understand. Bankers all get it. People that clearly are considering and made it clear to us and others that they would be very pleased to be a partner. Understand that upside for us is extraordinary real and their contribution to that upside means they participate in the value creation.
Thank you, I appreciate that clarification, gentlemen.
You are welcome.
Thank you. Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.
Good morning Pete.
Good morning. I just want to do a follow-up question on the expenses. I know you have got some seasonality in the first quarter but you gave that guidance of about 133 to 134, but it does imply a big step down for the rest of the year like quarterly run rate roughly 125 million to get to that low 500 million for the full year. Can you just give some more color about the drivers to lowering that expenses?
Yes. We have a number of initiatives Pete. I can't say publicly but we have some very unique opportunities in front of us. In particular, bear in mind Q1 is always a high quarter for us. That should be the highest quarter of the year and then we have remember just given on a year-over-year basis the regulatory cost would be lower, this fund is solely funded right now so we all get benefited as the banking industry we continue to, like I said grind down the opportunity to look at past [indiscernible] requirements versus non requirements for sub 250 bank. We have a number of technology initiatives going on with the bank that's going to be meaningful towards the expense of run rate for the company.
And we believe, I mean depending on what your number is I didn't say 500 to the buck I said low 500. So again, I am going to go back to 17 it's important to understand at the high of the -- when we were dealing with the history of transaction and try to become a SIFI bank our run rate was $660 million we said publicly after that the deal didn't happen and we felt there was a meaningful shift in SIFI to a higher level we took it down by 100 that number came in probably about down 125 or 120 so we really met our goals. We feel highly confident that we will run in the low 500 this year. So 505 to 515 is the range. I hope to be at the bottom end of that range. It's a little early now but we have a number of very real initiatives at the bank to drive our cost structure lower and we have been razor focus with that for the past three years given that we have had a significant ramp up of expenses to accommodate the expectations of the SECAR bank. There was a real dollar that shareholder value that's left the portfolio which is gone. That made a lot of money in spent but however, some of that investment it's been made within the system and processes that we believe we can capitalize on.
Got it, great, thanks very much.
Sure.
Thank you. Our final question comes from the line of Collyn Gilbert with KBW. Please proceed with your question.
Was that what that was Tom. Anyway I am glad I got my question in. So just to go back to the securities discussion, so the fact that you guys are exempt from LCR, I guess I am trying to understand Tom why grow the securities why still be committed to that 500 million a quarter in securities growth?
So Collyn, right to put in amounts right. So depending on the growth in the securities portfolio versus loan growth, s we think we can grow our loan book mid single digit that's the goal typically and that's market change. In the mean time we will be proactive on getting our portfolio back to more normality; we’re still only 11% of total assets. So we look at the industry as a whole. We are probably one of the lower in securities portfolio that we see among banks over 50 billion, I would imagine. So our 11% remember we drilled down that portfolio from the 20s just by being small we opted to not replace those securities to stay below 50 billion for years as we tried to asses when Congress was going to make the change. So the change occurred last year and to the first quarter and we’re going back to replenishing the portfolio. And the difference this time is that we are not putting on the fixed rate structures so we will be more proactive on interest rate risk and managing that accordingly.
So we have been more selective in looking at adjustable rate securities depending on marketing conditions. So we have been very pleased with the first, we call it 2 billion of the replenishment and we have more to go in 2019.
And then just obviously a big crux to this whole story is the loan dynamic. The loan re-pricing dynamic that you are seeing facing you guys. So that 14.4 million you put in the slide deck over the next three years. How does that – can you give us a little bit more granularity on what that looks like each of the next three years? I mean is that all, is that coming?
So I would say in 2020 it's very meaningful, less meaningful for 19 and I think it's probably more than – probably two thirds of its coming within the first two years. So 2020 could be a very interesting dynamic for us because many of our customers will have to make a decision, either they stay with us or they go they are paying the higher rate assuming rates are flat where they are today. If there is a slope in the curve it will be meaningful higher. They will be forced to accelerate every pricing. So this is only what's contractually coming up to their option in maturity.
The reality is when there is a real change in interest rate customers will react in that fourth to fifth year and yes some customers are going in year five and we are not seeing the benefit of prepayment of what we are seeing the benefit is taking 3 -- to the market of 400 quarter 450 so as Mr. Ficalora’s commentary 100 basis points is conservative based on the current portfolio that's assuming a very flat curve. If rates happen to steepen it will be a bigger benefits for us but there is no question that as each year goes by with the passage of time that number gets larger. And we are not along the ration play on this on the loan growth. Our loans typically are traditional five year bread and butter type multi-family rent regulated cash flows. Five year assets at worse case, right. An average life three years.
So within that concept right, so this is implying significant refinancing pressure to the borrower that the industry is not seeing in its cycle certainly in the last 20 years. How do you guys see that impacting the industry?
Again I will comment on the fact that where we are with interest rates, interest rate is still extremely low. Cap rates are extremely low. I think it is very unique opportunity for customers to look at the agency market as an attractive alternative if they are not building cash flow. The government is the most active player right now given where rates are. If that changes they will revert back to the portfolio management. In the meantime we still – the multi-family book last year is 6%. We did over $10 million originations so we are still very meaningful player in the game and our biggest competitor is the government. So rate start to see seeping and the government will see less products in the back end of the curve and customers will go back to the shorter duration paper because it's just an absolute cause as cheaper for them. There is no question that this is a unique time in the environment, real estate buyers have increased dramatically over the past decade. There has been so much of a pull back now given this uncertainty but rate is still very, very low.
So customers are still on the side line. Prepaid was dismal last year. So we should have a better prepaid year going into the future years ahead. If there is acceleration of sentiment, having sitting on a side line is not being prepaid. Activity that generates either sale transaction and or a concern of the next refinancing will generate prepayment activity. So our fourth quarter prepay is probably the lowest you’ve seen in the years. But we think that that could change. It could change very quickly and it's beyond our control.
And then, just one final question so CRE loans have been kind of continually declining. What's driving that and what's your outlook for CRE loans in 19?
I would say overall, I would say we will probably grow the multi-family books faster than CRE. CRE maybe flat to stable depending on market conditions. Obviously as I indicated we have had a ten year very robust run and evaluation. So we are very selective on our CRE portfolio. Our average CDs and CRE are dramatically lower than multi-family. The historical loss in CRE is half that of multi-family. Multi-family losses are the minimum so we are very selective and a lot of that is driven off the transaction and exchange side business so there is not a lot of transactions in one area. You are not seeing a buildup of CRE.
In other words if cash comes in for a bar they have to put the money to work. So it's either commercial real estate/multi-family and obviously it's less transaction. So that will also drive the CRE view having less transaction in the marketplace.
Alright, I will leave it there. Thanks.
You are welcome.
Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Ficalora for any closing remarks.
Thank you again for taking...