BankUnited Inc
NYSE:BKU
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BankUnited Inc
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Good day, ladies and gentlemen. And welcome to BankUnited Inc 2018 First Quarter Earnings Conference Call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded.
I would now like to turn the conference over to Ms. Lisa Shim, SVP, Head of Corporate Development, Strategy and Marketing. You may begin.
Thank you, good morning and thank you for joining us today on our first quarter 2018 earnings conference call. On our call this morning are Raj Singh, our President and CEO; Leslie Lunak, our Chief Financial Officer; and Tom Cornish, our Chief Operating Officer.
Before we start, I’d like to remind everyone that this call contains forward-looking statements within the meaning of the U.S. securities laws. Forward-looking statements are subject to risks, uncertainties and assumptions and actual results may vary materially from those indicated in these statements. Additional information concerning factors that could cause actual results to differ materially from those indicated by these forward-looking statements can be found in our earnings release and our SEC filings. We do not undertake any obligation to update or revise any such forward-looking statements now or anytime in the future.
And with that, I’d like to turn the call over to Raj.
Thank you, Lisa. Thank you everyone for joining us. I’ll go through a few bullet points, I’ll hand it over to Leslie and then to Tom and then we’ll open it up for questions.
We had another strong quarter, earnings were at $0.77 per share, I think that compares to $0.57 per share we had at this time last year. Also I think the estimates were for the low 70, I think $0.72 around that, so we’re feeling good about way the earnings came out.
The net income was $85.2 million, which is a 35% increase in earnings when you compare to first quarter of last year. Obviously the earnings were helped by the tax law change and our law proper tax rate. So, if you back that out and just look at pre-tax income that increased 23% over the comparable quarter in 2017.
And, as we will dig deeper into the numbers and pull out sort of non loss share earnings you will see that number also increased something in the same neighborhood. So, across the board no matter how you look at earnings, this is a very good showing in the first quarter of 2018.
Going to a little deeper into the P&L, net interest income after provision for losses for this quarter was at $245 million almost which is a $26 million increase which is 12%. Cost of the NIM actually went up this quarter from fourth quarter of last year. As you know our NIM is impacted by the runoff of loss share assets and the NIM actually has been coming down steadily every quarter, assets that runoff, but we actually saw an increase in NIM by 4 basis points from fourth quarter. So, NIM stood at $356 million, it was $352 million in the fourth quarter. Comparable first quarter was $370 million. Now this decline, this NIM was impacted by sort of onetime tax that we take on our taxi book which is a pinnacle business. So, despite that adjustment it was still a very strong showing on net interest margin.
Cost and deposits convey to increase, they are at 104 basis points for the quarter, they were up at about 10 basis points over the course of last three months primarily driven by higher fed funds and generally higher interest rates on the short end of the curve, and I’ll talk about the curve in a little bit.
We initiated our share buyback program as we have talked about, we got it authorized in January, we initiated it sometime in February; we have purchased about 1.2 million shares over the course of this quarter which is about $48.5 million average of purchase price. And, buyback stock is diluted to our tangible book value per share, but we still think it maintains, we still think our stock is the best thing out there to buy, so we are putting our money where our - different buyback stock. Despite the buyback and the delusion that comes from it, our tangible value continuous to grow and now it stands at $27.83.
Talking about loan growth and deposit growth a little bit, loan growth is light this growth, very similar to what you saw - when you saw first quarter of last year. Our business has become much more seasonal in nature and the first quarter tends to be a very slow quarter for us both in terms of how much new business happened, but also in terms of utilizations of lines and our C&I businesses, mortgage warehouse business, which is becoming bigger and bigger part of the balance sheet.
So, loan growth was $74 million, lease is actually declined by $8 million, net numbers about $66 million. We’ve often talked about there are better way to look at our growth instead of looking at any one quarter, if you look at trailing 12 months, we’ll continue to say that and that actually holds for loans and deposits. So, if you do have up for quarter little back growth for the last four quarters has been about $2.1 billion which is about 11% run rate.
To give you a little more color in terms of what we are seeing in loan growth and Tom will talk a lot about it. But I do want to make one point. We did see our production numbers actually came in stronger than what we had been expecting, so I’m very happy about that. But our payoffs and pay downs also came in much higher than what we had predicted.
So, that net $66 million numbers made up to a very large numbers in terms of money coming in and money going out and both those numbers were elevated, one is great because we are doing better production than we even thought we would, but I’m also looking at higher payoff and payout which I think is largely driven by how healthy the economy is, people are flushed with cash, people are selling their companies, people are selling their properties and buildings, and we are seeing that trend almost across the board.
Deposits grew by $361 million this quarter. Again if you look at four quarter trailing basis over the last four quarters we grew deposits by $2.3 billion which is about 12% growth rate. A trend that we have been waiting and not seen - deposits for a while was a meaning growth in DDA, I think all of last year we grew DDA by roughly $200 million. This quarter alone our DDA growth was $270 million. On a roughly $3 billion book of business that kind of growth is pretty impressive. I don’t want to make projection of that because it’s very hard to project deposit growth, but we’ll celebrate the successes that we’ve had this quarter of $270 million of that $361 million being DDA growth. Credit remained strong, taxi is still only four points and we’ll give you an update unless we will do that in a few minutes.
Let me talk about two things which are not in our control, one is economy and the other is curve, the economy is wrong, it’s about as wrong as we have seen it and while we are not economist and we cannot predict sort of too far out in the future at least in the short term from what we see both in New York and in Florida, the trends where we’ve seen our portfolio, the information that we get from our customers, the deep look we get into their businesses, you couldn’t ask for a stronger economy than what we are experiencing right now.
The curve on the other hand is as flat as it has been, it’s not completely flat, but this is pretty close to being completely flat. And, when I talk about curve, I don’t talk about the yield curve, the treasury yield curve, we look more at the swap curve and the swap curve, for whatever reason is even flatter than the treasury yield curve, so that makes for a competitive environment and we are very aware of that.
Our pipelines right now for loan growth, deposit growth are strong, but we keep as much of a focus on volume as we do on pricing. And, if we see things get tighter where margins are just not there then we may pull back on growth, but we are not announcing that yet, but it’s something that we’ll continue to monitor and this is curve inverse which I hope it doesn’t, it will - pricing will come under a lot of pressure. So, that sort of the only negative news I have, but everything else, the economy is doing very well, credit is strong and inside the company we are feeling pretty good about just about everything except the curve.
With that I will turn it over to Tom actually. Tom and then Leslie will come after Tom. Tom?
Great, thanks Raj. So, just to elaborate a bit more on some of the themes that Raj talked about from a loan perspective, overall our portfolio continuous to be well diversified across all of our platforms, Florida now accounts for 35% or $7.4 billion, New York 29% or $6 billion and the national business is 36% or $7.6 billion. As Raj mentioned we did see, this comment holds pretty much true across all of our business lines, we did see very good new production for the quarter, we did see a much larger level of asset sales, business sales and just as our business becomes a bit more C&I dominant, you do see more seasonality particularly Q1 is coming up of what is typically the year ending for most large C&I businesses, so 4% to 5% difference in utilization rates is more impactful for us particularly in the first quarter which is typically lighter than your large C&I businesses.
So, if you look kind of group by group, I’ll walk you through a bit of that loans for the quarter in Florida grew by $55 million, most of that was in the C&I businesses, the national platform grew by $158 million, and then the New York business declined by $139 million. We look on to each of the businesses in a little bit more depth and the national platform and the residential portfolio grew by $165 million, our pinnacle municipal business actually declined by $8 million, the first quarter was kind of interesting time to see the tax effect work its way through the market in terms of pricing and where corporate players are versus individual players, we are kind of taking a bit of wait and see, you look at how pricing develops in that market, expect to see improve for us as we go into the future quarters, but first quarter was a fairly slow quarter in that business because a lot of those changes.
Our bridge finance business actually had a good quarter about $36 million in total loan growth and lease growth, $23 million within our franchise and $30 million within our equipment business, another kind of seasonal takers our mortgage warehouse business was down $35 million as we expected due to the seasonality in mortgage warehouse commitments, but total commitments at $331 million, we are $963 million and have actually increased $75 million since the close of the end of business per quarter, so we are now over a $1 billion in total commitments within that business.
The New York multifamily portfolio declined by $121 million for the quarter and New York grew by $26 million. Again Florida and C&I grew by $53 million and the CRE book was relatively flat predominantly due to asset sales.
On the deposit side, total deposits as Raj mentioned grew by $361 million for the quarter; it was fairly nicely spread around, driven primarily by commercial deposit growth. In New York the national franchise had a very strong quarter in retail Florida, so that kind of sums up some more detailed discussion of loans and deposits. So, with that I’ll turn it to Leslie.
Thank you, Tom. To give a little bit more color on the quarterly results. The yield on interest earning assets was up to 470 this quarter that’s up from 456 linked-quarter and 452 for the comparable quarter of the prior year. We saw increases in yield on both noncovered and covered loans as well as on investment securities. The yield on noncovered loans increased to 383 for the quarter, up from 362 for the comparable quarter of the prior year. I want to note as Raj mentioned the impact on the reported tax equivalent yield as the change in the corporate tax rate. The tax equivalent yield on our noncovered loan is impacted by 8 basis points and on our investment securities by 10 basis points due to that change in the tax rate, so that kind of quantify the impact of that - cost deposits are 10 basis points to 104 from 94 linked quarter and as Raj emphasized earlier, the NIM actually did increased by 4 basis points linked quarter, although declining from the first quarter of 2017 due to the higher cost of funds and the continued runoff of the covered loans. The NIM itself was impacted 8 basis points by the change in the tax rate. The combined yield on the FDIC asset and the covered loans for the quarter was 20.75% and we expect that to ramp up to about 28% for the full year as of now.
Taxes as you saw the ETR comes down to 23, compared to about 21 for the first quarter of 2017, obviously that’s all attributable to the change in the corporate tax rate and we did benefit from that.
Couple of comments on the reserve and the provision, the total provision for the quarter related to noncovered loans was $2.9 million, down from $11.3 million for the first quarter of 2017. The lower provision resulted primarily from - lower provision related to taxi down in loans, the provision relates to the taxi was down $6.7 million from the first quarter of the prior year. We’ve also had lower provision related to specifically identify impaired loans and lower loan growth.
Overall the decline in the reserves, couple of other things going in there, we are seeing historical net charge-off rates that inform our provisioning continue to decline for some commercial segments. We also took charge-off this quarter related to taxi that reduces the amount of reserves and residential loans comprised with larger percentage of loan growth for the quarter and obviously with provision on a much lower rate on residential loans then we do on commercial loans. So, all of those things impacted the reserve level for the quarter, we have not changed our triple-a-methodology, it remains consistent with what it has been.
Moving forward with provisioning, outside of taxi we’ll talk about in a minute. Given that the economy looks good and we really aren’t seeing systemic indications that credit we miss in the portfolio, I would expect provisioning to be driven largely by loan growth and then just the periodic occasionally you have a loan that pass and something goes wrong and you have to provide specifically for that loan, but other than that I don’t really expect any changes in the trend.
To give you quick update on taxi, total exposure is now $98.4 million, down from $106.1 million at $12.31 million that reduction is due to $5.4 million in charge-offs and $2.3 million. We did slightly update our methodology for determining reserves on taxi this quarter. As you know we historically used a cash flow template best-phased methodology for reserving for the taxi loans. We continue to use that methodology for the portion of the portfolio that is paying regularly, we have taken the portion of the portfolio on which we are not receiving regular payments and started reserving based on - we are currently using a five month average of reported transfer price is up for TLC website, so that’s a slight change.
The cash flow template methodology solves for evaluation of $295,000 this quarter, down from $304,000 last quarter and we maintain an additional 15% haircut on that value as a reserve, so that’s all store around $250,000. The five month moving average of reported transfer price is $239,000 and that’s what we applied to the delinquent portion of the portfolio.
Total delinquencies are now $19.7 million and $7 million of that is over 90 days. And, to-date accumulative charge-off have totaled $73.2 million and I remind you that the entire portfolio does remain nonaccrual even that portion of which we are receiving regular payment.
You know the question about the future, I don’t know, obviously there is still a lot of uncertainty, there may be more pain to be taken over the next several quarters with respect to this portfolio, but again now less than $100 million, the exposure remain relatively contained. A couple of updates to guidance, we are now forecasting the net interest margin for 2018 to be between $350 million and $360 million, still expecting high single digit expense growth excluding the amortization in the indemnification asset. And, some numbers that people will ask for the future estimated accretion on covered loans as of $331 million is now in the $406 million and $131 million in estimated amortization in the indem asset, the net of a marginal tax rate of 26.5% that’s about 200 - just over $200 million in expected earnings to the future of that asset. That’s all I have to say and I’ll turn it back over to Raj for any closing remarks.
Thanks Leslie. No, I’ll just end it by saying, we’re feeling good about this quarter we had was very strong in earnings, it was a light quarter in growth, but that is something we had expected. I just wanted to remind everyone last year we had about I think $100 million or so in the loan growth in the first quarter and the second quarter was $850 million. So, do not take one quarter and annualize it, try and look at it longer four quarter average or something like that as a better indicator of what the growth rate are. And, I’m feeling very, very good about where the economy is, almost a little too good about it because I fear that maybe risk of forward heating if anything and we will continue the mission here and pipelines are good and strong even on the hiring front, we are actually - we will soon be announcing not yet announced, but in a couple of weeks announcing some more hires on the production side. So, generally feeling pretty good about everything and I will now open it up for questions.
[Operator Instructions] And our first question comes from the line of Ken Zerbe from Morgan Stanley. Sir your line is now open.
Great, thanks. Appreciate it. Question in terms of your margin as we think about, so forget margin over the next, I’m going to say next year right, please talk about the improvement of the core margin because obviously sort of the pace of where your NIM is at after the [FDIC] rules are completely like what are you doing on the loan side and deposit side certainly to help get your core margin excess to FDIC better to where it is today?
I think number of things, right. So, on the lending side we actually brought our loan growth targets down. We are now doing or the margin doing much better in terms of spread that we were let’s say year and half or two years ago. On the deposit side the world has changed dramatically in the last several quarters. Deposit business used to be if you go back before the fed started raising rates it used to be negative spread business, fed funds with zero and we were paying 50-60 basis points, in fact every bank was paying something for deposits that every bank was technically losing money on deposits.
Today spreads are positive. Yes, the cost of deposit has gone up from 60 to 104 basis points over the last 18 months. However, fed fund is now approaching 175 or soon to be 2%, so technically you are making more money on the deposit side. For us, the biggest lever is going to be cost of funds on the deposit side and cost of fund on deposit side is going to get driven most - the most important driver for that is going to be our mix of deposits. We have only 15% roughly DDA, the total deposit ratio which is lot for a commercial banks, and last year our DDA didn’t really grow that much. We grew $200 million in all of last year on $20 billion book of deposit. That was not good enough.
So, this year we have change in set of plans and I think you’re seeing some early hits from that already with the amount of DDA growth that we’ve had. Like I said it’s hard to predict and hang your head on just one quarter, time will tell how much we’re able to do, but we are focusing, we are paying people more on DDA and less on interest bearing deposits. And, I think that will start to take - that will start impacting our deposit mix over the course to the next 4 to 6 quarters as loss share runoffs.
So, sort of dramatically entering a new business that has different margins, you are not going to see immediate change in the monetary trajectory, it’s going to be slow, we have our eyes set on 2020 as sort of the year in which we are [indiscernible] without loss share benefit and we are laser focused on trying to get, pull all the leverage to get the margin in a better place than it is today and it is happening, it’s just very hard to see because of all the noise from loss share.
That is true. Okay. That makes sense, and then in terms of the buyback…?
I also want to be realistic over here. Margin is impacted by the slope of the curve. That’s the stuff beyond our control. So, in 2020 if the curve is very different from what it is today if it’s much - it has much more slope to it, margin will be much better. It got from it if it’s inversed then it will be tough. And that’s real for everybody.
Yes, I know exactly. I was going to say it is true for every bank. I think it’s more just due versus other banks and how you compare and how you are narrowing that gap. Your answer totally makes sense. Other question in terms of buyback, the $150 million authorization you guys have. Can you just talk about the timing of when because obviously you did close to $50 million this quarter? Is there something you can finish up over the next couple of quarters or like how you are thinking longer term about buybacks?
We haven’t really given guidance on how we will do this. We are trying to maintain flexibility. So, I’m a believer [indiscernible] cost averaging just as a general statement I will say that and the company generally has that philosophy. And, the third of it is already done. So, by that standard may be a couple of quarters, may be a little sooner or a little longer. To some extend it depends on what kind of disruption there is in the marketplace and if we can benefit from that, God forbid if there is some kind of crazy trade war or some other political news that drives the stock market down then we’ll be little more aggressive and vice versa.
Got it, okay. And, then just last question in terms of loan growth, I heard everything you guys were saying about don’t carry out this quarter’s trend. But I didn’t hear you mention anything about the 10% to 15% prior loan growth guidance. Is that still reasonable expectation for 2018 or are we just starting out little bit at the lower end of that range?
What I said was look at the last four quarters and use that as a proxy of what our run-rate is. So, I think the loan growth over the last four quarters, we’re running at about 11%, for deposits we’re running a little higher at 12%. So, I feel comfortable in that kind of a range subject to where pricing is over the course or the rest of year.
Understood. Okay. Thank you very much.
And, our next question comes from the line of Jared Shaw from Wells Fargo Securities. Your line is now open.
Hi, good morning.
Good morning Jared.
Maybe just a follow-up on the deposit side, can you give an update on how the wholesale team has been doing, are they starting to see some of the traction and is that generating some of the growth in the DDA side?
The business were actually very similar to other commercial businesses we have, they just tend to have a geographic purpose outside of New York and Florida that’s how we divide up the business, but they are doing well. We have not disclosed really what each team’s numbers are. But they came in a pretty decent year on 2017 on top of a very strong for six months in 2016, so they are coming up on their second year anniversary. I’m actually with them all day on Friday. In Westchester, the business is doing well. The goal for them this year which was not a goal last year or the year before is to grow DDA. Their DDA balances are still lower than both Florida as well as New York on a percentage basis and this year they are being incented to increase their DDA as a percentage of total deposits. That’s the only big change and they are focused on that and I’m very, very positive that they will deliver on that as well. It will take a couple of years before they can come up to the same level as Florida and New York because the first 18 months we would just wanted to get momentum and DDA balances were in 6%-7% rate, I expect them to double that this year.
Okay. Thanks. And, then looking at the New York market, you seem pretty optimistic on the economy. I guess what you are seeing that’s driving that optimism and then as we look out over the year, do you really expect to see high lending to be the primary driver of net growth rate in the New York market?
Yes. My optimism, Shaw has often asked me what charge you are looking at and what data points you are looking at? And, I point to the fact that rather than looking at charge put out by economist or regulators or Federal Reserve or what have you, we often tend to look at the information we are getting on our portfolio. We are required to do annual reviews on every loan out there in the commercial side and we do covenant checks every three months on our portfolio, so we are getting a lot of information from our customers and that tends to inform us more than publically available data that we all see. So, this is the time of the year when a lot of the data starts to come in, year-end stuff and we are reviewing that and that’s what I’m drawing my optimism from more than everything else.
And, I’m also seeing customer behavior in terms of what Tom was talking about and people selling their businesses at prices that they are very happy with or selling buildings at prices that they are very excited about. That’s not good for loan growth, but it’s actually really good news on the credit side. So, internally in the bank when a loan pays off, I see the credit guys smiling and I see the business guys not so happy. But overall it’s actually good news because it is indicator of the strength of the economy and strength of the credit book.
Okay, thanks. And, just finally you made reference in the release to an increase in the multifamily non-performer, what was driving that? Is that more cash flow basis or is that a temporary impairment?
So, this is really a couple of loans that we’re repositioning type loans. We made the loans, we see knowledge that some renovations were going to be done to buildings and they were going to be repositioned to be stabilized and that’s just hasn’t gone as well or quickly as was originally planned. The loans are actually [indiscernible] and we are very comfortable, the LPVs are very low, but the stabilization just hasn’t proceeded according to plan. So, that’s why we lose them into credit size status while we monitor them and finalize an exit strategy, but we are not really concerned about losses.
Okay, great. Thank you.
Our next question comes from the line of Brady Gailey from KBW. Your line is now open.
Hey, good morning guys.
Hey Brady, how are you?
Hey Brady.
Good. So, Leslie you talked about the provision really being driven by loan growth. I know if you look at the loan offs reserve for new loans this quarter it fell about 4 basis points from 69 basis points down to 65. Any color on how you think that ratio will trend as you guys grow loans?
I don’t really expect it to change much Brady. It might go up a few - go back up a few basis points, but I would expect it and given that we don’t see anything happening in the economy or anything evolving in the loan portfolio that we are not seeing today from the credit standpoint, that 65 to 70 seems about where I would expect to be for the near term. Obviously looking forward more than a few quarters it’s really hard to say what might develop. But I don’t see that moving a whole lot from that 65 to 70 range. Mix also can change that as the mix shift more towards commercial and less towards residential will go up a little and vice versa.
All right, and then you Raj, if you look at what’s happened in BankUnited’s multifamily book, I think when John was CEO, it was, I don’t know maybe 20% or so, now it’s under 15% of loans shrank again this quarter. Is there a number that you have in mind as far as where you like to see multi-family loans as a percentage of total loans, I guess, this thing going down the 10% or we close to be stable as a percentage of overall loan book?
Brady, I don’t solve for targets like that. I solve for what kind of spread or return, am I looking for that would get us interested in growing that portfolio. We still are not seeing the kind of spreads that I think we need to see before we put on that particular credit risk on the balance sheet. There has been slight improvement, just a slight improvement in the coupons that we are coding at 4%, sometimes 4% and 8% and still we lost a deal other day at 4% and 8% because somebody was willing to do it in the high threes, so the market is still in the 4% or high threes, maybe 4% and 8% range, if you think of that on a spread basis of five year swap this morning was 295, okay, to do a loan at 395 there is 100 basis points spread and it’s hard for me to say that is actually a good place and despite whenever you think of credit that’s just very, very tight spread business. So, I’m glad that we have other avenues to grow and are not entirely dependent on that one asset class, but pricing is very tight in multifamily.
Brady, I will also add it’s not just a rate issue alone by itself. It’s also a structure issue because when you look at the market today what we see in terms of payoffs and re-financing it’s primarily going to a little long term market and CMBS market to the agency market and to the lighter markets. So, they are in for a long term fixed rates, they’re in for higher significantly long IO periods of time, ten year IO time periods of time, so the structure that’s out there in the market today it’s not really a bank product structure.
All right, and then my last question is for Raj,
Brady just to finish your question, if we change - if we see change in the marketplace where structures starts to comeback which is more obtain to what our balance sheet can take and pricing gets a little bit better and our spread get a little bit wider, you will see still multifamily. It’s not like that we have some kind of like we will not do any multifamily. We are constantly looking at deals and deciding to pass on them or bidding at numbers that we are not winning. So, we are actively participating. We know where the pricing is, we know where all the players are. We are just waiting for the market to adjust and it’s hard for me to say whether that will happen in three months or six months or if it will happen at all. But if and when that happens, you will see us grow multifamily.
All right, that’s helpful Raj. Thanks for that color. My last question is really kind of a big picture strategic question. I get asked often about BankUnited as a potential seller just with this simply threshold potentially going higher maybe that opens up the door for big bank M&A. I think one of your neighbors is for sale down there right now. And, maybe just how you think about when the time maybe right to partner with the larger company, Raj and I know it gets easier for you all to do something once the loss share expires and do you feel like you have to wait until next May to seriously think about this?
So, Brady you have heard me say this time and time again I will repeat myself. We are building the company and the way we build is with the assumption that we will have to run this for 100 years and we are happy to do it. That’s how you build the truly good and strong company. But we are public company, we have fiduciary responsibility to listen to any kind of creditable talk on the M&A front and we are always open and we welcome that kind of conversation. What we don’t do is actively go out and solicit that kind of conversation. So, I won’t comment on any other deal. Not my place to say. But we are building a very, very strong company which will be very valuable over the long term and I feel very, very strongly about that. But we don’t on a day-to-day basis think about deal because we do that - that’s in a way to build the company or run a company.
Got it, thanks Raj.
And, our next question comes from the line of Steven Alexopoulos from JPMorgan. Your line is now open.
Hey, good morning everybody.
Hi Steve.
Good morning.
Raj I wanted to make sure I understood what you are now saying on loan and deposits in term of the guidance. The prior guidance was 10% to 15% and you said a couple of times just look back at the prior four quarters 11% and 12%. Are you saying that’s a more realistic range we should be thinking of 2018?
No. I’m not saying that. What I’m saying is rather than using first quarter and multiplying that by four and using that as a proxy on what our growth rate is currently, a better way to look at this is - look at the last four quarters and say, what is that growth rate? And, that’s a better indicative of where we are today. I still think looking at the pipeline which is what I used to give guidance on what we think we can do; I would still say 10% to 15% is what we are shooting for. That’s what’s in our budget. That’s what is in peoples - instead of compliance and that’s how we are accruing those instead of dollars. So, I know it’s a wide range 10% to 15%, but that’s about as good guide which I can give. I’m not talking you down to a11% number.
Got you, okay. And, then for Leslie looking at the net yield on coverage of 20% which ran for 10% for many years and now it’s basically doubled, why is this now suddenly rising at such a rapid pace?
So, it’s really just how the math works with a negatively amortizing indem asset and positively accrediting loans. What’s happening is the indem asset which is the negative yielding part is becoming a smaller percentage of the total and loans which are deposited part are becoming a larger percentage of the total, I mean, and it’s just how the math works and it’s a product of the fact that overtime the expected resolution that these loans are expected cash flows to be generated from these loans has just continually increased at a pretty rapid clip. So, the combination of those two things just mathematically gets you there. Again we are trying stir people away from trying to figure out all the moving parts and focus on the total amount of income that we believe it’s going to come in over the remainder of this term which as I said earlier now sits at in the right around $200 million and to worry less about which quarter it’s coming in and which line it’s going to run through and to kind of think.
Yes, okay. That's helpful. And then, maybe one final one. The non-interest bearing deposit growth, just that every bank is reporting a pretty sharp seasonal decline in non-interest bearing. Give more color on why you saw to such strong growth this quarter?
I think we changed the total the company late last year by basically sort of rallying around, okay, DDA growth and we did a big campaign in the company in January about what's important and what we got to focus on what's priority one, two and three and was all DDA growth.
So, there is a change mode in the company and people are people knew even before they got their incentive plans for this year. That there'll be a big change in how we pay people and I think you're seeing some of that. Some of it is just one off stuff, feels so.
Like I said, don’t take that 270 million, 300 million, whatever the number is and I think that we'll get that every quarter. It's not a trend. One quarter does not make a trend. So, some of it is just more I think the average balances grew by a 145 million.
145.
That maybe it's better number simply because that takes out that one off business that comes in and switches into another account or goes out a few days later. So, it is still a better showing no matter how you look at it, whether its average their balance growth or it's built an average balance growth, good earnings growth.
But we are focusing a lot more in DDA. We're making a lot of noise inside the company about that, everybody who brings any kind of transactions at the table whether it's a low owner align or we hire a vendor for crying out aloud.
The first question that gets access, that we get 30 DDA or not. So, there is just that sort of battle cry that we change in December. We really have pushed that through the company and we continue to do that and I think it's showing some early results.
Okay. Yes, you've had nice progress there. Okay, thanks for taking my questions.
Thank you.
And our next question comes from Stephen Scouten from Sandler O'Neill. Your mice is now open.
Hi, guys. Thanks for taking my questions. A question for you maybe on what you've seen on the pricing front. I know Raj, you mentioned still from some typewriting or some of the multi-family, but have you seen any material changes in terms of what folks are being willing to offer after the impacts and tax reform.
Do you think those with ROE base pricing models have adjusted tax rates and are thus been offering same spreads or they're taking that excess earnings power and in getting you in more aggressive on the pricing front?
I think the answer is a little mixed. You would think that like our in our Pinnacle business which is the taxi business, that the tax rate change would just go through in one day and everything's up to price appropriately on January 2nd, well, that's how what happened.
We're seeing so on both side where the old hatcher is still sticking in peoples mind for good acrobat. But we have seen some places where people are beginning to solve.
Special to the marks, be.
That's right. It would bring my year that JP Morgan special of the month are probably based on giving away the tax benefit. So, we are seeing some large banks getting very aggressive on business banking type products. And doing spreads what we've not seem to do and wondering if that it.
Because of the tax rate change and then solve into an ROE. Internally, work will the way decide to attack this was to try and keep everyone focused on pre-tax numbers. So, that the tax number doesn't come up. The pricing models don’t change. But it's a mixed bag out there in terms of who were doing that who was willing to give away the tax benefit.
Yes. That makes sense, I appreciate that. And would you say the same hold for deposits and as a result would you think from here that the quarter-over-quarter increase in your funding cost would begin to accelerate even more so than what we saw that 10 basis points this quarter?
I think it's been last quarter was also got nine or 10 basis points; this quarter is about the same. June is pretty much beep in. so, I think you'll see a similar kind of number. But it is yes it has been going up. I think as you get further and further up more customers get price sensitive and there is pressure on to use the term beta on beta's to get higher.
So, I don’t expect that for the number to go down. I don’t know how much it'll go up or if it'll stay flat. My expectation is it'll be flat to up but not the price of delivery is sensitivity of our plants, not going to go down with the each entry.
I think that's true pretty much across the board with all that.
That's true. Sure. For sure, and then last one from you. Just on expensive let's say I know you said kind of still single-digit kind of expense growth year-over-year at the interim. But there is kind of a sizeable jump in salaries and maybe a noticeable jump in kind of other.
Anything unusual in this line items and any new hires that drove salary or do we just have that one pending potential announcement Raj that you spoke of?
I mean, every these are certainly up year-over-year. If you're comparing salary expense this year to last year. FT's are up year-over-year and it will be up year-over-year again. The company is growing. But in the first quarter, there is at least there's about a $5 million well over $5 million impact of just things like payroll taxes, HFA seating, 401-K, contributions that are always higher in the first quarter of the year because nobody's reached those payroll tax caps yet.
So that, there had an impact on Q1 as well. In other, it's really just cats and dogs. I don’t know that I would necessarily see that as a trend.
Okay. Thanks, guys. I appreciate all the color.
Yes.
Now one question comes from the line of David Bishop from FIG Partners. You line is open.
Yes. Good morning. Actually just a question -- all my questions have been answered. Thank you.
Okay, I don’t mind.
Okay.
And I'm not seeing no further questions. I would now like to turn the call over to Mr. Raj Singh for closing remarks.
Thank you everyone for joining us. I'll end my saying, we're happy about the quarter that we just posted. I'm not sure if it is strongest ever but it certainly is one of the strongest in the last ever quarters. We're feeling good as we enter to our second quarter and you know we'll talk to you in 90 days again.
Thank you. Bye.
Ladies and gentlemen. Thank you, for participating in today's conference. This concludes this program. And you may now disconnect. Everyone have a great day.