Signature Bank at KBW Boston Bank Conference
Feb 26, 2014 AM EST
SBNY - Signature Bank
Signature Bank at KBW Boston Bank Conference
Feb 26, 2014 / 01:45PM GMT
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Corporate Participants
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* Joe DePaolo
Signature Bank - President & CEO
* Eric Howell
Signature Bank - EVP - Corporate & Business Development
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Conference Call Participants
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* Chris McGratty
Keefe, Bruyette & Woods, Inc. - Analyst
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Presentation
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [1]
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Good morning, everyone. I'm Chris McGratty, I'm part of the regional bank team. I'm very pleased to have with me to my left, the guys from Signature, Joe and Eric. What I thought I do is turn it over to these guys for a couple minutes, make some high-level comments, maybe an update on the first quarter, and then hit a few topics that I know we're all interested in hearing from. So Joe?
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Joe DePaolo, Signature Bank - President & CEO [2]
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Thank you, Chris, and appreciate being here and want to thank you all for staying here this morning to listen to us about Signature Bank. I know Chris is anxious for us to tell you some current things that are going on. So I might as well start off right away.
As you know, if you listened to or looked at our first quarter earnings, we had already hired one team for the first quarter right at the beginning of January. Well, although we haven't sent a press release out on that team, it was part of our first quarter earnings call. But we've since added on a second team. So that's new. They came on board last week. I won't get into where they came from or what office they'll be at. I think we'll wait until we send out a press release in a week or two about the details of it, but let it be said that we've hired a second team that we're actually very excited about.
We have a third team that we plan although it hasn't occurred yet. We have a third team coming on board. I always say, never say they're here, because they haven't yet joined, but we're pretty confident that they'll be on board next week. So that would be three teams in the first quarter. I would say, don't be surprised by the time we release earnings. It could be the end of the first quarter, beginning of the second quarter, but there's a good chance, we would have a fourth and fifth team.
So right now, we have one announced in the fourth quarter earnings release; we have a second that we've actually brought on board; we have a third that we expect to be on board next week; and we have a fourth and a fifth potentially coming on board sometime at the end of the first quarter, beginning of the second quarter, but certainly, we believe, before we release earnings in April. So that's something that [I'll sure be in quizzes know] that we just announced about the teams.
Another topic is pipeline of deposits and loans. We're not going to get into where we are with our pipelines, but we will say that we're pleased where we are with our deposit and loan growth for the quarter and what's projected out for the remainder of the quarter. I would like to remind everyone that we said on the fourth quarter earnings call in January that the first quarter of each of the last six years, five of the last six years, the first quarter was by far the slowest quarter in growth generation of loans and even the 60 -- the one year out of the six where it was the second slowest, it was very close to being the first slowest. So, for all intents and purposes, we had six years where the first quarter was by far the slowest.
And we told the world that expect that to be the case in the first quarter of 2014, not for any reasons other than some of it being human nature. It seems that the fourth quarter is always one whereby whether it's related to taxes as in 2012, we had a significant number of loans be pushed into 2012 that would have normally closed in 2013, because there was a fear of the increase in capital gains taxes. In 2013, there's wasn't that fear, but there always seems to be human nature that wants to move the loans from January into -- I want to get this the clients as I would like to get this loan closed by 12/31 and so there is that human nature aspect that they want to close by calendar year-end. See you had some of that.
Having said all that, we're pretty excited about where we are with the growth. And Eric and I have talked about this numerous times that we would be very pleased for our growth to be whereby it's even with the growth of earnings. So we could support about $750 million to $800 million in growth of the balance sheet each quarter and keep our capital ratios where they are. And so we'd be very pleased if that was happening.
I do want to remind everyone that in the fourth quarter, even though we had $1.4 billion growth in loans, $450 million of the $1.4 billion was related to two transactions. So without those two transactions, we would have had about a $950 million to $1 billion growth. So that's kind of an update. We can get into more updates, but I'd rather turn it back to Chris and turn it over to you and you ask your questions and we'll hopefully be able to respond.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [3]
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Joe, maybe on the teams, last year, you hired ten and I think there is an important thing distinction between what strengths those teams may bring to the bank, where there would be deposits or lending capabilities? Could you remind us of the ten last year, what was the mix; and maybe of the discussions that you're having today, what's the mix of the loans and deposits?
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Joe DePaolo, Signature Bank - President & CEO [4]
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I would say, of the ten teams last year, eight were really more deposit gatherers and I would say two of them are deposits and loans just kind of equaling out. And this year, I would say, just not the same, maybe four to five; four to five were probably deposit gatherers and there is one where it may be just about even between deposits and loans.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [5]
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So there is a clear shift towards -- obviously, the industry is flush with deposits, but deposit growth is certainly a priority at the bank today. Maybe you could talk?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [6]
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Yes, I think it's always been a priority, Chris. We've really never lost sight of that. We had an opportunity really back in 2007 to bring on board that commercial real estate team because we saw that that was really an asset that our clients needed, right, and a capability that we had to have. Then, in early 2012, we brought on Signature Financial to fulfill the equipment financing needs of our clients and then late last year, we brought on ABL. So, in addition to the ten teams, we had the ABL Group, which is really there to fulfill the asset-based lending needs of our clients. But outside of those lending lines, we've traditionally hired mostly deposit-driven teams. So, when you look at our 90 or 91 teams now, the vast majority of those teams are deposit driven.
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Joe DePaolo, Signature Bank - President & CEO [7]
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Yes. And in terms of a shift, as Eric said, we've always focused on deposit growth. I think you have to look at it this way. We're opportunistic. So, if all of a sudden we have an opportunity to hire four teams that are driven by the loan more so than by the deposit, because we think about business development, we don't think about whether a team is a lending team or a deposit gathering team. We think of they're going to bring in quality clients. We would not shy away from that. It's just where the opportunity is. It's not ever a situation where we feel that, gee, we've hired too many deposit teams or too many loan teams. If they can bring on quality clients, whether it's the left side or right side of the balance sheet, we'll bring them on board and we'll work it through.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [8]
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And maybe talk about the compensation modeling. You guys have been very clear about the performance metrics that need to be hit to get paid and the retention. I think that was an important discussion you and I had last night about retention is equally as important as new business.
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Joe DePaolo, Signature Bank - President & CEO [9]
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Yes, our model is such that when we opened up the bank on May 1 of 2001 and a team brings in a piece of business on that day, it's very rare that nearly 13 years later, on February 26, 2014, that they continue to participate in the revenue of that client. For us, it's important that if a team brought in a piece of business 13 years ago and it's still here, it's still here because of the servicing capabilities on that team and the team doing whatever they can to keep the client on board. And I think many institutions make a mistake of really putting an onus or most of the significant onus on developing business and somehow forgetting that someone has to mind that business and whoever found that business should be the one that mind it. So it shouldn't be a finder and a minder, it should be one and the same.
So the way our model works is the business that you bought in in 2001, if it's still here 13 years later and it's the symbol of business, you continue to participate in the same revenue stream as you did 13 years ago. And I think everyone talks about Signature's growth. But I think part of the growth is the retention. So I'm not saying that we're not proud of our growth, but our growth is net, right? It's net of whatever leaves.
So, institutions that don't concentrate on keeping what they had from years past, their growth gets diminished because they have to make up for what leaves. Our growth doesn't get diminished. So although our growth has been great, maybe it's not nearly as great as everyone thinks, but I think equally important is the fact that we keep much of what we've brought in years ago and our compensation model -- lets the teams participate in that revenue stream 10 years from now. So if they have a piece of business for 23 years, they're keeping that business happy, they're keeping that client happy, and I think that's a very significant part of the compensation model.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [10]
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And ultimately, those clients being happy leads to us getting more clients, right. It's the consistency of delivery to the client. There is no change, it's the same team; they pick up the phone, they're going to get somebody on the other end of the line that they've dealt with for a decade, right. That's what's leading them to refer their friends to us to become clients. So it's that consistency and that's also what the banking teams like. They want to know how they're being paid today and 10 years from today. They're not getting that anyplace else. There's constant change in compensation plans at the mega banks. So that's really helping to drive the teams to us as well and keep the teams here.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [11]
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On the 90-plus teams, maybe you could speak to what percent of those teams are at full capacity versus kind of in the early stages of growth and we should see kind of an acceleration of profitability from those teams going forward?
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Joe DePaolo, Signature Bank - President & CEO [12]
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I would say about 15 or so teams are not at full capacity.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [13]
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Maybe on growth before we switch topics, one more question on competition. A lot of competition in New York City. There's been some shifts in the yield curve in terms of pricing, but I'll be interested in terms of what you're seeing in terms of new production, given the shift in the yield curve over the past few weeks and few months?
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Joe DePaolo, Signature Bank - President & CEO [14]
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Well, where we see it most significant is in the commercial real estate arena. I'll give an example, five-year fixed multi-family, we were at 3.75% several months ago, that went to 3.625%, and now we're at 3.5%. We're seeing our competitors at 3.25% for the same five-year fixed multi-family and [0.375].
We've always said that we're accorded 0.375 higher than our competition because of our ability to close quickly, quickly meaning 45 days as opposed to 90 days and the efficient process by which we have used to close those loans. So I would say that's where it's been most prevalent. What else would you think?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [15]
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No, I mean, that's really where we see the most pressure (multiple speakers) because of the savings banks [ebb out of] state banks and everybody who is involved in that market.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [16]
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And how about the pricing on some of the two large transactions you did in the fourth quarter, maybe you could speak better or worse spread versus some of the smaller granular stuff?
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Joe DePaolo, Signature Bank - President & CEO [17]
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We did one deal at 3.75% five-year fixed, and we did another deal at 4.25% a seven-year fixed, on those two [loans].
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [18]
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So the ability to charge a premium was I would say service, (multiple speakers) ability to close?
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Joe DePaolo, Signature Bank - President & CEO [19]
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It was a combination of where rates were at that time, it was a little higher. And we were able to get a little bit of a premium, because in both transactions, there was a purchase. It wasn't a refinance and in both transactions, they needed to close. Also, I use the term time of the essence and they felt that we could get them closed, because there were so many buildings that needed to be evaluated. It wasn't one piece of property, it was over 80 buildings.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [20]
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Maybe I'll turn it over to the audience and see if there is any questions on growth before we kind of switch topics?
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Questions and Answers
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Unidentified Audience Member [1]
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(inaudible -- microphone inaccessible).
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [2]
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I think we're thinking about core deposits, right, and that's why we've put a lot of emphasis on deposit growth, because we do see that that loan growth is strong and will remain robust. So we have a number of initiatives on the deposit front to help to fund those loans. But ultimately, that's what we're looking to do is fund them to core deposits; if not, we've got a number of different avenues of funding, particularly with the FHLB and we just entered into an arrangement with them where we can now pledge our multi-family loans against our borrowings. So that's going to free up a significant amount of liquidity for us.
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Unidentified Audience Member [3]
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Any change in (inaudible -- microphone inaccessible)?
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Joe DePaolo, Signature Bank - President & CEO [4]
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It seems as if there is a little bit of a lull right now on repayments, but we have seen -- because we track those that are possibly coming up as a result of some discussions we're having. So we see a few that are coming down the pike, but when we talk about growth, we talk about net. It's a great question, because it's the hardest thing to track, not -- because a lot of times, they're refinancing before maturity. So it's not as if there is a golden rule that they're looking at 4.5 years and to a five-year term and we can track that. They never even get to the fourth year, they usually sometimes into that third plus. We've seen a little bit of a slowdown, but that at this point for the quarter. But that could easily speed up, because we are not aware of something that's being refinanced at the moment.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [5]
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Great. Maybe Eric, we talk about the margin. I think your comments in the third quarter was -- that might be the low on the core, maybe how are we feeling about the margin given the move down in the curve that's recently occurred?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [6]
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Yes, I think the last quarter when we talked to that, but our core margin went from 3.16% to 3.21% and we thought that that 3.16% would be at or near the low for us and I think that still is the case. We don't expect margins to meaningfully move really from the levels that they were at in the fourth quarter and we could be up a basis point or two, we could be down a basis point or two. But our focus right now is clearly on net interest income growth as it really always has been.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [7]
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And on the level of prepayment income, I guess how should we think about that as analyst and investors when rates move up? I assume, it will be natural, there will always be some level of prepayment?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [8]
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There's always some level.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [9]
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But I mean I think it was 11 basis points or 15 basis points in the last couple of quarters.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [10]
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Right.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [11]
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Does it go much lower than that?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [12]
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It seems to be trending down, it trended down in the fourth quarter. I would expect it to continue to trend down and we've been in this low interest rate environment for a very long period of time now, Chris. So, most people who can refi have refied. So we do expect it to continue to trend downward, which is fine for us because then we're not fighting that refinance of a 5% loan down to 3.5%, which can be tough on the core margins. So it helps the core margins from that.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [13]
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Conversely, how are you thinking about the margin when we do see a better curve and we do see higher short-term rates (multiple speakers)?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [14]
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(multiple speakers) so bad right now. I mean it's a decent amount of steepness to the curve. So, we're actually quite (multiple speakers).
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [15]
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So, the steepness for your product is the most important versus higher short-term rates?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [16]
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Correct.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [17]
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Okay.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [18]
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That's right.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [19]
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And then, maybe in terms of your modeling of how you envision, obviously, it's never a parallel shift.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [20]
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Right.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [21]
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Right, but that's all the models?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [22]
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I mean we're positioned for the steep curve and we expect it to be in place for a while. If it gets -- for some reason, ten year pulls back below 2.20%, then, that's going to put some pressures on us. If it can stay north of 2.60%, that's fine. If it gets up above 280, that's very beneficial for us. But we've really positioned ourself for a steepening of the curve.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [23]
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And assuming the rates go up for the right reason in the next two years, we see short rates come up and we see the long ones continue to stay high in terms of steepness. How do you think your margin reacts in kind of that kind of better economic growth environment, no real shock to the system, no real inflation scare? How does the balance sheet react?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [24]
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Well, I guess the biggest question in that is does loan demand come back into the equation? And if it does, then, it's going to be very beneficial for us and hopefully our depositors will put some their deposits to use into building product and then borrow from us to do some more of the same. So it should be --
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [25]
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Given you're a 13-year-old company, is there any use or any relevancy of looking at prior margins when -- because it's such a growth model and we look at 2004, 2005, 2006 margin?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [26]
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We've been through a rising rate environment before and we certainly saw margins expand. I mean the core deposit funding is critical for us and it's always been critical and that's what should really lag on the way up when rates rise.
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Joe DePaolo, Signature Bank - President & CEO [27]
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But I don't think you would use the past though because the past, really, it wasn't until 2008 that we started our trajectory with the loan production. So prior to that, our margins will always -- we always thought a margin of 2.75% was a stellar because we had so much of our asset side of the balance sheet in the investment portfolio and we really didn't have the opportunities to grow loans. Now, since that time, we've done commercial real estate, equipment financing and leasing, and we've added on recently asset-based lending. So it's kind of hard to use the past as a gauge.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [28]
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And the pricing that you're getting on some of your newer businesses, maybe Eric, you could speak to the asset-based lending?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [29]
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ABL is traditionally prime plus, prime plus one plus two. Again, like every asset class, it's a little tighter than we would like. We've seen tremendous competition on that front what all-in yields, you look at around high-3s, 4% range on that.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [30]
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Yes, the size of these niche portfolios that you guys have built out in the last couple of years that you would be comfortable growing. Will they, I guess -- ask another way, will they grow at a faster rate than the legacy bank or how should I think about that dynamic?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [31]
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Well, I would expect early on the growth rates would be pretty high, right. And then, the law of large numbers will catch up to them as well.
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Joe DePaolo, Signature Bank - President & CEO [32]
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But don't look at the asset-based lending business as similar to -- right now, as of 12/31, our equipment financing and leasing business was about $1.6 billion and our commercial real estate business was approaching closer to $10 billion. Our asset-based lending business will probably be in the hundreds of millions, it's going to take time for it to get to the -- anywhere near what the other businesses are, if ever.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [33]
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Maybe Eric, on the strategy in the investment portfolio, you've got a yield that's quite a bit higher than or has been a little bit higher than your peers and prepaid has obviously slowed. Maybe talk about the structured process that you guys -- because you guys are very thoughtful on the way you've purchased securities over the years?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [34]
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Yes, well, the loan growth really allows us to be very selective as to when we enter the market. So we typically will have targets as to when we enter the market. So above 2.80% right now. We'll go out at pretty hard on the 10-year and enter the market right now. We're taking a very selective approach to that, continue to focus on structure and on underlying collateral that we think is going to prepay at a slower rate. So we'll purchase at a premium and hopefully be able to recognize higher yields.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [35]
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Any questions from the audience?
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Unidentified Audience Member [36]
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[Just talk about whether lending] teams are geographically located (inaudible) are these all still metro New York and do you see any need to go outside of the New York Metro area at this point for growth, whether it's Connecticut or New Jersey?
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Joe DePaolo, Signature Bank - President & CEO [37]
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Well, we are looking at Connecticut and New Jersey. We are doing business in both states. We've done a number of deals, which -- we still consider the New York metropolitan area, we just haven't put out there our physical locations. But I would give you a sense that that's going to be a lot sooner than later, because we're seeing more opportunities in both -- I'd say more so in Connecticut than we are in New Jersey at the moment. We're seeing more opportunities, at least in Connecticut, more on the deposit side; in New Jersey, more on the loans side. We've been able to do some multi-family business in New Jersey, in Jersey City, New York, and places like that. But the teams that we've hired last year were all in Metro New York.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [38]
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But really some in Connecticut and Northern New Jersey is Metro New York as well. And opening a branch in Stamford or Greenwich is the same as opening one in [how about low downs].
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Unidentified Audience Member [39]
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(inaudible -- microphone inaccessible).
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Joe DePaolo, Signature Bank - President & CEO [40]
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You will find out soon enough.
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Unidentified Audience Member [41]
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Can I ask a question on the specialty finance [growth] of $1.6 billion (inaudible) as big as a 15% to 20% of loan growth should be over $4 billion and obviously it's going to take time. Is that still (inaudible)?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [42]
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Well, they had a $4.5 billion book back at Capital One. Obviously, later in their career, there are certain things that led them to slow down our growth and that's one of the reasons why they came to Signature. We expect that they should be able to get back to those levels. But like you said, it's going to take a little bit of time, but we'll be very pleased if they got to the $4 billion or $5 billion range.
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Unidentified Audience Member [43]
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(inaudible -- microphone inaccessible).
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [44]
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Off the top of my head, I'm not that sure.
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Unidentified Audience Member [45]
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Okay.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [46]
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One more on the margin, Eric, deposit decay in an up rate environment, how do you guys -- because I think everyone, if you look through decays that are hitting, everyone's asset sensitive, right, whether based on disclosures and I think we all know there's maybe not some truth or maybe not as sensitive as maybe the assumptions are different. How are you guys thinking about the migration out of DDA into money market, money market into another category or altogether out of the bank? How do you guys capture that risk?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [47]
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Well, I mean Chris, there is a lot of assumptions that go into that. So you have a certain amount of decay in the one to three-month bucket, the one-year bucket, three-year bucket. We certainly see a significant amount of DDA falling out going into money market and money market falling off balance sheet, but there's a lot of dynamics that come into play. What we do is we have our own assumptions based on our historical performance. We're in a very unique environment today. So who knows how depositor is going to react when rates finally do rise. So we bring in two consultants a year to go through our deposit decay assumptions and they've effectively told us that we're pretty conservative on those fronts, but we expect quite a bit of decay to happen and that's okay with us. I mean we've got $4 billion in excess deposits over our loans. So we've got a decent amount of room there if we needed.
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Joe DePaolo, Signature Bank - President & CEO [48]
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The one thing that we have to think about is in the past, you would, in a rising rate environment, see bank money market deposits flow out into money market mutual funds because money market mutual funds usually in an upward rate environment move quicker upward than bank deposit interest rates would. Now, the SEC has been talking about the NAV being floating and if that's the case, that you break the buck, so to speak, because it's going to be floating and it's not going to be staying at a dollar.
There could be a hesitancy for clients to want to move that money from a bank money market where they know assuming the bank is solid institution that if they put a dollar in, it's a dollar plus interest as opposed to an NAV where it's a dollar that flows plus interest. And they may want to take less interest rate because they know that the principal amount is not going to flow. So we're looking at that as a possible opportunity or as they say a jump ball, not sure on which way the ball is going to go depending upon what the SEC determines. So I think that is something we have to take into account. But we've always said that in our numbers, there is a fluff because they are all deposits that as Eric said which actually flow out, but conversely, when we had deposits in off-balance sheet money market accounts, we were earning 3.5 -- 3.5?
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [49]
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3.5.
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Joe DePaolo, Signature Bank - President & CEO [50]
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$3.3 million a quarter in fee income on those deposits. Today, because this very little dollars in the off-balance sheet money market accounts, we're earning less than $250,000 in fee income. So deposits flow out, no capital use and we get fee income. So it's not all bad, but it depends on whether or not they're going to flow out into the off-balance sheet money market accounts.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [51]
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And how focused are the regulators on loan to deposit issues today, Eric? And you guys are well under 100, you got room.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [52]
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[We're thus], Chris, not that focused. So we've got plenty of room.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [53]
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Maybe we turn the discussion to expenses and efficiency. You guys are one of the most efficient banks out there given the absence of the retail footprint. But more recently, some of your peers have disclosed the need to invest, whether it be stress tests going to $10 billion or just getting accustomed to the new world we're in. You guys have obviously a lot of growth and a lot of future growth. Is there a point where we have to take a pause and maybe invest in the bank a bit more to kind of comply or you kind of do that on the go and we shouldn't expect a big change?
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Joe DePaolo, Signature Bank - President & CEO [54]
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Well, we've been doing it on the go. We had a one-on-one meeting prior to this to our chat right now where I was complaining about the costs and the amount of time we've had to spend because it seems as if regulators are asking us to hire third-party consultants [PRIA] process and then during the process, hiring different consultant, because you shouldn't have the same one that helped you put the process in place and then hire a third consultant to do the post process, because you shouldn't hire the one that actually helped you execute it and this is the onus on us.
In some instances, I've had to hire three consultants. We've had to add on a significant amount of people and we've had to cut into very productive colleague's time to do risk management. We've kept up with the compliance, the Bank Secrecy Act, the Anti-Money Laundering, the Know Your Clients. So we have kept up, we have added on to internal audit, we have added on to compliance, we have added on to middle office operations.
We have a tremendous relationship with our regulators. And I think that's part of the frustration. We have a tremendous relationship. Our credit metrics is stellar. We've had no operational issues. But yet, we have to put our institution through the rigors as if we've had many problems. I think part of it has to do with the fact that on the compliance side, HSBC was hit a $1.9 billion fine. Well, yes, it was pretty obvious that you should not handle cash for drug lords in Mexico, right, we don't have that, right. But yet, we're put through the same rigors and we also believe that banks over $10 billion are different than banks over $50 billion and the lines should be moved from $10 billion to $50 billion. So [for some, like], I'm irritated, there is a little bit of an irritation.
Having said that, we do take the regulators very seriously and I think that's why we have an excellent relationship. We take them seriously from bottom to top, top to bottom; we comply; we respond to any comments they have and usually clear those comments before they leave. They're in our institution 10 out of 12 months, because once you turn over $10 billion, they do continuous audits. So we have a lot of the expense already built in, because it exists and we've added on to it.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [55]
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Well, I've got to get a little revved up, maybe we could talk about the new Mayor in the city and let's jump there. How should we be thinking about the potential risk from -- obviously, the city has a ton of momentum, right. We talked about this last night. How should we think about the risk? Is it a slowdown in growth, is it a credit discussion, is it obviously help of your borrower, I mean help us frame -- obviously, the taxes are an issue?
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Joe DePaolo, Signature Bank - President & CEO [56]
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Well, what Chris is referring to, for those of you don't know, New York City has a new Mayor who has said that in the campaign that he would freeze rents on multi-family apartments that are rent controlled and rent stabilized and he would raise real estate taxes. So that's a double whammy.
What we did and what we are doing is that we're trying to following it very closely. That would clearly have an issue for it would be a credit issue. I'm not sure it would be a growth issue, because there is still opportunities to build multi-family dwellings and there is a need for multi-family dwellings. When I say it's a credit issue, because you have to worry about the cash flow of your borrowers. We are fortunate, I can't say all, because you never say all or 100%. But I would say as close to 100% as you can get of our clients are holders of multiple buildings and very expert in leveraging their structures to handle their buildings, their multi-family buildings and their office buildings.
So as a result, if there is an increase in taxes or freeze in rents, they in all likelihood can handle it, it certainly would reduce their margins, but they can handle it. If you own one building, and you're relying on that one building for survival, that's usually not our typical client and they could feel a squeeze, because they don't have the efficiency of running 10, 20, 40, 60, 70 buildings, which is what we have as clients. So that's something that -- however, it's been very quiet.
And I think Eric mentioned last night, he has seemed to [bring on TBing] the Mayor to bring on some people in his administration that a very level-headed and won't take things to the extreme, at least as it relates to the real estate world. And then, you mentioned this word last night the dichotomy of some of our real estate clients saying they're incredibly worried. And if they have a chance to sell, they will. And then, you have those that are saying, we know the Mayor from growing up in Brooklyn and that was all rhetoric to get elected and it's not going to be the way it is running the administration or running the city.
So we're keeping tabs on it. When I say tabs on it, we're speaking to people, trying to find out what's going on, seeing if there's something we should be ready for. I think in January, the fourth quarter earnings call, when they asked us about optimism and pessimism, one of the things we're pessimistic about and worried about was the new administration. I would say, that hasn't changed. But so far, we have not seen anything to alarm us.
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Eric Howell, Signature Bank - EVP - Corporate & Business Development [57]
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Right. But the interesting thing about that dichotomy is it creates a market. So we're starting to see some purchase activity coming back into the marketplace, which we really haven't seen over the past several years. So we're seeing that slowdown of refinance activity, but hopefully, the pickup in purchase activity will help to offset that.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [58]
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We've got a few minutes left. I want to hear on capital. You talked about the balance sheet and what it can support on a quarterly basis? How do you balance future growth? And you talk about -- you turned down some deals because of price. How do you balance that of growing even faster than you're growing against accessing the public markets, given your multiple, given the commentary on new teams? How should we be thinking about a capital need in the next 12 months to 18 months?
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Joe DePaolo, Signature Bank - President & CEO [59]
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Well, we'd be very happy not to have to raise capital because our earnings would support a robust growth level. But I do want to make it clear to everyone that we're opportunistic. So if we have a chance to bring on many more teams that we hadn't planned on or open up more offices that we hadn't planned on, we would not be shy about going to the markets, because I think we've proven to the capital markets that every time we have gone and it's been -- I guess, it was July of 2011 when we last raised and then there was one in 2009 and one in 2008.
At every time, we've gone to the markets, it wasn't because [it was into] the past, it was because an opportunity for growth. I think you have to balance that with where are our competitors going to have to be under new regulations under BASL because what we do, let's face it.
We're a $22 billion institution. We're very proud of the size that we are and what we're doing, but in New York City, we are not in the top 10. Everybody is close to $1.5 trillion to $2 trillion or at least Capital One is in the hundreds of billions and even though they may have had issues, some of those institutions that are in the trillions, they still trained all institutions and they're well known and clients will bank with them or customers and clients will bank with them just simply because of their size.
What we have going for us is we don't have that size. So we're nimble, but we also keep capital levels at a level that is very supportive of our institution than the levels that they keep for trillion dollar institutions. We don't know how important that is today versus what it was like in 2007 when we were half the age we are today, back in 2007 and where one-third of the size backed then. So we use our capital levels as a marketing tool. We use our balance sheet as a marketing tool to bring in clients.
And so I think that's part of the balancing act and we will -- when we sit down and take that into account, where should our tangible common equity ratios be, where should our leverage ratio be? Well, we don't want to be able to say, we want to be able to say that our capital is much stronger than the larger institutions, but it's going to be what's the mandate that they have regulatorily and we'll have to compare to that. So I think that's another element that you have to take into account. But we wouldn't be shy about raising the [currency to be] for growth.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [60]
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Maybe one last one. Your stock's doubled the last year. You've got a lot of momentum on the growth. For you, what would a successful 2014, what would need to be accomplished for you guys, and you're tough critics on yourselves, what would be needed to say 2014 was as or even more successful as the last couple of years?
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Joe DePaolo, Signature Bank - President & CEO [61]
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I'm not one that looks at the stock price that often because I truly believe as a management team, our responsibility is to increase book value of the institution, bringing quality deposits and provide an adequate return that the shareholders will like. I always use the case that when there was a problem in Greece, our stock price was affected and we have no Greek exposure. Things happened in Europe and our stock price is affected and we don't have exposure in Europe. So I think for us to be successful, it's really -- I don't look at the stock price. I think, the stock price will take care of itself. I think it's providing a better return than we did in 2013 to our shareholders and continue to promise them that we'll always look long-term and we won't look at the score on a daily basis.
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Chris McGratty, Keefe, Bruyette & Woods, Inc. - Analyst [62]
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With that, thank you very much, guys.
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Joe DePaolo, Signature Bank - President & CEO [63]
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Thank you.
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