Q3 2016 Signature Bank Earnings Call
Oct 20, 2016 AM EDT
SBNY - Signature Bank
Q3 2016 Signature Bank Earnings Call
Oct 20, 2016 / 02:00PM GMT
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Corporate Participants
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* Joseph DePaolo
Signature Bank - President and CEO
* Susan Lewis
Signature Bank - IR
* Eric Howell
Signature Bank - EVP, Corporate & Business Development
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Conference Call Participants
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* Steven Alexopoulos
JPMorgan - Analyst
* David Long
Raymond James - Analyst
* Ken Zerbe
Morgan Stanley - Analyst
* Bob Ramsey
FBR Capital Markets - Analyst
* Chris McGratty
KBW - Analyst
* Dave Rochester
Deutsche Bank - Analyst
* Ebrahim Poonawala
BofA Merrill Lynch - Analyst
* Casey Haire
Jefferies - Analyst
* Jared Shaw
Wells Fargo Securities - Analyst
* Lana Chan
BMO Capital Markets - Analyst
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Presentation
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Operator [1]
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Welcome to Signature Bank's 2016 third-quarter results conference call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer, and Eric R. Howell, Executive Vice President, Corporate and Business Development.
Today's call is being recorded. (Operator Instructions) It is now my pleasure to turn the floor over to Mr. Joseph DePaolo, President and Chief Executive Officer. Sir, you may begin.
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Joseph DePaolo, Signature Bank - President and CEO [2]
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Good morning and thank you for joining us today for the Signature Bank 2016 third-quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.
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Susan Lewis, Signature Bank - IR [3]
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Thank you, Joe. This conference call and oral statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties.
You should not place undue reliance on those statements because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and may be beyond our control. Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings, and business strategy.
As you consider forward-looking statements you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include those described in our quarterly and annual reports filed with the FDIC, which you should review carefully for further information.
You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made.
Now I would like to turn the call back to Joe.
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Joseph DePaolo, Signature Bank - President and CEO [4]
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Thank you, Susan. I will provide some overview into the quarterly results. And then Eric Howell, our EVP of Corporate and Business Development, will review the Bank's financial statements -- financial performance in greater detail. Eric and I will address your questions at the end of our remarks.
Let's start with our taxi medallion portfolio. The tale of two cities continues to play out. During the past 18 months we have tried to communicate the distinctions between the Chicago and New York marketplaces in terms of usage, acceptance, and regulatory support.
We feel this quarter's actions largely puts our highest-concerning portfolio behind us. We took significant measures by writing down each Chicago medallion for $60,000, leaving us with a total net exposure of $45.8 million. On a $38 billion balance sheet, that equates to 12 basis points.
While we continue to aggressively work out the New York medallion portfolio, medallion utilization, rider participation, and regulatory support is stable, allowing for more practical management of this portfolio. It is also important to underscore that despite the unfortunate actions with Chicago, our capital ratios remain above our target as a result of full earnings retention.
Looking at the remainder of our business, our fundamentals have not changed. Signature Bank delivered another exceptional quarter of growth, surpassing $1.8 billion in deposit growth, our second-best deposit quarter ever, and $1 billion in loan growth. As we grow, we continue to expand our geographic outreach for securing deposits on a national basis.
Our capabilities, service, and trusted reputation for safety have always enabled the Bank to compete with major financial institutions throughout the New York metropolitan area. Now these attributes afford us the opportunity to garner deposits in other regions of the country as well.
Now let's take a look into earnings. Net income for the 2016 third quarter was $76.1 million, or $1.41 diluted earnings per share, compared with $96.2 million, or $1.88 diluted earnings per share, reported in the same period last year.
The decline in net income is the result of a $61.7 million provision for loan losses for the Chicago taxi medallion portfolio. Excluding the provision expense associated with this portfolio, net income would have been $113.7 million, or $2.11 diluted earnings per share.
Looking at deposits, deposits increased $1.8 billion, or 6%, to $31.4 billion this quarter, our second-best deposit quarter ever, and average deposits grew $1.4 billion. Since the end of the 2015 third quarter, deposits increased $4.8 billion and average deposits increased $4.4 billion. Non-interest-bearing deposits of $9.7 billion represented 31% of total deposits and grew $322 million this quarter.
The substantial deposit and loan growth, coupled with earnings retention and our equity and subordinated debt raises, led to an increase of $5.9 billion, or 18%, in total assets since the third quarter of last year.
Now let's take a look at our lending businesses. Loans signed in 2016 third quarter increased $1.06 billion to $27.8 billion. For the prior 12 months loans grew $5.5 billion and represent 73.5% of total assets, compared with 69.6% one year ago.
The increase in loans this quarter is primarily driven by growth in commercial real estate and multifamily loans. As previously noted, we again saw deterioration in our medallion portfolio, which, of course, impacted our credit metrics. However, the remainder of our portfolio is performing remarkably well.
Non-accrual loans increased to $162.8 million, or 59 basis points of total loans, compared with $129.5 million, or 48 basis points, for the 2016 second quarter and $59.6 million, or 27 basis points, for the 2015 third quarter. However, more than 85%, or $140 million of the nonaccrual loans, are taxi medallions; therefore, for the remaining portfolio of over $27 billion in loans, we have only $22.7 million in non-accruals, or 8 basis points. That is exceptional credit quality.
During the 2016 third quarter we saw an increase of $16.5 million in our 30- to 89-day past-due loans to $128.2 million, while the 90-day-plus past-due loans increased $1.6 million to $27.8 million. The provision for loan losses for the 2016 third quarter was $80.5 million, compared with $33.3 million for the 2016 second quarter and $11.4 million for the 2015 third quarter.
Net charge-offs for the 2016 third quarter were $100.5 million, of which $95.1 million were for Chicago taxi medallion loans, compared with $15.4 million for the 2016 second quarter and $5.5 million for the 2015 third quarter.
The allowance for loan losses was 74 basis points of loans versus 84 basis points in the 2016 second quarter. It was 82 basis points for the 2015 third quarter. Additionally, the coverage ratio remained supportive at 126%.
At this point I will turn the call over to Eric and he will review the quarter's financial results in greater detail.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [5]
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Thank you, Joe, and good morning, everyone. I will start by reviewing net interest income and margin.
Net interest income for the third quarter reached $290.5 million, up $40.5 million, or 16%, when compared with the 2015 third quarter and an increase of 3%, or $8.8 million, from the 2016 second quarter. Net interest margin decreased 8 basis points in the quarter versus the comparable period a year ago and 5 basis points on a linked-quarter basis to 3.14%. Excluding prepayment penalty income, core net interest margin for the linked-quarter decreased 5 basis points to 3.07%.
2 basis points of the decline was driven by the reversal of interest related to the Chicago taxi medallion portfolio. In addition, the decrease was due to an increase in premium amortization on securities, lower reinvestment rates on securities, and excess cash on hand from robust deposit growth.
Let's look at asset yields and funding costs for a moment. Interest-earning asset yields decreased 2 basis points from a year ago and decreased 4 basis points from the linked-quarter to 3.62%. Yields on the securities portfolio decreased 7 basis points linked quarter to 3.04%, given a pickup in premium amortization on securities and faster CPR speeds and lower reinvestment yields. The duration of the portfolio remained stable at 2.6 years.
Turning to our loan portfolio. Yields an average commercial loans and commercial mortgages remained fairly stable at 3.89%, which is down 3 basis points.
Now looking at liabilities, our overall deposit cost this quarter increased 1 basis point compared to the 2016 second quarter. Average borrowings, excluding subordinated debt, decreased $374 million to $2.7 billion, or only 7.3% of our average balance sheet. The average borrowing costs increased 9 basis points from the prior quarter to 1.34%, mostly due to the pay down of lower cost, short-term borrowings. Overall the cost of funds for the quarter remained stable at 53 basis points.
On to noninterest income and expense. Noninterest income for the 2016 third quarter was $11.1 million, an increase of $3.2 million when compared with the 2015 third quarter. The rise was due to an increase in net gains on sales of securities and loans.
Noninterest expense for the 2016 third quarter was $96.2 million versus $86.2 million for the same period a year ago. The $10 million, or 11.7%, increase was principally due to the addition of new private client banking teams as well as an increase in costs in our risk management and compliance activities. The Bank also incurred additional FDIC assessment fees.
Factoring in the significant hiring since last year and increased regulatory costs, the Bank's efficiency ratio still improved to 31.9% for the 2016 third quarter, compared with 33.4% for the 2015 third quarter.
And turning to capital, our capital ratios were all low in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet, as evidenced by a Tier 1 leverage ratio of 9.51% and a total risk-based ratio of 13.56% as of the 2016 third quarter.
Now I will turn the call back to Joe. Thank you.
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Joseph DePaolo, Signature Bank - President and CEO [6]
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Thanks, Eric. Before we take your questions, let's make it very clear the fundamentals of our business have not changed at all. We continue to see massive opportunities in the marketplace to bring on solid client relationships.
Also, as I noted earlier, we are expanding our geographic outreach for securing deposits on a national basis. The Chicago medallion write-down caused the first blip in our earnings in nearly a decade. It is now effectively behind us and we look forward to getting back to posting traditional Signature Bank-type quarters.
Let's look at the fundamentals. In the first nine months, we grew deposits by over $4.6 billion. Parenthetically for the quarter, deposit growth of $1.8 billion was the second-best ever. We have grown loans by $4 billion. Pretax pre-provisioning earnings were up 24.5% thus far in 2016.
Net income, even when factoring the significant provisioning for the Chicago taxi medallion loans, was still up 5%. Our capital ratios remain strong and supportive of our depositors and we have added three high-quality teams to our network, as well as expanding existing teams through the appointment of several bankers. The fundamentals remain strong.
And now we are happy to answer any questions you might have. Lori, I will turn it over to you.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Steven Alexopoulos, JPMorgan.
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Steven Alexopoulos, JPMorgan - Analyst [2]
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Good morning, everybody. Maybe I will start -- so regarding the incremental provision for Chicago, at the Barclays conference, which was only a couple weeks ago, you guys essentially guided to provisions staying flat with the first quarter. What changed over the last two or so weeks that led you to decide to take this larger reserve?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [3]
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Steve, on the last day of the quarter, the two largest fleet owners did not make their payments; therefore, we placed them on nonaccrual. We also saw further sales in Chicago at depressed levels and there is truly a lack of transparent information from the Chicago TLC as well as the fleet owners, especially given the fact that they stopped paying us. So we decided to utilize and more heavily weight sales activity versus our cash flow modeling in that marketplace and, therefore, that really led to the charge-off that we had in the quarter.
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Steven Alexopoulos, JPMorgan - Analyst [4]
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Okay, so this was less of a proactive measure; it's more related to these loans moving into default, essentially?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [5]
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That was certainly the triggering event, the loans moving into default. Look, we didn't see this marketplace stabilizing. We certainly expected it to continue to get worse.
Those two fleet owners going to nonaccrual really gave us a moment to look at that marketplace and to recognize where it was going and effectively rip off the band-aid and be done with it.
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Steven Alexopoulos, JPMorgan - Analyst [6]
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Okay. Eric, could you give the update on the New York taxi book in terms of balances, reserves, NPLs, etc.?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [7]
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Sure. Our remaining balance in New York is $593 million. Our carrying cost there is approximately $600,000 per medallion, little bit under $600,000 per medallion.
The debt service coverage ratios for the fleet are at 1.42 times and for individual medallions they are at 1.2 times. LTVs for the fleet is around 81%, individual medallions are right around 100%.
We took charge-offs of $3.2 million in New York in the quarter. We have reserves of about 5.5% on that portfolio and we closed on 20 sales in the quarter. 16 medallions that we auctioned in the second quarter closed for $625,000 each and we also sold four individual medallions for an average price of approximately $600,000.
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Steven Alexopoulos, JPMorgan - Analyst [8]
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Okay, that's helpful. Thank you. Maybe just one final one; with the Chicago taxi book now largely behind you, that's clearly a positive. With that said, the remaining overhang, at least on the stock, seems to be the concentration of commercial real estate loans.
Can you guys talk about your plans to work through that challenge? Might you consider any bold steps such as -- similar to what we saw in Chicago, to put that behind you as well?
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Joseph DePaolo, Signature Bank - President and CEO [9]
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Well, Steve, there's nothing to put behind us as it relates to the commercial real estate. Since 2010, we've been over 300% of capital, so there's no surprise there. We've been on the radar screen of the regulators for many, many years.
What really it comes down to is that the regulatory guidelines mandate that if you have a CRE concentration you should have extra safeguards in place. You should have practices, policies, and procedures that are always top of the line. You should have documentation that is enhanced and we agree with that.
So we haven't had any discussions about slowing down the growth of the portfolio as it relates to the regulators. It's more make sure that if you are going to keep your balances or growth above 300% that you have to take responsibility to -- and we agree with this -- to have the best of the best practices.
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Steven Alexopoulos, JPMorgan - Analyst [10]
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Okay. But, Joe, if you think longer term, do you plan on bringing that concentration down, maybe through a mix shifting of the loan portfolio? Or are you very comfortable where it is or growing?
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Joseph DePaolo, Signature Bank - President and CEO [11]
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Well, we are comfortable where it is. Going forward we want to have a better mixture. As we grow $4 billion to $6 billion in total assets each year, we want to have an increase in our investment portfolio. We'd certainly like to get that up to $10 billion. We'd like to have more C&I and more from Signature Financial, but we will still continue to do the business that we have been doing.
I think the slowdown in CRE is not so much what the Bank wants to do, but that there will be somewhat of a slowdown because there will be less refis. Because let's face it, over the last several years a number of clients have refi'd multiple times.
So instead of going from a five handle to a three handle, you are now going from a three handle to a three handle. There's not much more to extend out and there's not much more in terms of dollars to take out, so there may be somewhat of a slowdown. And we will be ready for that by us increasing the C&I and the Signature Financial part of our business.
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Steven Alexopoulos, JPMorgan - Analyst [12]
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Okay, got you. That makes sense. Thanks for all the color.
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Operator [13]
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David Long, Raymond James.
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David Long, Raymond James - Analyst [14]
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Good morning, guys. Loan growth, when I look at your loan growth relative to peers, still very, very good and $1 billion is nothing to shake a stick at here. But the comments you made towards the two-thirds of the way through the quarter, given those comments that were made at that conference, it looks like loan growth may have slowed into the end of the quarter.
Can you maybe just talk about the pace of loan growth and maybe how that may compare to what you are expecting here in the fourth quarter?
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Joseph DePaolo, Signature Bank - President and CEO [15]
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Loan growth is $1.06 billion, but when you take the charge-offs, which we had at the last day of the quarter, and we had some pay downs on the last day or two of the quarter, we were really down about $1.2 billion. So that's what happened. When we made the decision to charge-off the loans that affected the growth in the quarter.
But we have a pretty strong pipeline for the fourth quarter going into the first quarter and we're just about at $4 billion in growth in loans for the year, at least through the first nine months. So we will be somewhere between the $5 billion and $6 billion growth for the year.
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David Long, Raymond James - Analyst [16]
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Got it, okay. Then as a follow-up, on the deposit side obviously very good growth there as well. The national deposit initiatives that you've mentioned a couple times, that seems relatively new. Just wanted to see if you could give us some color on what may have provoked that or maybe just a little bit more color around what your expectations are there.
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Joseph DePaolo, Signature Bank - President and CEO [17]
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Sure. We've been talking about the deposit initiatives for the last several quarters, almost for the last year and a half. We really said that we -- and I'll give you one example, but we said that -- we weren't trying to be coy, but we really don't want to talk about the deposit initiatives because we don't want our competitors to know.
But to give you an example of one, we are doing 1031 business, like-kind exchanges and just several years ago we were doing that business with clients in New York. Now we are doing it 11 additional -- we have business 11 states in addition to New York. Not that we are doing business in those states, but we have clients in those states.
And that's because of our reputation for service and the attention we pay to these types of clients that we are able to now gather deposits on a nationwide basis. For example, in Florida, the state of Washington, Texas, Oregon, Arizona, Pennsylvania, California. We are not lending there on a traditional C&I basis. What we are doing is just gathering deposits, so that's one of the initiatives.
That's why we are very optimistic of our ability to continue to grow on the deposit side, because let's face it, we will always be a deposit gather, because not only do we have the market opportunity in New York, we have some market opportunities in other parts of the country.
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David Long, Raymond James - Analyst [18]
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Got it, thank you for the color.
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Operator [19]
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Ken Zerbe, Morgan Stanley.
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Ken Zerbe, Morgan Stanley - Analyst [20]
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Thanks, good morning. Just wanted to start off with the NIM outlook. Obviously I think I heard 2 basis points of the NIM came from the Chicago portfolio, but when you look out for the next quarter or two, is there any reason to assume that the decline slows at all? Thanks.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [21]
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When you look out actually looks a little more favorable than this quarter, so we expect that the core NIM will be pretty stable. Really flat to let's say a slight downward bias maybe of a basis point or two. But at these levels we really expect the NIM to be fairly stable.
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Ken Zerbe, Morgan Stanley - Analyst [22]
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What is that being driven by? Is it better yields on CRE or something else?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [23]
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That's certainly part of the equation. We have some borrowings that are going to reprice lower, so that helps. We anticipate that premium amortization will pick up, but at a slower pace, so that's pretty controlled.
It's really continuing to grow loans as a percentage of the balance sheet; that is certainly an initiative that we expect will continue. It's all those things taken together.
And there's just less pressure on the asset side with the refinances. Most people have refinanced their rate lower at this point, so new assets that we are putting on are coming on at similar levels to what is rolling off.
The biggest really driver to where ultimately NIMs go are deposit growth. If we see very robust levels of deposit growth, it will take us time to deploy and we'll give up a few basis points of NIM and we are happy to do that any quarter.
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Ken Zerbe, Morgan Stanley - Analyst [24]
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Got you, understood. Then -- not that we are going to hold you to provision expense outlook, but it seems that with Chicago kind of, hopefully, behind you, it sounds like New York taxi is still a modest headwind. How do you guys feel about the prior guidance of that $20 million a quarter? Should it be more or less, broadly speaking?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [25]
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We feel it's much safer to say that now with Chicago behind us; that will be closer to that first-quarter level of $20 million.
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Ken Zerbe, Morgan Stanley - Analyst [26]
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Got it, okay. All right, thank you.
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Operator [27]
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Chris McGratty, KBW.
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Joseph DePaolo, Signature Bank - President and CEO [28]
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Chris?
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Operator [29]
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Bob Ramsey, FBR Capital Markets.
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Bob Ramsey, FBR Capital Markets - Analyst [30]
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Good morning, guys. Was there any provision for the New York taxi book this quarter and do you currently have any medallions in OREO or any forthcoming medallion sales?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [31]
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We really kept the provision pretty flat in New York. We shifted from using estimates on loss factors there to utilizing our own loss factors now that we have a pretty decent history of losses in the New York portfolio. So that really kept everything stable there, and we had about 5.5% reserves on the New York portfolio.
We do have some repo assets. We've got about $6.5 million in repossessed assets, and we do anticipate a couple sales going forward. Most of what we are doing is working with the borrowers and really just refinancing with our existing borrowers.
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Bob Ramsey, FBR Capital Markets - Analyst [32]
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Okay, got it. Then could you talk about, I guess within the New York taxi book, the increase in nonaccrual loans this quarter?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [33]
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Yes. As we said, we expected nonaccruals and past dues to increase. We kind of anticipate that will happen again in the fourth quarter, and should start to slow down and reverse over the course of next year. It took some time for us to change our operations from really a sales culture to a workout culture, but we've done that now. We are actively pursuing restructuring the bulk of the nonaccruals and the past dues.
Like I said, we anticipate that will slow down in the fourth quarter and really start to reverse through the course of next year. About 80% of our New York portfolio is paying right now, so that's about $410 million are current.
There's another $36 million that are just chronic slow payers, so they are typically in that 30-day delinquent bucket and we're working with them on restructuring to get them fully current. And we've got another $34 million that have matured but are still paying. So we really just need to get around to refinancing those loans.
So if you look at the nonaccrual bucket, we've got approximately $90 million in New York City medallions in nonaccrual. Of the $90 million, $19 million are paying us on refinanced terms. So when we [can season] them, we can put them back on accrual.
41 million are not paying us or are in workout, and we're attempting to engage the borrower in a restructure that will afford them the opportunity to retain and operate the medallion before we commence foreclosure. And we've got 30 million in the foreclosure process with attorneys.
Now we expect some of them will come back to the table and ultimately restructure. Others we will repossess, take them into other assets and potentially resell them or lease them to an approved operator. So that's the plan on the nonaccruals right now.
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Bob Ramsey, FBR Capital Markets - Analyst [34]
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Got it. Then could you talk to maybe about to what degree there's any concentration; maybe what is the size of the biggest lending relationship fleet operator or what have you in the New York book?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [35]
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In New York, I don't have the details on the largest fleet, but we only have a little over $100 million to fleet operators in New York. So the majority of that portfolio is the individual operators.
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Bob Ramsey, FBR Capital Markets - Analyst [36]
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Okay, great.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [37]
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The $100 million that we do have to fleets, Bob, we're not concerned about it all. They are at a [140] debt service coverage and the LTVs there are very strong, so the fleets we are not concerned about at all. The information that we are getting out of fleets is pretty strong. They're at near 100% utilization now, and that's with just the 15% reduction in their lease fees. So the fleets are performing pretty well.
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Bob Ramsey, FBR Capital Markets - Analyst [38]
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Great.
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Joseph DePaolo, Signature Bank - President and CEO [39]
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I'm very pleased. I want to say conversely in Chicago with the fleets, we have the personal guarantees, and we are going -- we are using resources to aggressively pursue those personal guarantees in Chicago.
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Bob Ramsey, FBR Capital Markets - Analyst [40]
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Okay, great. Shifting gears a little bit and I'll hop out. But when you talk about growth annually next year being in the $4 billion to $6 billion range, could you sort of maybe break out what the mix is of loans versus securities, since you guys are talking a little bit about increasing securities? Is it 75/25; is it 60/40; is it 80/20? Any sense of how that mix shakes out?
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Joseph DePaolo, Signature Bank - President and CEO [41]
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It's really going to depending on where the rates are going to be, what the yield curve is going to be. Every one of those percentages you gave, we were shaking our head yes. So it's hard to say, but we are going to make certainly an effort to increase the portfolio.
It would be best to talk as we get in the first-quarter -- fourth-quarter earnings call. In January, we will have a better idea.
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Bob Ramsey, FBR Capital Markets - Analyst [42]
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Okay, fair enough. Thank you, guys.
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Operator [43]
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Chris McGratty, KBW.
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Chris McGratty, KBW - Analyst [44]
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Thanks for taking the question. Sorry about that. Joe, you talked about your capital ratios really unaffected with the action. Given what appears to be more defined growth targets including mix, any comments about external uses of or needs of capital? And also maybe remind us the targets you're looking at.
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Joseph DePaolo, Signature Bank - President and CEO [45]
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External uses as in terms of (multiple speakers)?
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Chris McGratty, KBW - Analyst [46]
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I'm sorry, external capital raising. Capital raising, I'm sorry.
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Joseph DePaolo, Signature Bank - President and CEO [47]
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Oh, capital raising. Well, right now we have no plans. If we have the traditional Signature Bank quarters, we will have a pretty decent income that we invest back in, and that certainly should support our growth.
If anything, if I had to guess between an equity raise and a debt raise, if there's anything in the future it's more of a debt raise than there would be an equity raise. I think that would be strategically the better thing to do. Right now, we don't have any plans other than to reinvest our earnings back into the institution.
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Chris McGratty, KBW - Analyst [48]
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Okay, great. Thanks for that. Maybe kind of a strategic question. You guys all own quite a bit of stock, and obviously you are well aligned with shareholders. And I believe in the past, you both worked for a foreign parent.
Given really the regulatory burden we are seeing on kind of concentrated models, and some precedence of some domestic banks partnering with foreign buyers, is there a situation that would ever make sense again?
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Joseph DePaolo, Signature Bank - President and CEO [49]
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It's hard to comment on something like that because it's just guesswork. So I will say that our Chairman once said that you become for sale the day you go public, because you are in the public arena. So since March 22nd of 2004, we have been in the public arena, and that's pretty much all I could comment on, Chris.
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Chris McGratty, KBW - Analyst [50]
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Okay, thanks for taking the question.
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Operator [51]
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Dave Rochester, Deutsche Bank.
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Dave Rochester, Deutsche Bank - Analyst [52]
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Good morning, guys. A quick one on your NIM guide of flat to down 2 bps. You mentioned deposit growth, Eric, being a swing factor there. Are you just assuming loan growth effectively matches deposit growth going forward? How should we think about that?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [53]
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We anticipate deposit growth to outpace loan growth in the quarter. We will have some level of securities portfolio growth.
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Dave Rochester, Deutsche Bank - Analyst [54]
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Okay, got you there. And then I know this is hard to predict, but can you just talk about how much you expect overall activity in the CRE and multifamily markets in New York to actually slow next year?
I know you mentioned less refi activity, but it just seems like that loans made three or four years ago today come up to the end of their fixed periods next year or close to it; it seems like you will still see a decent amount of refi activity as those guys come back to lock in for longer fixed periods. And then you'll have purchase sale activity on top of that.
Just trying to get your sense for how much of a slowdown you think there's going to be, just to try to get an idea of where loan growth could grow in those segments.
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Joseph DePaolo, Signature Bank - President and CEO [55]
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It so hard to predict. What I will say, something I didn't say earlier. Some of the smaller institutions that are in the CRE business have slowed considerably or out of it. And as a result, there may be some pickup to offset some of that slowdown, but it's just so hard to predict.
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Dave Rochester, Deutsche Bank - Analyst [56]
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Okay, but you are not looking for a big drop-off in activity at this point, are you?
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Joseph DePaolo, Signature Bank - President and CEO [57]
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No, we're not looking for a big drop- off. (technical difficulty) We are also trying to do more C&I, and we have some municipal business that we do at Signature Financial. So with that added business if there is a slowdown at all, that should pick it up.
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Dave Rochester, Deutsche Bank - Analyst [58]
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In terms of the market demand for those asset classes, the B and C CRE space and rent-stabilized multifamily, you are still seeing a decent amount of market demand for that product?
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Joseph DePaolo, Signature Bank - President and CEO [59]
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Yes.
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Dave Rochester, Deutsche Bank - Analyst [60]
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Okay, great. And then I guess switching to your pipeline comments, it sounds like you've got a strong pipeline heading into 4Q. Just curious how that compared to the pipeline heading into the third quarter.
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Joseph DePaolo, Signature Bank - President and CEO [61]
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I would have said it was slower, but in the last two weeks I would say it's a little bit ahead.
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Dave Rochester, Deutsche Bank - Analyst [62]
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Okay, great. Then just one final one on your provision color. I appreciated hearing about your increased confidence there. It seems like with Chicago, potentially completely behind you at this point. And your color on New York would suggest you'd tend to think that you are not looking for any material provisioning there going forward; that you could potentially come below that $20 million level that you'd talked about a couple quarters ago. Is that fair?
Are you thinking that the $20 million is -- not to set a hardtop on it, but that you feel pretty comfortable you could come in below that?
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Joseph DePaolo, Signature Bank - President and CEO [63]
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Why don't we just stay with the $20 million, and we'll let you decide whether or not it should be better.
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Dave Rochester, Deutsche Bank - Analyst [64]
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Okay, all right. Thanks, guys.
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Operator [65]
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Ebrahim Poonawala, Bank of America.
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Ebrahim Poonawala, BofA Merrill Lynch - Analyst [66]
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Good morning. I just have one remaining question, and I'm sorry if I missed it. But I'm wondering, Joe, if you had any thoughts around just the overall multifamily market in New York. We've seen a considerable slowdown both in terms of rent growth, in terms of plus a significant amount of supply coming through the market.
I think outside of the regulatory scrutiny as we look out over the next 18 to 24 months, do you see any rebound in activity levels just in the overall market that could surprise to the upside when we think about multifamily growth for you guys?
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Joseph DePaolo, Signature Bank - President and CEO [67]
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The market that we are in, we actually have not seen a surplus of building. That has been more at the higher end and, in fact, we see slowdown in more building because of the 421a certificates that are no longer available. So we haven't seen any sort of building going on in the marketplace that we deal in in the multifamily arena.
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Ebrahim Poonawala, BofA Merrill Lynch - Analyst [68]
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Understood. So fair to say, do you think -- I understand the threshold has been at the high-end condo market, but you're saying nothing of that (inaudible) to, in terms of the segment that you are active in.
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Joseph DePaolo, Signature Bank - President and CEO [69]
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No, not meaningful.
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Ebrahim Poonawala, BofA Merrill Lynch - Analyst [70]
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Not meaningful. Thanks a lot. That's all I had.
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Operator [71]
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Casey Haire, Jefferies.
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Casey Haire, Jefferies - Analyst [72]
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Thanks. Good morning, guys. I had a follow-up on the deposit growth guide. I know it can be very uneven, but the fact is that $1.8 billion of deposit growth this quarter, that annualizes to $7.2 billion. And now that you guys are pursuing deposit growth on a national scale, that $4 billion to $6 billion of asset growth driven by deposits does look a little conservative.
Just wondering your thoughts there. Are you guys just playing it safe as you start this national deposit gathering initiative?
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Joseph DePaolo, Signature Bank - President and CEO [73]
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Well, Casey, deposits are hard to predict because of the inflows and outflows that happen. We are picking up very nice clients on a national basis. It's something that takes time. And I do appreciate you giving us the confidence that we could do $1.8 billion every quarter, but that would be hard to do.
So I think the $4 billion to $6 billion is probably right for now; maybe at the higher end, so to speak, but I wouldn't go beyond that.
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Casey Haire, Jefferies - Analyst [74]
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Okay, fair enough. A question on expenses. You guys have been -- with Chicago now behind you, is there any expense relief we might see from -- with less workout expense in Chicago?
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Joseph DePaolo, Signature Bank - President and CEO [75]
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No, we don't see that at all. We are still bringing on teams or individuals that are going to join existing teams. In other areas such as cash management, compliance, lending support, wire transfer, all these areas in the institution that need to meet the growth that we are having. And the fact that we expect to be targeting $50 billion, we are getting prepared for that. So we are going to continue to have expenses at that level.
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Casey Haire, Jefferies - Analyst [76]
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Okay, understood. Just last one from me. Can you break down the loan mix of the $1.6 billion in loan growth this quarter by product. And then also the tax rate a little light at $39 million, assuming that's the charge knocking down the pretax income. Does that jump up to 40% going forward? Thanks.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [77]
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Yes, Casey, to be safe, you should take the tax rate back up to 40%. On the loan growth, CRE grew $448 million, multifamily grew $419 million. We had growth in C&I of about $58 million. That was obviously net of the large write-down. It would have been $150 million. Those are the main growth buckets.
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Casey Haire, Jefferies - Analyst [78]
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Thank you.
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Operator [79]
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Jared Shaw, Wells Fargo Securities.
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Jared Shaw, Wells Fargo Securities - Analyst [80]
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Good morning. You had mentioned a target of $10 billion on the securities portfolio. Is that a longer-term target, or is that as we look at this deposit growth coming in over the next call it five or six quarters, we should expect to see that securities line growing quickly in 2017?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [81]
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The five to six-quarter number seems about right.
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Jared Shaw, Wells Fargo Securities - Analyst [82]
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Okay. Is that making any change in your investment, your general investment strategy, or is it just getting bigger in what you are doing?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [83]
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It's just getting bigger in what we are doing. No anticipated changes there.
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Jared Shaw, Wells Fargo Securities - Analyst [84]
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Then on the expense side, you had mentioned you have been hiring in the risk management and compliance side. is that fully staffed up at this point now, or do you anticipate further growth in there to -- on (inaudible)?
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Joseph DePaolo, Signature Bank - President and CEO [85]
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Well, what's interesting is when you think you've reached the level, the next year you find out there's more to do because there's more procedures and more policies that need to be put in place because of additional regulatory requirements. So the answer is no; it will still happen.
Plus we are probably going to put in a few more collection people, because one thing that is clear and I mentioned it a few seconds ago, that in Chicago we have the personal guarantees of the fleet owners. And we are not going to let up, and we want to get those recoveries. I am saying this a second time because I'm hoping that they are listening.
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Jared Shaw, Wells Fargo Securities - Analyst [86]
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Okay. Then on those headcount adds on the risk management and compliance side, how many people are we talking that have been added over the course of, call it, the last year in those areas?
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Joseph DePaolo, Signature Bank - President and CEO [87]
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Several dozen between compliance, internal audit, risk management. Like risk management, without giving details of people, risk management doubled in size. But it's not anywhere near the thousands of people that the Chases are hiring.
We are doing -- there's two things. One, we bear responsibility for the size of institution we are to have things in place. And two, for the last year or so we have also been preparing for $50 billion. Whether that number stays at $50 billion or not, we are preparing for it.
And our expectations are that we will be ready so that there's not any one quarter that has a large expense because we had to put people in place that we missed. And we're not going to miss with our plan that we have and that we are following and adhering to. So it will continue probably for the foreseeable future.
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Jared Shaw, Wells Fargo Securities - Analyst [88]
------------------------------
Great, thank you. That's all I had.
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Operator [89]
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Lana Chan, BMO.
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Lana Chan, BMO Capital Markets - Analyst [90]
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A couple of questions. I might have missed it on the deposits, but did you break out how much of your deposit growth, the $1.8 billion this quarter, came from the national deposit business and how big those (multiple speakers) are right now?
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Joseph DePaolo, Signature Bank - President and CEO [91]
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No, we really don't -- the answer is no. I didn't give the breakdown. We actually don't have it broken out that way.
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Lana Chan, BMO Capital Markets - Analyst [92]
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Okay. Are these national deposits, this initiative, would they be considered LCR friendly?
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Joseph DePaolo, Signature Bank - President and CEO [93]
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I would say it depends. I would say mostly yes. And one thing I do want to say is that these initiatives that we are talking about have been going on for the last -- I should've said this earlier -- been going on for the last year and a half. These are the initiatives that I mentioned that we had entered into because we saw some of the big banks falling down in handling some of the initiatives.
So the growth of the deposits have been both national and local. The reason why I say it depends, but it's mostly favorable to us, is because of the way we are asking for the deposits. We not only want some of the deposits that fluctuate like the money market, but we are also asking for the operating accounts.
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Lana Chan, BMO Capital Markets - Analyst [94]
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Okay, thank you for that. And just as a follow-up to the taxi portfolio, particularly in New York; given the way the stock's been acting it seems -- I just want to get your philosophy in terms of why not be more proactive in writing down or taking bigger reserves on the New York portfolio?
It seems like you've got some earnings -- enough earnings power this year to build that portfolio or that reserve pretty meaningfully; and maybe build that up and hopefully auction off some more of those loans at a lower value at some point in time.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [95]
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All indications that we have in the marketplace, Lana, is that we're just not seeing a need for that. And I think our orderers would have a tough time with us just building reserves without support for that.
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Joseph DePaolo, Signature Bank - President and CEO [96]
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The methodology we use for Chicago is similar to the methodology we use for New York. And if it comes up with a number that we have to book, as Eric just said, it would be very hard to go further beyond that without the support.
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Lana Chan, BMO Capital Markets - Analyst [97]
------------------------------
Okay, thank you.
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Operator [98]
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This concludes our allotted time and today's teleconference. If you would like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID number 94265857. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your lines at this time, and have a wonderful day.
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