Q2 2017 Signature Bank Earnings Call

Jul 19, 2017 AM EDT
SBNY - Signature Bank
Q2 2017 Signature Bank Earnings Call
Jul 19, 2017 / 02:00PM GMT 

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Corporate Participants
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   *  Eric R. Howell
      Signature Bank - EVP of Corporate & Business Development
   *  Joseph J. DePaolo
      Signature Bank - Co-Founder, CEO, President and Executive Director
   *  Susan Lewis

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Conference Call Participants
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   *  Casey Haire
      Jefferies LLC, Research Division - VP and Equity Analyst 
   *  Christopher Edward McGratty
      Keefe, Bruyette, & Woods, Inc., Research Division - MD
   *  David John Chiaverini
      Wedbush Securities Inc., Research Division - Research Analyst
   *  David Patrick Rochester
      Deutsche Bank AG, Research Division - Equity Research Analyst
   *  Ebrahim Huseini Poonawala
      BofA Merrill Lynch, Research Division - Director
   *  Jared David Wesley Shaw
      Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst
   *  Kenneth Allen Zerbe
      Morgan Stanley, Research Division - Executive Director
   *  Lana Chan
      BMO Capital Markets Equity Research - MD and Senior Equity Analyst
   *  Steven A. Alexopoulos
      JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks

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Presentation
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Operator   [1]
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 Welcome to Signature Bank's 2017 Second 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 Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [2]
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 Thank you, Lori. Good morning, and thank you for joining us today for the Signature Bank 2017 Second 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,    [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'd like to turn the call back to Joe.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [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 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.

 During the past 2 years, we have communicated that the taxi medallion landscape was troubled in terms of usage, acceptance and regulatory support. During the third quarter of 2016, we largely put the Chicago taxi medallion portfolio behind us. And now, with this quarter's actions, we have taken steps to put the New York City taxi medallion portfolio behind us as well. We wrote down each New York City taxi medallion loan by approximately $168,000 to $358,000. Additionally, we placed the entire remaining New York City, Chicago and Philadelphia portfolios all the way $365 million, which represent only 90 basis points of total assets on nonaccrual. And now, we are looking forward. Signature Bank delivered a solid performance this quarter, notwithstanding these challenges in our taxi medallion portfolio.

 First and foremost, we remain focused on executing our successful business plan, including attracting veteran bankers. In fact, we strengthened our franchise by adding 2 new banking teams and announcing the appointment of 4 origination officers to Signature Financial. We also furthered our asset diversification strategy by growing commercial and industrial loans $275 million, excluding medallions and increasing our securities portfolio $186 million.

 Deposits grew $234 million despite $588 million in escrow deposit outflows and top line revenues were up 7.5% or a $22 million.

 Now let's take a further look into earnings. Net income for the 2017 second quarter was $14 million or $0.26 diluted earnings per share, a decrease of $88 million or 86% compared with $102.2 million or $1.90 diluted earnings per share reported in the same period last year. Excluding provision expense and write-downs for the taxi medallion portfolio, net income would have been $120.2 million or $2.21 diluted earnings per share. The decline in net income was driven by an increase in charge-offs of $219.8 million for the medallion portfolio as well as an increase in noninterest expense in the write-down of repossessed New York City taxi medallion loans. Also, expenses increased duly addition to new product client banking teams as well as an increase in cost and our risk management and compliance-related activities. These items were partially offset by an increase in net interest income, primarily driven by deposit and loan growth.

 Looking at deposits. Deposits increased $234 million to $33.2 billion this quarter, affected by a decrease of $588 million in escrow deposits, while average deposits grew nearly $700 million. Since the end of the second quarter of 2016, deposits increased $3.6 billion and average deposits increased $3.9 billion. Noninterest-bearing deposits of $10.6 billion represented 32% of total deposits and grew $329 million this quarter. Our deposit and loan growth, coupled with earnings retention, led to an increase of $4.2 billion or 11.4% in total assets since the second quarter end of the last year.

 Now let's take a look in our lending businesses. Loans during the 2017 second quarter increased $326 million to $30.4 billion. Excluding taxi medallion loans, total loans would have grown $598 million for the quarter.

 For the past 12 months, loans grew $3.67 billion and represent 74.6% of total assets, compared with 73.1% one year ago. The increase in loans this quarter was primarily driven by specialty finance, multi-family and commercial real estate loans.

 Turning to credit quality. The remainder of our portfolio is performing remarkably well, notwithstanding the taxi medallion portfolio.

 During the 2017 second quarter, we placed the entire, the entire taxi medallion portfolio, $367 million on nonaccrual. As a result, nonaccrual loans increased to $393 million or 130 basis points of total loans compared with $226 million or 75 basis points from the 2017 first quarter. 93% or $367 million of the nonaccrual loans are taxi medallion. Now listen closely, therefore, for the remaining portfolio of over $30 billion in loans, we have only $26 million in nonaccruals or less than 10 basis points. That's exceptional credit quality. Because we placed the taxi medallion loans on nonaccrual, we saw a decrease in our 30 day to 90 day past due loans to $28 million or 90-plus past due loans decrease to $5 million. The provision for loan losses from the 2017 second quarter was $187.6 million compared with $19.6 million in the 2017 first quarter and $33.3 million for 2016 second quarter. Net charge-offs for the 2017 second quarter were $229 million, all from which were of the taxi medallion loans, compared with $9.2 million from the 2017 first quarter and $15.4 million from the 2016 second quarter. The allowance for loan losses decreased to 60 basis points in the loans versus 75 basis points in the 2017 first quarter. And now, onto the team front. We added 2 teams during the second quarter and our team pipeline remains active. Additionally, we added 4 origination officers to Signature Financial. We look forward to the ongoing opportunities to attract talented banking professionals to our network. At this point, I'll turn the call over to Eric and he will review the quarter's financial results in greater detail.

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [5]
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 Thank you, Joe. And good morning, everyone. I'll start by reviewing net interest income and margin. Net interest income for the second quarter reached $307.2 million, up $25.6 million or 9.1% when compared with the 2016 second quarter, an increase of 1.8% or $5.5 million from the 2017 first quarter. Net interest margin decreased 8 basis points in the quarter versus the comparable period a year ago and 3 basis points on a linked-quarter basis for 3.11%. Excluding prepayment penalty income core, net interest margin for the linked-quarter decreased 5 basis points to 3.04%. 1 basis point of the linked-quarter decline was due to reversal of interest related to the New York City taxi medallion portfolio and from day count for the quarter.

 Let's look at asset yields and funding costs for a moment. Interest-earning asset yields remain stable from a year ago and increased 2 basis points from the linked-quarter to 3.66%. Yields on the securities portfolio increased 1 basis point linked-quarter to 3.05%, giving a slight slowdown in premium amortization on securities from slower CPR speeds and better reinvestment yields.

 The durations of the portfolio is slightly decreased to 3.2 years. Returning to our loan portfolio, yields on average commercial loans and commercial mortgages increased 2 basis points to 3.89%, driven by an increase of $2.4 million in loan prepayment penalty income. Excluding prepayment penalties from both quarters, yields would've declined 1 basis point.

 Now looking at liabilities. Our overall deposit cost this quarter increased 5 basis points to 49 basis points compared to the 2017 first quarter. Average borrowings, excluding subordinated debt decreased $148 million or $2.9 billion or only 7.3% of our average balance sheet. The average borrowing cost increased 11 basis points from the prior quarter to 1.48%. Overall, the cost of funds for the quarter increased 5 basis points to 61 basis points.

 Onto noninterest income expense. Noninterest income for the 2017 second quarter was $9.6 million, a decrease of $3.6 million when compared with the 2016 second quarter. The decline was due to a decrease in net gains on sales of securities of $2.9 million and an increase in other losses of $2.3 million due to increased low-income housing tax credit investments. Noninterest expense for the 2017 second quarter was $116.3 million versus $92.3 million for the same period a year ago. The $24 million or 26% increase was principally due to increased write-downs of $10.7 million on repossessed New York City taxi medallion loans and the addition of new private client banking teams as well as an increase in cost in our risk management and compliance activities.

 The bank also incurred increased FDIC assessment fees. The bank's efficiency ratio increased to 36.7% for the 2017 second quarter versus 31.3% for the comparable period last year. The increase was due to the aforementioned write-downs on repossessed New York City taxi medallion loans.

 Returning to capital. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low-risk profile of the balance sheet, as evidenced by the Tier 1 leverage ratio of 9.52% and a total risk-based ratio of 12.95% as of the 2017 second quarter. And I'll turn the call back to Joe. Thank you.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [6]
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 Thanks, Eric. Signature Bank's financial strength was evidenced this quarter by top line revenue growth of 7.5% or $22 million. Despite a trouble in the environment for taxi medallion lenders, we were able to take the necessary measures to effectively put the issue behind us and our fortresslike balance sheet was able to sustain the impact. That's truly a testament to our deposit of our strategy. Our depositors are who we built this bank for and we never ever lose sight of that. We look forward to the many opportunities ahead of us. And we are happy to answer any questions you might have. Lori, I'll turn it over to you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Your first question comes from the line of Casey Haire of Jefferies.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [2]
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 So on the medallion market at $358,000, can you just tell us how you got there, what's your comfort level is there and what the provision outlook looks like with the rest of the portfolio in great shape?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [3]
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 Yes, Casey, we use the combination of transfers in the marketplace as well as our cash flow model to come up with the value of $358,000. We put about 75% weighting on transfers and 25% on the cash flow model last quarter. I think we used the 50% breakdown. Since there were more transfers in the market, we decided to weight that more heavily. I do want to note that these are transfers, however, not sales. So we see transactions between family members, the transfer of wealth and avoid taxes. There's transfers with notes that are attached that are not recorded, so that's not included in the values. And there's clearly state sales and foreclosures at the press level. So most of those transactions are not arm's-length transactions. And that's why we bring the cash flow modeling in the place. That cash flow models are well supportive of the value of $358,000, in fact, they support a value of closer to $500,000. So that's how we came up with a value and we feel very comfortable at that level. It should give us great flexibility to work with our borrowers to restructure in a way that works for both, them and us going forward, similar to what we did in Chicago.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [4]
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 And let me add, Casey, that we had an agreement to sell 10 repossessed medallions through well-established feed owner client for $400,000 per medallion who have pending standard TLC approval, which is expected before the end of the month. And it's 5% down for each of the medallions and fully cost financing, which ends up supporting our amount as well.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [5]
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 Okay, great. And So the provision outlook from here with 60 bp LLR, is that the appropriate way to look at providing for loan growth going forward?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [6]
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 For the next few quarters, it's still a pretty fluid situation with the medallions. So to be safe, we're going to maintain our guidance for approximately $20 million of provisions for the remainder of this year. As we look at 2018, we should come down to a more normalized level, Casey, depending on where loan growth is coming from. And we certainly anticipate more of it coming out of C&I, we should see a 50 bp, 100 basis point reserve level on those incremental loans.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [7]
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 Okay, great. And just switching to the core NIM outlook, just some updated thoughts there, specifically, the deposit base has stepped up a little bit this quarter. How is the core NIM outlook looking today?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [8]
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 Yes, well given the significant flattening in the yield curve that we've seen over the course of this quarter, we certainly anticipate that we'll see NIM pressures moving forward, and also a few basis points per quarter, looking out the next couple of quarters, assuming the yield curve stays the way it is today.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [9]
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 You know there's quite an enormous opportunity for us to bring deposits, but what we have found recently is that the competition for deposits is as competitive as it's ever been. However, this quarter, we were very happy with the DDA growth of over $300 million. So we're still bringing in core clients and with our team pipeline of bringing on the teams and enhance to our existing teams, it bodes well for us. But yet, we may have to pay up a little on deposits as we are bringing on new clients.

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Operator   [10]
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 Your next question comes from the line of Ebrahim Poonawala of Bank of America Merrill Lynch.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [11]
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 I guess -- I just wanted to shift the gears in terms of growth and I think we've consistently for a long time talked about $4 billion to $6 billion in asset growth. Obviously, we've not hit that in the first half of the year. I love your thoughts in terms of have you think about the back half of the year or the next 12 months. Do we think we can get to a run rate of that $4 billion to $6 billion? And how do you think about sort of loan growth versus deposit growth in terms of being the driver of that growth and your comfort around getting there?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [12]
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 Well, one quarter does not a trend make. And last year, in 2016, we almost had a [$2 billion] growth quarter. So anything is possible, particularly, with the choppiness of the deposit. So we look at it as the next 4 quarters, we would be able to do the $4 billion to $6 billion. I think, what's happened on the loan side this particular quarter was that April and May were very, very slow. Part of that was due to us keeping our rates higher and then there was this, just the general slowness in the purchase and sales of real estate. However, in the month of June, we really picked up and we have seen a robust pipeline for the third quarter, on the long side. So with the robust pipeline and the opportunities to bring in -- continue to bring in deposits. I think one of the things you have to realize is that although, the point in time deposit growth wasn't as great, in the first quarter we had $1.1 billion growth but the average growth was past $580, $580 million, whereas the average growth for this quarter, we've only had $200 million, $220 million point in time growth was over $700 million. So as we get larger the choppiness of the deposits continue to be there. On an average, over the next 4 quarters, there's no reason why we shouldn't be able to grow.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [13]
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 Understood. And how much of that is sort of based on just growth from the existing teams versus -- you mentioned in your opening remarks around hiring and you're looking to sort of bring on teams and bankers. Like how much of new hiring will drive that? And can we -- do we get that growth without really seeing a -- significant sort of deterioration in the efficiency ratio?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [14]
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 I think that clearly, the existing teams continue to support growth at a level that's of comparable to anyone else in the industry. I think our growth is extraordinary. However, you still have to bring on new teams to keep certain levels of growth. And that's what we are going to continue to do. And we are also going to continue to add bankers on that have books of business to existing teams. So you really need both to happen. You need new teams plus the existing teams to continue to grow, which they are doing. We have teams that came on board in 2001 and are still growing in double digits. Not all of them, but some of them. So you really do need both.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [15]
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 Got it. And just as a -- on a separate topic means I think tied to loan growth. I would love your thoughts on this, does New York CRE multi-family market, clearly we've seen a slowdown in deal activity and pricing. Where do things stand right now in terms of, as you look out in the next year, are you feeling better about the market today than you did at the start of the year or...

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [16]
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 Well, I always feel good about the multi-family market that we're in. Primarily, the load of moderate income, we're not in those areas where rents are the $5,000 to $6,000 to $7,000, $8,000. We're in the areas where the rents are much lower, there are some rents stabilizing and in control, and there's rarely vacancies. When you hear about vacancies in the New York City market, you have to think at the high-end and then there a lot of condominiums built over the last decade where they were used for investor purposes and they are rental. And they're hurting the rate, they're hurting the market as well, and that's what the vacancies are. But the vacancies are not where we rent and it's rare to have a vacancy. In fact, when you build apartment buildings that have the 20% that need to be the low to moderate income of rent control, there are thousands of applications for each apartment, tens of thousands of applications, sometimes, for each apartment. And therefore, we are not worried about the space that we're in as it relates to the multi-family market.

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Operator   [17]
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 Your next question comes from the line of Dave Rochester of Deutsche Bank.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [18]
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 On that NIM guide overall, what are you guys expecting for securities reinvestment rates and premium am expense in that? And what do you think you need to see in the interest rate curve to get a flat NIM guide at this point? Where would the 10-year need to be for you to get more comfortable with that NIM trend?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [19]
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 We are seeing reinvestment yields in the high 2s, I'd say, they have a wide range, 270 to 290, somewhere in that. Ultimately, we need the tenure to be at around 250, basing it to a flat NIM.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [20]
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 Okay. And then on the cost of fund side, what are you anticipating for deposit cost creep in that?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [21]
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 2 to 3 basis points.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [22]
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 2 to 3 bps per quarter on increase on deposit costs?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [23]
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 Yes.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [24]
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 And just on deposit side, can you just give us an update on competitive pressures there? Where are you seeing the most competition? And if you have actually bumped up deposit rates again since the last call?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [25]
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 We -- well, actually the rates are going to -- by the end of this month for the higher balance clients, they're going to go up 10 basis points on the personal money market.

 On the business side, we're trying to keep them where they are, although, we are having some pressure there. Well, some of the pressure is the awareness of short-term alternatives. We haven't had that for a while, like treasuries and off-balance sheet money market. So where we used to have them there, and we moved the month of the balance sheet because there was no return. Now there is a return and there is a decision on the client's part sometimes to decide whether or not they want to put it off balance sheet, which gives us fee income. But it's close right now. I would say when we have another raise, the alternative is going to put pressure on us. And there were some banks, no go unnamed, I'm sure you know who they are, where we accrued-ed from recently that are pulling out all stops to interest rates to keep the client because that's the only bullet that they have left to try to keep the client in the interest rates. So I would say the competition is pretty intense. Having said all that, the opportunities are continuing to be enormous. I mean the opportunities for deposits are mind-boggling, how much they are out there. And it's not really from the banks that we're competing with, or trying to get those deposits, it's really from the banks that are too big to fail.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [26]
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 Okay, got it. And your earnings credit rate, correct me if I'm wrong, is a lot higher than it is in other banks. And I'd think that's a nice competitive advantage that you guys have. Are you still seeing that big differential there versus the competition on that front?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [27]
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 Good question. Actually, great question. We started to talk about that yesterday because we want to see we haven't seen much of a change. It's creeping up in others. So we want to make sure we stay ahead of that curve and be a little bit more competitive than others. Because once you bring the client over, you have them because of the service levels that are provided by the teams. So luring them in with the service and a little bit more of an earnings credit is the way to do it. And I would say we haven't had to make much of a change yet.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [28]
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 Okay, but you're still decently higher than your competition rate, at this point?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [29]
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 Right. I don't want to say what it is, but it's yes.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [30]
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 Okay. And just one last one more of housekeeping. The tax credit amortization expense picked up in 3Q, is that other line, other income line, that's going to remain that negative and then how you thinking about the tax rate at the back half of this year or next year?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [31]
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 That other income line item will remain -- that negative will probably slowly increase as we make more tax credit investments. On the tax rate for the remainder of the year, we'll stick with 39% to be safe. Hopefully, we can beat that, but I think 39% is a reasonable number for that.

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Operator   [32]
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 Your next question comes from the line of Ken Zerbe of Morgan Stanley.

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 Kenneth Allen Zerbe,  Morgan Stanley, Research Division - Executive Director   [33]
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 I guess just on the efficiency ratio, I'd say it's hard because of the taxi piece. But when -- you also mentioned things like the regulatory compliance expenses. Can you just elaborate on that? Does that have a meaningful impact going forward? Or are you seeing sort of more meaningful step up in those regulatory expenses? And how should we think about going forward?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [34]
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 Well, we've seen those expenses pick up over the last several years as we prepare to cross the $50 billion threshold. They're certainly -- they're certainly in the run rate and we could see some more pressure from there. But in our actual expense growth ex the write-down on the repossessed medallions was about 11.4% for the quarter, so it's at the low end of our 10% to 15% guidance. We hope to keep it at the low end of our guidance, but it is a highly regulatory environment that we're in. Who knows what they're going to ask for next. So that's why we have that wide range of 10% to 15% there. So ultimately, we should see our efficiencies, maintain the levels that they're at as we're crossing through the $50 billion threshold. It's hard to believe that we can improve them significantly further from where they are today.

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 Kenneth Allen Zerbe,  Morgan Stanley, Research Division - Executive Director   [35]
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 Got you. Understood. Okay. And then just in terms of the provision expense sort of slash taxi, if I heard right, you still estimate, call it, roughly $20 million of provision expense. But I'm trying to reconcile that, which presumably includes some large amount of taxi charge-off/provision versus the fact that you've taken taxi portfolio down to fair value, right, which to me implies, it is truly fair value. Now and you probably shouldn't have losses at least in the near term on this. How do we reconcile the 2 pieces?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [36]
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 Well I mean you are certainly right at a point in time, remember our books and records are as of a point in time and based on the modeling and sales, we came up with that value. But it's a very fluid situation in the value of landscape, so we're trying to be conservative in our provisioning guidance for the rest of this year, Ken. If we see things shake out next quarter similarly to how they did this quarter, then we could see a fairly large decline in the provision expense, but we're just trying to be careful there.

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Operator   [37]
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 Your next question comes from the line of Jared Shaw of Wells Fargo Securities.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [38]
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 Just a couple of final questions on the taxi for me. What's the current specific reserve that you have remaining on that $325 million portfolio?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [39]
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 There's really a de minimis reserve on it right now because we -- as we move it to nonaccrual, you write it down to its fair value and you take back your reserves.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [40]
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 Okay, and then what's the cash flow coming off for that portfolio? So I mean it seems like with all the cash flow going due to principle pay down, we could be looking at that ending pretty quickly?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [41]
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 Well, we received about $3 million in cash flows, a little over that $3.5 million in cash flows on the portfolio, our last quarter. So we expect to see a similar run rate going forward.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [42]
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 Okay. And then on the other cost that $10 million, is that -- that's more one-time as you check those charges and mark down the repossessed assets this quarter? So we should not expect to see that as a higher level of expense right now?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [43]
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 Correct.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [44]
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 Correct.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [45]
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 Finally, just for me. On Signature Financial, can you talk a little bit about where you start growth this quarter, you know, are there other certain areas in terms of business funds are doing better than others? And then are there on any thoughts on acquiring or growing into additional business lines of that, as you sort of shift focus into Signature Financial?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [46]
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 It is across the board, the growth. And in terms of buying, we look at portfolios, we don't necessarily look at companies. But we do look at portfolios, rather frequently to see whether or not they would fit in. And we would have no issues at all buying a portfolio put into the existing business that we have.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [47]
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 As you talk about the next 4 quarters of that $4 billion to $6 billion growth, what portion of that do you think could be coming from Signature Financial?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [48]
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 I'd like to roughly 20%. 20% to 25%.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [49]
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 Yes, one of the things they have to overcome is they have very quick amortization. The loans are usually 3 to 5 years and they amortize over 3 to 5 years, so you have to overcome that every month.

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Operator   [50]
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 Your next question comes the line of Steven Alexopoulos of JPMorgan.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [51]
------------------------------
 I'd like to start, Joe, in terms of what drove the movement of the entire taxi book into MPL. Did credit materially weakened in the quarter to drive this? Or is just you wanted to put this issue behind you?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [52]
------------------------------
 It was the latter. We wanted to put it behind us, and we thought it made sense to do. Plus the combination of -- as Eric was explaining earlier, how we come up with the value. We move -- we were 50-50 between cash flow and transverse our sales. And now we moved it to 75-25, which made more sense than the natural value down.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [53]
------------------------------
 Right. Joe, it's not clear to me, because in terms of putting this behind you, Eric has mentioned a couple of times now that it's still a fluid situation, so I'm not getting the feeling it is fully behind you, especially with the provision being guided still at $20 million. What -- Eric, could you give more color, you said fluid situation a few times. What you mean by that? Are you expecting transfers to come at lower or have to further write these down? What are you expecting?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [54]
------------------------------
 Well, we're expecting that we are going to have 10 sales at a $400,000 level that Joe referred to, that's going to hope to firm up the marketplace. But there are these other transfers taking place, many of which, they are storied to. But we don't know how much of that's going to happen over the course of the next several quarters, Steve. So there's still is some unknown in this space. But clearly, at 90 basis points versus the 2%, where we were before, this is predominantly behind us.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [55]
------------------------------
 I mean, if you think about the sales we talked about, the 10 sales that'll occur this month, the fact that every dollar we are taking in is going to go against principal and not for interest income. And -- so that looks like it's very stable. But then again, you have these credit unions and something could happen with the credit union that would force us to do something.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [56]
------------------------------
 Now that you've gone down this road, sorry, go ahead, Joe.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [57]
------------------------------
 No, I'm just saying, we feel we're in a position that at $350,000, it allows us to negotiate with each of our client borrowers to put them in a position where they can continue to pay back and make a living and we can get this 90 basis points down even further.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [58]
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 Joe, if you tested the market in a bulk sale situation, could you sell these for $358,000 where they're being carried?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [59]
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 Well, I can tell you that who ever -- if somebody bought in a $358,000, usually they want to make a double-digit return, like a 20% return. And we are not going to do a forest sale. We should make -- why don't we make that?

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [60]
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 Right. So is your preference at this point to hold these at these written-down level?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [61]
------------------------------
 Yes.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [62]
------------------------------
 Okay. And I just had a question on the loan growth. Could you give the more complete breakdown of loan growth by category this quarter? I know you've specialty but I know you didn't give the other categories.

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [63]
------------------------------
 Yes, we had a commercial property grew $116 million, multi-family was up $222 million, traditional C&I was up $22 million, and Signature Financial is up $252 million.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [64]
------------------------------
 Okay, Eric where did you end the quarter on preconcentration?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [65]
------------------------------
 We were at 561%, which would have been lower, had we had a normalized quarter of earnings.

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Operator   [66]
------------------------------
 Your next question comes from the line of Lana Chan of BMO capital.

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 Lana Chan,  BMO Capital Markets Equity Research - MD and Senior Equity Analyst   [67]
------------------------------
 Just wanted to talk on the CRE competition in New York. I know you talked about it a little bit but, what are you seeing from competitors now on pricing and I know you've alluded to some of the softer growth earlier in the quarter was because you lowered your pricing and tightened underwriting. What are you seeing relative to peers now?

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [68]
------------------------------
 What happened was, Lana, we hadn't lowered our price quickly enough. We felt that -- we were at -- at one point in the quarter, we were at 4%. And that 4% was probably 50 basis points higher than our competitors and usually we were 25 basis points, maybe 3/8s on your 50% -- excuse me, 50 basis points higher. And then we came down to 3 and 7/8s and now we're down to 3.75. So that contributed to some of the slowness.

------------------------------
 Lana Chan,  BMO Capital Markets Equity Research - MD and Senior Equity Analyst   [69]
------------------------------
 Okay. And on Signature Financial, could you remind us exactly what is in that portfolio outside of taxi, probably equipment finance? But could you be able to be more specific about what you're growing in that portfolio?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [70]
------------------------------
 Yes, as Joe said, we're really growing all across the board. We have indirect vehicle, indirect equipments, capital markets franchise, municipal, all those spaces and it's all equipment finance businesses.

------------------------------
Operator   [71]
------------------------------
 Your next question comes from the line of Chris McGratty of KBW.

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 Christopher Edward McGratty,  Keefe, Bruyette, & Woods, Inc., Research Division - MD   [72]
------------------------------
 Joe and Eric, if we can look beyond the back half of the year and understanding the provision guide, if we think about your previous comments saying that 50% to 75% of the provision is largely taxi-related. Can you put this thing to bed either today or by the end of the year, that will imply base on your growth assumptions 5 to 10 a quarter in a provision, which is obviously a big step down from the 20 guide, you're currently telling the market. Would you agree with that math based on the portfolios that you're growing in kind of the environment?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [73]
------------------------------
 Yes, Chris, what do you have projected for 2018 from us, in provisions?

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 Christopher Edward McGratty,  Keefe, Bruyette, & Woods, Inc., Research Division - MD   [74]
------------------------------
 100.

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [75]
------------------------------
 100? It's got to be less than 50.

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 Christopher Edward McGratty,  Keefe, Bruyette, & Woods, Inc., Research Division - MD   [76]
------------------------------
 Okay. Based on the resolution that will occur in next 2 quarters, okay.

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [77]
------------------------------
 Based on what my small brain knows today, I would say, it would be less than 50, which is for listening public out there, it's got to be good news.

------------------------------
 Christopher Edward McGratty,  Keefe, Bruyette, & Woods, Inc., Research Division - MD   [78]
------------------------------
 Okay. And just a small one on the deposits. With the C&I efforts, what is the -- like what -- how much are those relationships or deposit versus lending? You talked about I think the couple hundred million of growth in the Signature Finance and C&I, but what's the dollar or maybe the recent quarter's trajectory of just deposit growth with those portfolios?

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [79]
------------------------------
 I don't necessarily break it out that way and we just look at -- until and unless they're all deposits that are dependent on the C&I business but a large part of our C&I business is Signature Financial, which is not dependent on deposits at all. So we have quite a few clients and have no borrowing relationship at all, like many law firms or service industries don't have borrowing relationship and we just have a strictly cash management and deposit relationship. You would characterize them as C&I but if they don't borrow. So there is a number of our deposits that are not dependent on loans.

------------------------------
Operator   [80]
------------------------------
 Your last question comes from the line of David Chiaverini of Wedbush Securities.

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 David John Chiaverini,  Wedbush Securities Inc., Research Division - Research Analyst   [81]
------------------------------
 Follow-up on loan growth. Why did you keep rates higher in April and May and presumably seed market share. Did capital levels and taxi issues hold you back in being more aggressive?

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [82]
------------------------------
 No, we just felt that 4% was the right number and we thought that the market had jumped too quickly to lower there rates and we thought that they would come back and they didn't, so we -- then we lowered them subsequently.

------------------------------
 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [83]
------------------------------
 David it's often a game of chicken with us as it relates to how we price our CRE portfolio. If we lower our rates quickly, everyone else just lowers there rates even faster. So it's -- the only way that our competitors can truly compete against us in on rate. We have a service model that is stellar, so we are very careful when we lower rates and when we increase rates, because we find that we tend to be the leader in that arena.

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 David John Chiaverini,  Wedbush Securities Inc., Research Division - Research Analyst   [84]
------------------------------
 Okay. And writing down taxi and the impact on capital levels, that's not going to impact growth going forward.

------------------------------
 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [85]
------------------------------
 Not at all.

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [86]
------------------------------
 Not at all. It's the reason we put every dollar of earnings back into capital.

------------------------------
Operator   [87]
------------------------------
 This concludes our allotted time and today's teleconference. If you'd like to listen to a replay of today's conference, please dial (800) 585-8367, and refer to conference ID #50275105. 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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