Q3 2017 Signature Bank Earnings Call

Oct 19, 2017 AM EDT
SBNY - Signature Bank
Q3 2017 Signature Bank Earnings Call
Oct 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 Jason Bishop
      FIG Partners, LLC, Research Division - Senior VP & Research Analyst
   *  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 & Senior Equity Analyst
   *  Matthew M. Breese
      Piper Jaffray Companies, Research Division - Principal and Senior Research 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 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 Joseph J. DePaolo, President and Chief Executive Officer. Sir, you may begin.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [2]
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 Good morning, and thank you for joining us today for the Signature Bank 2017 Third Quarter Results Conference Call. Before I begin my formal remarks, Susan 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 operation 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.

 Signature Bank delivered a strong quarter of financial performance where once again, we saw solid deposit and loan growth, expanded top line revenues and maintained sound credit quality, notwithstanding our taxi medallion exposure. Additionally, we further invested in our future with the hiring of 2 private client banking teams and the continued build-out of our infrastructure in preparation to seamlessly cost $50 billion.

 Let's start by taking a look into earnings. Net income for the 2017 third quarter was $124.5 million with $2.29 diluted earnings per share, an increase of $48 million or 64% compared with $76.1 million or $1.41 diluted earnings per share reported in the same period last year. The increase in net income was driven by a decrease in provision expense of $66.1 million predominantly for the medallion portfolio as well as an increase in net interest income, primarily driven by deposit and loan growth. These items were partially offset by an increase in expenses due to the addition of new private client banking teams as well as an increase in costs in our risk management and compliance-related activities.

 Looking at deposits. Deposits increased $509 million to $33.7 billion this quarter while average deposits grew $417 million. Since the end of the 2016 third quarter, deposits increased $2.3 billion and average deposits increased $2.9 billion. Noninterest-bearing deposits of $10.7 billion represented 31.7% of total deposits and grew $94 million this quarter. Our deposit and loan growth, coupled with earnings retention, led to an increase of $3.5 billion or 9.4% in total assets since the third quarter of last year.

 Now let's take a look at our lending business. Loans during the 2017 third quarter increased $799 million to $31.2 billion. For the prior 12 months, loans grew $3.4 billion and represent 75.5% of total assets compared with 73.5% 1 year ago. The increase in loans this quarter was primarily driven by specialty finance, multifamily and commercial real estate loans.

 Turning to credit quality. Our portfolio continues to perform well, notwithstanding taxi medallion loans where we made some progress this quarter. The second quarter action taken to write down the medallion portfolio and place it on nonaccrual is proving beneficial. We are working with our borrowers to refinance their debt. All payments, including interest, are now applied towards paying down principal.

 As such, nonaccrual loans decreased this quarter by $16 million to $377 million or 121 basis points of total loans compared with $393 million or 129 basis points for the 2017 second quarter. 94% or $353 million of the nonaccrual loans are taxi medallions. Therefore, for the remaining portfolio of over $30 billion in loans, there are only $24 million in nonaccrual loans or 8 basis points, demonstrating again the pristine quality of the portfolio. Our past due loans remained relatively stable with 30- to 89-day past due loans increasing $16 million to $45 million while 90-day-plus past due loans decreased slightly to $5.1 million.

 The provision for loan losses for the 2017 third quarter was $14.3 million compared with $187.6 million for the 2017 second quarter and $80.5 million for the 2016 third quarter. Net charge-offs for the 2017 third quarter were $3.8 million, of which $2.2 million was for taxi medallion loans compared with $229 million for the 2017 second quarter and $100.5 million for the 2016 third quarter. The allowance for loan losses increased to 62 basis points of loans versus 60 basis points for the 2017 second quarter.

 Now on to the team front. We added 2 teams during the third quarter, bringing our total team hires for the year to 4 and our pipeline remains strong. 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 third quarter reached $308.8 million, up $18.4 million or 6.3% when compared with the 2016 third quarter and an increase of $1.6 million from the 2017 second quarter. Net interest margin decreased 9 basis points in the quarter versus the comparable period a year ago and 6 basis points on a linked quarter basis to 3.05%.

 Excluding prepayment penalty income, core net interest margin for the linked-quarter decreased 5 basis points to 2.99%. The decline was predominantly driven by higher premium amortization and lower reinvestment rates for the securities portfolio, coupled with increased deposit costs.

 Let's look at asset yields and funding costs for a moment. Interest-earning asset yields increased 4 basis points from 1 year ago and remains stable from the linked quarter at 3.66%. Yields on the securities portfolio decreased 8 basis points linked quarter to 2.97%, given the slight uptick in premium amortization on securities from higher CPR speeds and weaker market conditions for reinvestment, the duration of the portfolio slightly decreased to 3.1 years.

 Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages increased 2 basis points to 3.91%, driven by an increase in market rates for loans.

 And now looking at liabilities. Our overall deposit cost this quarter increased 6 basis points to 55 basis points compared with the 2017 second quarter. Average borrowings, excluding subordinated debt, increased $158 million to $3.1 billion or only 7.5% of our average balance sheet. The average borrowing cost remains stable at 1.48%. Overall, the cost of funds for the quarter increased 6 basis points to 67 basis points.

 And on to noninterest income expense. Noninterest income for the 2017 third quarter was $8.1 million, a decrease of $2.9 million when compared with the 2016 third quarter. The decline was due to a decrease in net gains on sales of securities of $1.6 million and an increase in other losses of $2.3 million from increased low-income housing tax credit investments.

 Noninterest expense for the 2017 third quarter was $105.6 million versus $96.2 million for the same period a year ago. The $9.4 million or 9.8% 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-related activities. The bank also incurred additional FDIC assessment fees.

 The bank's efficiency ratio was 33.3% for the 2017 third quarter versus 31.9% for the comparable period last year and 36.7% for the 2017 second quarter. The improvement from the 2017 second quarter was primarily due to a $14.1 million decrease in other general and administrative expenses, mostly from the 2017 second quarter write-downs on repossessed New York City taxi medallion loans.

 Turning to capital. Our capital ratios all strengthened this quarter. They were all well 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 9.72% and a total risk-based ratio of 13.28% as of the 2017 third quarter.

 And now 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. I want to emphasize that our fundamentals have not changed. We have never veered from the differentiated relationship-based banking model upon which this institution was built. And we continue to attract veteran bankers who prefer a single point of contact, client-centric approach.

 Our model remains fully intact, allowing us to deliver solid growth quarter after quarter, albeit perhaps not quite at the extraordinary pace of recent years. However, a slow growth rate for Signature Bank still far outpaces that of our average peer group.

 Before we answer questions, I would like to add that Mike Merlo, our Chief Credit Officer, will retire effective November 17. Mike has been with us from the start and he will be dearly missed. We thank him for all the contributions he has made to the bank, which are too numerous to note here.

 In his place, we created 2 positions: Chief Lending Officer and Chief Credit Officer. Drawing upon the deep talent already in our institution, we filled these roles with Tom Kasulka and Brian Twomey, respectively. Tom joined the bank in 2004 as a Group Director and Brian in 2007, who currently serves as Credit Risk Director. We believe establishing 2 positions better reflects the proper credit structure for a bank currently our size as well as our commitment to expand commercial and industrial lending.

 And now we are happy to answer any questions you might have. Christie, I'll turn it to you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Your first question is coming from Ebrahim Poonawala of Bank of America.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [2]
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 So Joe, if you can touch upon -- I mean, I appreciate the significant volatility on both sides of the balance sheet. Looks like loan growth was much better than kind of what you provided mid-quarter in terms of 3Q update, and we've seen some deposit volatility over the last few quarters. As you think about sort of over the next 12 months period, is the lower bound $4 billion to $6 billion kind of growth rate the right way to think about balance sheet growth? Or would you [rebase] that based on what we've seen over the last few quarters?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [3]
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 I would adjust it from $4 billion to $6 billion to $3 billion to $5 billion. Although right now, the fourth quarter currently on deposit growth is $550 million as of the close of business yesterday, and our average deposit growth as of the close of business yesterday for the fourth quarter exceeds $800 million. So although they're very strong, we think that with the current environment, being as it is, that $3 billion to $5 billion, it better reflects what we'd project.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [4]
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 That's helpful. And I think as we think about loan growth, it feels like we added about $400 million in loan growth in September alone. Looking out into 4Q, do you see that momentum is continuing? Or do you see additional pressure from loan pay downs, payoffs continuing?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [5]
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 We see a good momentum in commercial real estate. Usually, for Signature Financial, the fourth quarter is their best quarter in production. They had $250 million in second quarter growth. That's net growth, and net growth of $225 million in the third quarter, so we expect them to have a big quarter in the fourth -- this quarter and the fourth quarter. And then C&I has a very deep pipeline as well. So in all avenues of lending, we have a very good pipeline.

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 Ebrahim Huseini Poonawala,  BofA Merrill Lynch, Research Division - Director   [6]
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 Understood. And just if we could maybe switch to the margin. Appreciate sort of the pressure on deposit cost because of the [period] tax we saw in the first half of the year. Given that we've not had a hike since June, have you seen some of this pressure plateauing until at least we get to December and we see what the Fed does then? But are you seeing some of this pressure abate or is it continuing?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [7]
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 I would say some of it is abating. We've seen a little plateauing because the raise was a bit of time ago. The further we get away from the Fed raise in terms of time, the more we hit of a plateau. So we're hoping that from now until December, when the next raise is supposed to be, that we'll have a little less pressure. And then when December -- middle of December comes around, you probably won't see any effect even with the raise until the beginning of January and in the next year because there's only going to be a couple of weeks left remaining in the quarter.

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Operator   [8]
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 Your next question comes from Casey Haire with Jefferies.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [9]
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 I guess, just following up on the margin outlook, given some abating pressures, could you just tie it together? And I know you guys talked about 3 to 6 basis points of margin pressure a month ago. Obviously, we've gotten a little bit more slope to the curve. How does the margin outlook look today?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [10]
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 Yes, we expect that we'll have continued margin pressure but hopefully not at the same pace, so we're going to adjust our guidance down to 2 to 5 basis points. And we're hopeful that we're at the lower end of that range, but certainly no promises. That's obviously assuming that the yield curve remains similarly shaped to what it is today.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [11]
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 Got you, okay. And just with the -- switching to growth and sort of balance sheet growth dynamics. I mean, with this adjusted guide, I mean, the balance sheet is going to grow slower than equity. I know you guys always have been a growth shop and -- but you're not trading as one today. And I know capital is very important to you, given your competition and where they run with capital ratios. But at what point would you revisit or not revisit -- but would you entertain capital return given how attractive you must find your stock price right now?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [12]
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 That'd be hard to predict because we still consider ourselves -- growing $3 billion to $5 billion is still a growth story. And although equity would be ahead of that, we're still competing with the JPMorgan Chases of the world, and having this strong capital helps us to continue to attract the type of clients how we'd like to attract. So I wouldn't predict at all right now when we would ever entertain doing so.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [13]
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 Okay. And just last one on the expense front. Good to see you kind of track back to that 10% year-over-year level. How are you looking -- are you still thinking about 10% to 15% as we head into '18? Or -- and could that go lower if you get some good news on the CCAR line moving higher?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [14]
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 Yes, we're going to keep the 10% to 15% guidance, Casey, for now. We still have a lot of work to do to seamlessly cross the $50 billion threshold. Until that officially changes, we're continuing to work towards that. And hopefully, we'll be at the lower end of that guidance, but again, no promises on that front. If the $50 billion does move, I mean, certainly, there will be some level of expense slowdown. Hard to predict at this point because it's difficult to say what best practices in the industry will still continue to be after that mark moves.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [15]
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 We would look for not only the change in the law but then the ultimate guidance we would give from the regulators and that may take some time. So even if the change occurs at the end of this year or the beginning of next year, I would think that we would still have some level of expense associated with it through '18 because it's going to be sometime before it peters down as to exactly how to interpret what the changes are.

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 Casey Haire,  Jefferies LLC, Research Division - VP and Equity Analyst    [16]
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 Okay, great. And just looking out, I mean, when do you guys see yourself crossing that line, 2020?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [17]
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 Late '19 to early '20.

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Operator   [18]
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 Next question comes from Jared Shaw with Wells Fargo Securities.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [19]
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 Just following up on that. Without having a holding company, I mean, you're not as tied to -- you don't file CCAR, you don't have to comply with LCR, what are -- when you look at the investments you're making on risk management and compliance, how much of that is personnel versus systems? And how much of that will still have to happen even if we do see a raise in the threshold since you're a bank-only filer?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [20]
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 Even though we don't have a holding company, there still may be some sort of requirement as to DFAST or CCAR light, and that's what I meant when I said even though the law will change or the $50 billion will increase, it comes down to what's the interpretation by our primary federal regulator, that being the FDIC. And then you asked how much is people and how much is personnel and how much is systems, about 50-50.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [21]
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 Okay, okay. And then shifting onto the provision, the reserve. It's looks like you built the reserve this quarter, about $11 million with the flat loan growth. What's driving that reserve build? Is it -- any internal migration of credits? Or is that just more of a mix shift in the loan portfolio?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [22]
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 I think it's a little bit more of a mix shift as we see C&I becoming a greater portion of our growth profile. And we obviously provide a little bit more of that than we do on our CRE portfolio.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [23]
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 Okay, great. And then finally, just for me, any update on the pipeline for medallion sales? And should -- given where you mark those down, where the market seems to be at this point, opportunity for some potential gains there?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [24]
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 Well, yes, we're not really anticipating gains on that front. We've got a couple sales on the pipeline but nothing too meaningful there. But ultimately, we feel that it's fairly valued. Our cash flow models are coming in line with what we're seeing in market sales. Being it's a very disparate market, a lot of that has to do with whether people purchasing the medallions for all cash or whether financing is being provided, we still have a fairly large range of purchases. And we really, at this point, are just continuing to wind down that portfolio. We've had tremendous success this quarter in refinancing with existing borrowers, and we expect to continue to do that and ultimately get principal payments and interest payments coming back to us, which will help us to knock down the value of that portfolio.

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 Jared David Wesley Shaw,  Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst   [25]
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 Great. And then just my final one. When you talked about the $3 billion to $5 billion of growth, that's total balance sheet growth, right? So should we assume then that, that earlier guidance of a $10 billion securities portfolio at year-end, we should be a little bit below that unless we see a dramatic move in the 10-year?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [26]
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 I think that's a reasonable assumption.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [27]
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 I do want to add -- when you had mentioned LCR, one thing I want to mention is LCR requirements were put in place for other similarly situated banks like us. It's actually as much -- are higher costs there, then there is for CCAR. So even though when we go above -- it will be -- if we were above $50 billion and the $50 billion goes to $100 billion, there's still going to be some sort of LCR requirements. So we're going to wait and see what changes with the $50 billion and then we'll be able to give better guidance once we know what that will be. We hope it's such that our cost goes below 10%.

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Operator   [28]
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 Your next question comes from Dave Rochester with Deutsche Bank.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [29]
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 On the deposit side, are you guys seeing any competitors change their earnings credit rates at this point? And how are you guys positioned on that versus competitors?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [30]
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 Well, without giving out too much, we haven't seen much in a way of change with the earnings credit rating, except for isolated cases. I haven't seen an overall change, again just the isolated cases. And we're still in a much better position where we were and where we are.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [31]
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 So you guys view that as a competitive advantage for you when you're trying to attract deposits?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [32]
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 Absolutely.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [33]
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 Yes, okay. And on the NIM...

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [34]
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 You know what, our efficiency ratio allows us to do that.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [35]
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 Yes, yes, sounds good. And on the NIM, can you just talk about where you're pricing multifamily at this point, 5/1 ARMs predominantly, and then where securities or investment rates are today versus where they were for the quarter?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [36]
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 On the 5-year plain vanilla fixed multifamily, we're at 3 1/2% to 3 5/8%. And our competitors, we believe, and you know this as well as we do, we're seeing our competitors at 3 1/4%.

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [37]
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 On the securities, David, we're purchasing securities in the high 2s now.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [38]
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 And then during the quarter that was, what, mid-2s, I guess, 2.50% to 2.70% or something like that?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [39]
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 We really avoided buying at those levels. It would have been at those levels.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [40]
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 Got it. And then you mentioned securities pre the NIM -- hit the NIM a little bit this quarter. Can you just quantify that and then what your outlook is for 4Q that's baked into that guide?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [41]
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 Yes, the increase in amortization was about $642,000 in the quarter. So it should certainly stabilize and hopefully come down a little bit from that level or improve a little bit.

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 David Patrick Rochester,  Deutsche Bank AG, Research Division - Equity Research Analyst   [42]
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 Got you. And then just a housekeeping item on the other income line and the tax rate going forward. Will we see the tax rate bounce up a little bit? Or is this actually a good level going forward?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [43]
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 There was this discrete onetime item in taxes, so it will pop back up a bit. I'd use 38% going forward, which is still a little bit better than the 39% that we had.

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Operator   [44]
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 The next question is from Steven Alexopoulos with JPMorgan.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [45]
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 Sorry if I missed this, but on the third quarter deposit growth coming in so far below the mid-quarter guidance, what drove that? And on the flip side, why are you seeing such a strong pick up here in 4Q?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [46]
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 Because from quarter-to-quarter, there's a lot of choppiness because deals are made and deposits flow in and out. I had given during the middle of the third quarter or toward the end of the third quarter, I should say, when Eric and I were at a conference, deposit growth was around $770 million and we ended up being at $500 million. There were some deals that closed, funds that closed, money moving around. So there's no rhyme or reason other than clients are doing deals. And last year, in the third quarter, we had a $1.8 billion growth in deposits. That's merely because some things were moved up from the fourth quarter and some things were passed on from the second quarter into the third quarter, it was just really a matter of timing. No special sauce, so to speak.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [47]
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 Okay, okay. And Joe, if we look at the slowing deposit growth and the new range you provided, is it a case that the growth of the new teams you're bringing on, the potential has maybe come down a bit where it was historically? Or is this slowing growth mostly coming from the legacy teams?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [48]
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 Well, you know what? It's -- if you look at 2014 through 2016, we averaged just below $5 billion growth per year. And during that time, we had mentioned, both Eric and I, that there was some fluff in there because alternative investments were paying at 1, 2, 3 basis points and in some instances, maybe no basis points. Treasuries were incredibly low. Now there are alternatives. And as a result of the alternatives and the fact that the excess dollars sometimes are in -- on balance sheet and off balance sheet, the off balance sheet alternatives are something that clients can go back to now. And that is part of the competition, so to speak. We also see some of the clients actually doing some investing in their businesses, and we hope that, that leads to more loan growth for us. But right now, they're using their existing cash, which was something they were keeping with us. So it's really just a matter of something that was a tailwind several years ago becomes a headwind today.

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 Steven A. Alexopoulos,  JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks   [49]
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 Okay, that's helpful. And maybe just a final question. It was nice to see the provisions step down quarter even below the $20 million range you had talked about. Eric, how are you thinking about the provision now over the next few quarters?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [50]
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 For the fourth quarter, we're still going to keep that $20 million guidance in place because there's still choppiness in that medallion situation. And then hopefully, we should drop down to a normalized provision in 2018.

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Operator   [51]
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 Your next question is from Chris McGratty with KBW.

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 Christopher Edward McGratty,  Keefe, Bruyette, & Woods, Inc., Research Division - MD   [52]
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 Eric or Joe, looking ahead with kind of the multifamily and the CRE growth slowing a bit and obviously, you guys are focusing more on C&I, are there opportunities to accelerate the diversification strategy, meaning are there portfolio acquisition opportunities to kind of -- or teams to really jumpstart the C&I from here?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [53]
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 Well, one of the things that we did with Mike retiring, we felt that it was, at the size that we're at, that it made sense to have Mike's position be broken into 2, which allows the position of Chief Lending Officer to spend more time on growth, whereas when you have one position, equal amount of time is spent on growth as it is on risk and all the associated details related to risk. So with that move, there'll be at least a heightened -- more heightened awareness just simply because there will be more time.

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [54]
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 And Chris, we continue to hire in Signature Financial and salespeople on that front. That's also an area where we certainly have looked at portfolio acquisitions in the past and we continue to do so. Some of the recent team hires happen more on the C&I based book, and we'll continue to look for teams with more of a C&I flavor to the business.

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Operator   [55]
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 Your next question is from Ken Zerbe with Morgan Stanley.

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 Kenneth Allen Zerbe,  Morgan Stanley, Research Division - Executive Director   [56]
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 Just going back to the deposit side. I understand it can be very lumpy, and I totally understand the comments about the fluff and it's not fluffy anymore, if you will. But what is the, I guess, the competitive advantage that Signature has in gathering deposits? I mean -- and also, is it more on the CRE side or C&I side? I'm just trying to figure out like other than rates that you can offer, like what drives people to grow your deposits?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [57]
------------------------------
 Well, it's more on the C&I side than it is on the CRE side in terms of deposits. But we have this team concept, single point of contact, that no matter how big Signature gets, whether Signature is $41 billion, $410 billion, $4 trillion, you have a team that handles you so you never feel, as a client, that you get lost because we just hired a 100th team, it's like having 100 individual banks. So you always have that team as your advocate. You'll always have the team that your traffic cop. You'll always have the team as your ombudsman. That's a clear advantage over a big institution that moves you around. In fact, as people want to grow within a JPMorgan Chase, so to speak, they have to be promoted and therefore, they lose the relationships that they have. Here at Signature, once you're on a team and you're running a team, because you have a separate compensation model, because of the way we structured the institution, the client always feels that they're the only client, they're the top client. And you got to understand, when you ask about rate, our cost to bring in a client is far less than anybody in the market because we don't have the advertising costs. We don't have the -- real estate costs. We don't have the marketing costs. And we have individuals or teams that have centers of influence that they deal with constantly. And because we don't have all those costs, we could pay a little bit more on rate. But the reason why we pay a little bit more on the money market rate is because we have $10 billion in DDA. So a client that keeps $2 million in checking and keeps $5 million in money market, we could pay them 5 or 10 more basis points on the money market because of what they keep in DDA and because we're not wasting expense on retail, locations, on advertising and on marketing.

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 Kenneth Allen Zerbe,  Morgan Stanley, Research Division - Executive Director   [58]
------------------------------
 Got you, okay. No, it's actually very helpful. And then just one follow-up. In terms of the margin, presumably, if the 10-year gets -- goes higher, right, or you have steeper [harvest] that's beneficial, is it just as equally impactful on your NIM if the 10-year goes down a similar amount? Or is there anything that you can do to help protect the NIM on the downside if rates do fall?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [59]
------------------------------
 Yes, it's a little bit less on the downside than it is on the upside, Ken, at this point. But we are trying to add floating rate assets in the C&I portfolio, which helps as we see -- if we see the short end rise.

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [60]
------------------------------
 Ken, what you can do, if you want to have a further conversation on the team structure, I'd be glad to introduce you to a team, maybe you can come and open up an account for yourself.

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Operator   [61]
------------------------------
 Your next question is from Dave Bishop with FIG Partners.

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 David Jason Bishop,  FIG Partners, LLC, Research Division - Senior VP & Research Analyst   [62]
------------------------------
 Circling back to the teams, you noted you're at 100 right now, what do you see looking out in the crystal ball for 2018? Is that going to be a similar add, maybe 4 to 5, maybe a little bit slower, 2 to 3? I mean, are you getting a little bit choosier or pickier in terms of the types of teams you're looking at to add to the Signature portfolio?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [63]
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 Based on putting our business plan together for next year, we're looking at 4 to 5 teams.

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 David Jason Bishop,  FIG Partners, LLC, Research Division - Senior VP & Research Analyst   [64]
------------------------------
 Got it. And in terms of -- you talk about radius around the headquarters. Any thoughts of expanding that in terms of some of the core market there as you are sort of accounting some of the slower growth, I guess, in commercial real estate? Do you ever think, to bandy about, just to widen that circle, widen that radius out from the headquarters in terms of the overall core footprint?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [65]
------------------------------
 Not really. I think I would say because we have an office in Greenwich and because we're dealing with some -- well, not some, we're dealing with a number of clients in Connecticut, we may go a little bit further. As long as it's not suburban office space, but if it's multifamily, we'd probably go a little bit further because the fact that we're in Connecticut, we don't want to quibble over 10 miles or so. But there's such a density of real estate, safe real estate that we're pretty comfortable with the radius that we're doing right now.

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 David Jason Bishop,  FIG Partners, LLC, Research Division - Senior VP & Research Analyst   [66]
------------------------------
 Got it. And then just maybe -- just curious maybe over the past, call it, 2 to 3 weeks or so in terms of deposit pricing. I know when you spoke at the conference, you had seen a number of people running specials. Have you seen any sort of loosening of intensity there? Or is pricing on the deposit side still just as intense?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [67]
------------------------------
 We've seen a little less because we're away from -- each day, you get away from the Fed increase, you feel a little less intensity. But there are, without naming names, there are 2 or 3 banks that are offering rates that are simply out of the ballpark. And we're not sure how they're doing it other than just buying.

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Operator   [68]
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 The next question comes from David Chiaverini with Wedbush Securities.

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 David John Chiaverini,  Wedbush Securities Inc., Research Division - Research Analyst   [69]
------------------------------
 Question on the efficiency ratio outlook. In light of possible margin compression that you mentioned, slowing balance sheet growth, all at the same time, there's no change to the expense growth outlook of 10% to 15%, is it fair to say that the efficiency ratio could move to the high 30s from the mid-30s looking out to '18?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [70]
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 No, we highly doubt we'll reach the high 30s. We should be relatively stable. Our expense guide was to the low end hopefully of that -- of that range, and that should help to offset the pressures in the NIM. It should be a relatively stable efficiency ratio.

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Operator   [71]
------------------------------
 Your next question comes from Matthew Breese with Piper Jaffray.

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 Matthew M. Breese,  Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst   [72]
------------------------------
 I just wanted to touch on the loan growth and asset growth guidance and yields in the multifamily space. Given you remain above competition, it sounds like, by 25, 50 basis points, and there's a slowdown in growth guidance, how much of that is -- how much of the slowdown in the growth guide is because of rates? And how much is due to just overall slower multifamily activity in New York City? And then with that, could you comment on what you're seeing in terms of activity in New York City?

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 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [73]
------------------------------
 I would say, if not all, certainly, almost all of it has to do with the slowdown in activity. In talking with some of the title companies that we have as clients, they're seeing a 50% reduction in business from last year. So I would -- the reason why I don't say all, I say almost all was because we may have lost a deal or 2 on pricing, but it's really more on the activity levels out there.

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [74]
------------------------------
 And we've been traditionally priced at 0.25 to 0.375 point higher than market for as long as we can remember. So it's not the pricing.

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 Matthew M. Breese,  Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst   [75]
------------------------------
 Right. And how far does that extend? I mean, does this extend multifamily CRE and then does it bleed into C&I? Or is it just -- because of the different asset class, it doesn't impact it?

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [76]
------------------------------
 It's a different asset class and it's different.

------------------------------
 Matthew M. Breese,  Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst   [77]
------------------------------
 Okay, okay. And then could you talk about the team hired yesterday? It reads like it's more of a C&I-based team but maybe provide some commentary on then. And then the 100 teams you have, kind of what's the breakdown between CRE-focused, deposit-focused and C&I-focused at this point?

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 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [78]
------------------------------
 Yes, the team that we hired or that we announced yesterday is predominantly C&I-generating team. That will come with a substantial amount of deposits as well. Capital One background, but they also effectively built the commercial franchise at Banco Popular. So we're excited about the opportunities that they can bring to the bank. But I'd say that they're predominantly C&I-related.

------------------------------
 Matthew M. Breese,  Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst   [79]
------------------------------
 Okay. And then just a follow-up on the deposit cost discussion. Where are you losing business on deposit pricing? Can you just give us an idea of what that difference is, where you're willing to go up to and where competitors are coming in over the top?

------------------------------
 Joseph J. DePaolo,  Signature Bank - Co-Founder, CEO, President and Executive Director   [80]
------------------------------
 I don't want to answer that directly because I don't want -- just like we read transcripts, our competitors read transcripts. Let's just say it's probably, when you take our highest rate, a good 25 basis points above that.

------------------------------
Operator   [81]
------------------------------
 Your next question comes from Lana Chan with BMO Capital Markets.

------------------------------
 Lana Chan,  BMO Capital Markets Equity Research - MD & Senior Equity Analyst   [82]
------------------------------
 On Signature Financial, can you give us an idea of how many salespeople you have there and what the yields are on new originations?

------------------------------
 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [83]
------------------------------
 There's approximately 30 people, salespeople there, Lana. Now and obviously, as we talked about earlier, we're looking to grow that sales force. Yields are generally in the high 3s to low 4s now in that business.

------------------------------
 Lana Chan,  BMO Capital Markets Equity Research - MD & Senior Equity Analyst   [84]
------------------------------
 Okay, great. Thank you. And then just a follow-up on the commentary before about LCR, the movement of the $50 billion, if it doesn't happen shortly. In terms of how you're looking at potentially compliance with LCR, whether or not you have to or not with the holding company, how do you look at your sort of the volatility of your deposit base and as well as like HQLA under -- under your securities portfolio under LCR?

------------------------------
 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [85]
------------------------------
 Well, we're clearly going to have continue to build HQLA. We started that process albeit at a very slow pace, and we'll continue to do that over the next several years as we look across to $50 billion. Remember, LCR doesn't go into place until a year after you've averaged $50 billion for a year, so that's probably 2020 to 2021. On the deposit side, we've got a lot of work to do around our deposit, being it -- we're putting systems in place where it can more granularly review deposit betas of individual clients as well as groupings of clients so that we can get adequate treatment for them under the LCR.

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 Lana Chan,  BMO Capital Markets Equity Research - MD & Senior Equity Analyst   [86]
------------------------------
 Okay. And do you have an estimate in terms of how much of your securities is HQLA right now?

------------------------------
 Eric R. Howell,  Signature Bank - EVP of Corporate & Business Development   [87]
------------------------------
 No, I don't have an estimate on that one.

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Operator   [88]
------------------------------
 This concludes our allotted time for Q&A 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 96636294. 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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