Signature Bank at RBC Capital Markets Financial Institutions Conference

Mar 07, 2018 PM UTC 查看原文
SBNY - Signature Bank
Signature Bank at RBC Capital Markets Financial Institutions Conference
Mar 07, 2018 / 02:20PM GMT 

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Corporate Participants
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   *  Eric Raymond Howell
      Signature Bank - EVP of Corporate & Business Development
   *  Joseph John DePaolo
      Signature Bank - President, CEO & Director

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Conference Call Participants
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   *  Jacob F. Civiello
      RBC Capital Markets, LLC, Research Division - Analyst

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Presentation
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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [1]
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 Joining us this morning, we're happy to sit down with Signature Bank here.

 Signature's well known to all bank investors for operating really unique business model. It has proven loan and deposit growth potential that well exceeds other similar banks in terms of asset size with an industry-leading efficiency ratio. It's a model that I personally don't think gets enough credit for the innovative approached. I think that's probably a big factor there, is the inability of other banks, quite frankly, to recreate it.

 Signature was formed in the year 2000. Today it has assets of $43 billion with outstanding credit quality in the core banking businesses.

 With us today are President and CEO, Joe DePaolo; and Eric Howell, who's the EVP of Corporate and Business Development. And Joe is one of the cofounders of Signature Bank, prior to that, he was with Republic National for 13 years in various roles. And Eric joined Signature in 2000, was the CFO for almost 10 years and has been in is his current position for about 5 years, if I'm not mistaken. So why don't I leave it there and turn it over to Joe for some of his thoughts.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [2]
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 Yes, I thought I would give an update of where we are in the quarter. Some of these things will be coming out in a press release as well. We've already hired 1 team this year and we're about to hire our second team. They haven't come on board, they were just waiting for their bonuses to be paid. So we'll have 2 teams already this year in New York and you all know that we're going to the West Coast. We had 1 team that we hired last year that was both San Francisco and New York and we had an accommodation office opened.

 While we're in the process of signing a lease and opening up a regular Signature Bank office on the 20-plus-something floor in San Francisco, that'll have a number of teams in it.

 We've actually hired a #1 person and a #2 person to run the West Coast, or at least in the short term to run California, we're very excited about these two gentlemen that we're bringing on board and their names will come out in a press release. But you'll see where they came from, why we're excited about having them.

 Deposit growth, right now, is above $800 million. It actually, in the first couple of weeks of the year, it hit $700 million right away, and at one point it was $1.2 billion. So $1.2 billion and you know, as Eric always likes to say, we have a lot of fluctuations, a lot of movement in deposits. So right now, it's about a little over $800 million.

 Loan growth is just about between $500 million and $600 million at this moment. We have a pipeline of about $200 million to $300 million more. And then who knows, what could close before the end of the quarter.

 So we're very happy right now with the growth on where it is for both deposits, loans and the number of teams that we have on board.

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Questions and Answers
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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [1]
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 That's great, thanks. And I should say too, if anybody has any questions at any point in time, please feel free to raise your hand to make this as interactive as possible, certainly, for the half hour. You mentioned hiring teams, I don't need to dig too deep into this, but I'm curious, how do you go about performing due diligence on a new team? So you mentioned hiring a team from -- that's going to be based out in San Francisco with New York roots as well. What are some of the quantitative and qualitative things that you're looking for?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [2]
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 Well, we're looking for someone that has confidence because they need to be confident that they can bring the business over and we also look to see that they have been somewhat consistent as to where they were. It's hard to bring on someone that's moved to 3 different institutions in 5 years because you really can't move your book of business, primarily because it's commercial, not consumer. On the consumer side it may be easier, well, we're looking for the commercial business. So we also do our due diligence by asking people that -- about bankers that we've hired from the same institution. For instance, we hired a team from a bank, they came on board a year and half ago or so and then they recommended another team and that team was the one that is in San Francisco and New York. So we usually get referrals from our existing bankers, and that's how we do a lot of the due diligence.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [3]
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 And then how does that vetting process work then? Are you going through an interview process where it's 1, 3, 5 different interviews or you can get a...

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [4]
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 Well, Eric -- they interview with Eric, then they interview with John Tamberlane, our Vice Chairman, and myself. I tried to play a role that's kind of strange, there used to be a program on TV called Scared Straight and it was like juvenile delinquents that were faced off with these hardened convicts and the hardened convicts would scream and talk about all the things they go through in prison, try to scare these people. What I try to do is something along the lines of, are you sure that you can bring in this business? Because if you can't bring in the business, you're not hurting us, you're hurting yourself. And so I try not to do a sales job, I try to Scared Straight them. And I don't dress up as a prisoner though.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [5]
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 But you are the hardened convict?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [6]
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 I am the hardened convict because this is what -- there are a number of people that think they're very good at developing business. But if they don't have a book, it takes a long time with our objective composition model for them to be satisfied. We have patience. We try to find people that don't have patience. That they really want to bring their book of business over. It takes time because there are lockbox services, there's ACHs, there's cash management services. Usually, a client of ours may have 50 or 60 accounts. It's not like a broker that it can ACAT everything over. It takes time and they need to be confident and that's -- so they usually interview with 3 people, Eric, our Vice Chairman, John Tamberlane and myself.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [7]
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 Eric, is there a minimum amount on a dollar basis that you're looking for or how do you think about that?

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [8]
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 Do you know every team is a little different, right? So it depends on the size of the team, the salaries of the team. But we certainly don't want -- I'm not going to hire someone with $50 million in balances, right? [Supposedly] got to be pretty sizable. But we really spend a lot of time, Jake, around telling them they need to do due diligence on us, why don't we do on them, right?

 It's -- this is a big change in their life and we don't want anyone to come to Signature Bank and fail, right? We want to have the best reputation out there, we want bankers to know when they come to us, that they succeed.

 So they'll meet often with our Chief Credit Officer, Chief Lending Officer, Head of Cash Management, Head of HR, whoever they need to get comfortable that they can actually move their book of business to us. So -- because like Joe said, it's important to have a book, but it's also important to have a book that's portable and they have to know that we're going to make their loans. They have to know that we have the deposit services in place that can cater to our clients. So it's just as important for them to do due diligence on us, as it is for us to do on them. And that's how we did a lot of comfort.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [9]
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 We always say what part of your book is eligible? It's usually not a 100%, but if it's 50% or less, then they shouldn't come because only a percentage of the eligible books are going to come. And we give them the model, Eric gives them the model and we say, fill it in and tell us what bonus you're going to make.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [10]
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 Sure. Yes, go ahead.

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 Unidentified Analyst,    [11]
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 I agree Jake, that is a really interesting model. One of the things I wondered about and this is not a big -- not necessarily because I'm suggesting it, how long -- how much runway is available for this? For you to sort of tap out on sort of this opportunity set that can give you the kind of growth -- can open the door?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [12]
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 Well, with New York, we still see a lot of runway because there's so many businesses that are not our clients. There's probably a lot more businesses out there than there are bankers that function this way. But what's helped us is, we get additional clients through our existing clients. That's where more of our business is coming from than the bankers themselves. Our clients are referring clients to us.

 And there's just so many -- just in Long Island, the middle market there, there's just so many business we haven't tapped yet, that may be handled by a big bank, but not in the same way we handle them in a team concept. And we -- they may not have one banker, they may have multiple bankers, so it's really hard to bring them over. We usually get that piece of business through a referral from another client and we -- in our discussions of some of the people that we've talked to in -- on the West Coast, there seems to be a lacking of someone like Signature because First Republic does it from the personal side, not from the business side. We go from the business side and I think City National is similar to First Republic. So we think that there's a lot of runway there. We haven't even taken off yet, we haven't even started the plane yet on the runway. Hasn't even pulled away from this gate on the West Coast. And then there may be other areas like that as well, so we're confident the $3 billion to $5 billion growth is something that we can sustain.

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [13]
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 But in New York, we only have 2% market share. So if you look at addressable market, maybe it's 5%. So it's a long way to go and when you think about Signature, when we first started, our addressable market was much smaller, we're a tiny start-up bank, right? So now at $43 billion, we're attracting clients of significant size that we couldn't have banked 5, 10 years ago. So our addressable market continues to grow, which leads to bankers and niches that we couldn't go after before, that we can now support. So there's a lot of runway to go just in New York, forget the West Coast, that's additive to everything.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [14]
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 Sure.

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 Unidentified Analyst,    [15]
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 Just going back to hiring new team members, what's your pitch to these team members to make them believe they're kind of (inaudible)?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [16]
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 Well, lately, we haven't had to. We've had some CEOs that had really upsetted us with some of the teams that we've hired, but they've actually sought us out because they've heard about the model, they've heard about how we run the institution and I think what we've had to do, we've had to change a little. We used to go out to do due diligence and try to find teams. We're now having teams knocking on our door and we have to really do due diligence because there's more teams than we usually have to work on. So everybody that's knocking on the door, we have to do a lot of due diligence. So it's really been word-of-mouth for us. We do not use headhunters or executive search firms. We do that for -- we do it for support positions and some of the higher level positions, but for the group directors, the business developers that have teams, we've never used a headhunter before.

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [17]
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 Well, I was just going to say, what attracts these teams to us though and the value-add that we have is, we really look at ourselves more as a professional services firm, an accounting firm, a law firm, a medical practice. We say to these bankers, bring your banking practice to Signature, right? We treat them professionally and we pay them well if they're successful. We effectively say, you're a partner in our institution, the bigger you grow your banking practice, the more money you make. And we have a compensation model that's been in place for over 30-plus years that they can vet with any banker that we have here. And it's a consistency of that model that's really attractive to them and they can see, if I bring in $100 million in deposits, this is what I'm going to make, by bringing $500 million, this is what I'm going to make. They don't get that at any other institution, right? There's constant change in management, and compensation plans, and focus, right? We have not changed since the day we've opened our doors. So that's what is really attractive to these banking teams.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [18]
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 Senior management has to have the guts to say that they're going to stay with the compensation model, even if the amounts of money are substantial because the business is coming in through them. We don't advertise, 0 advertisement, we don't have offices on the retail level, except for the first few that we opened. We don't market. So you're not going to see our name on a stadium. You're not going to see our names in the U.S. Open, it says Chase on one side, JPMorgan on the other. What happens is, some of these institutions that try to be like us, change the comp model. And that really upsets people. And one last thing, they do a lot of meetings and a lot of conference calls at other institutions because the middle management loves to hear themselves speak.

 Now we have middle management in all the support areas, all the risk areas that support the institution, but in the teams, we have 100 teams and senior management because you get bankers that go to a -- I apologize, I'll say, they go to Ivy League schools, then they work at a consulting firm, work 24 hours a day for 7 years, then they'll join a big bank, and then they'll start telling everybody that works for them how to do things. Never ran a business, never want to try to bring in business as a -- never tried to bring in clients and then try to tell bankers what to do.

 We are bankers that have been doing things for 30 and 40 years, they don't need to be told what to do. They have their own P&L, and they get treated with a lot of respect. The one thing I love, we've had a few people retire recently, and 100% they all said, the only thing they regret is that Signature Bank didn't open up 20 years earlier.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [19]
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 Can you envision a scenario where the San Francisco office kind of feeds upon itself, in terms of other potential teams from other markets in the country, you name the city, decide, hey, this is working here, we should consider potentially reaching out to you?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [20]
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 I think that you need which Eric was able to find, someone that is known in the market. Once that you hire that person, it's interesting that they tell the story and then new markets listening to us and I think in San Francisco, we found that person for the -- for all of California. I think you need to find a local person.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [21]
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 Right. To pivot here and change the topic a little bit. I think on your fourth quarter earnings conference call, Joe, you mentioned making some major investments in several platforms, including your loan systems, payments and new FX architecture. I'm hoping we can kind of dig into this a little bit more, what kind of modernizations are you making to your systems and are you freshening up any of your kind of customer-facing or oriented tools?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [22]
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 Not really customer fit well. In cash management, that's customer facing.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [23]
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 Right.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [24]
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 There are things that we're a little behind in and are now catching up. We've made some people changes as well. We structured the cash management organization, so it's not only systems, it was how things were functioning and to create more product. Both the cash management and the payments by systems are really one and the same. In FX, where -- that would be customer facing as well. Do you want to talk a little about the cash management?

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [25]
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 Well, yes, cash management really just streamlining processes there, what we've been here for 17 years, right? It's time for us to take a fresh look at some of the products that we have there, somewhere integrated we need to update, some quite frankly we don't use, right? One or two clients on them, we need to think about, do we still support that product or not? So -- and we're really focused on a client experience.

 Have to get better at client onboarding, making it easier for the client, the paperwork, all those things. So that's our emphasis, is really looking at, what are our client's needs? Do our products really fulfill those needs the best possible and how do we streamline the client onboarding process? So that's kind of where our focus is in cash management. On the FX side, we've put in -- we're in the process of putting in a new client-facing portal that really helped the client experience there. And as we've grown, again, as we talked about earlier, we have clients with international needs and we have to have those capabilities to service those clients' needs, so we have to get better at FX, so that's really an area of focus for us.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [26]
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 Do you think -- can there be revenue-enhancement tools?

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [27]
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 Absolutely. They better be.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [28]
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 Absolutely.

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [29]
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 There's no reason to do it. So -- and then when you look at the loan side, the approval process has become antiquated over the years, so we're putting a new approval process that'll hopefully streamline that. Although, I can tell you, I see Joe, John and Scott walking up and down the halls all day long approving loans. So we're very rapid to approve loans, but I think we can streamline and make it easier for everyone and again, that'll help the client experience, right? We're very quick to turn around the credit. But we can be faster and better. So most of what we're doing is around that client experience.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [30]
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 And with everything Eric said, we're not only doing the systems, but we made some changes. Like the high-end, we had a Chief Credit Officer that retired and we broke that position up into 2, Chief Credit Officer, Chief Lending Officer. And with the changes that Eric's talking about on the loan system, we also needed to make a change and create 2 positions because at a $40-plus billion dollar bank, it just was becoming unwielding for someone to try to play both roles. Same thing in cash management. We had somebody that was in charge of sales and product, but we really broke it up and say, you shouldn't really concentrate on sales and spend every waking moment on your life out there, with supporting the teams and someone else will do product. So the people changes were made as well.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [31]
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 Do think that people changes and the tech adjustments as well were accelerated by the influx of capital that's expected from lower tax rate next year or this year?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [32]
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 No. They were planned -- when we planned out 2018 and we planned these changes, that was before any discussion of tax legislation changes.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [33]
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 Do you think that -- so just very briefly on some of my background, I worked as an asset liability analyst for a bank and one of the most frustrating challenges that we dealt with was basically how to pull customer data out of various systems and getting it to a position where you could then actually do the analysis of it. And do you think that you'll be able to make some architecture investments that better provide more consistent customer data that you can actually then do a better job on your analysis and reporting?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [34]
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 Yes. We actually hired someone, John, two years ago.

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [35]
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 Two years ago.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [36]
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 And he's starting to provide information that is very useful. And information that was there, but not really extracted out in ways that you can analyze it. So we made that investment 2 years ago. And so it helps a little bit more. It's in the past.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [37]
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 Maybe we can talk for just a couple of minutes on your thoughts on interest rates and impact of the shape of the yield curve on your net interest revenue. You're assuming 2 or 3 Fed funds rate hikes in your margin expectations for 2018, with the shape of the yield curve remaining consistent, which I think is important. Loan originating yields are -- you're seeing some increases there, and then deposit costs are also rising. Do you anticipate or expect your deposit betas to increase with subsequent rate hikes?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [38]
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 Absolutely. With every rate hike, I think it gets more difficult because our clients see and hear that the Fed raised rates, so automatically, they think that their rate should move and we've had a couple of outliers, 3 different banks that have raised their rates far beyond what we did and our clients just question, how could they -- you have all my DDA, you have all my checking and you're my bank, they're not my bank and they were offering me 45 basis points more. Now you don't have to give them the additional 45, but you have to be somewhere in between and that really has an effect on our margins. But one of the things that happened in 2017 and is happening even more so in 2018, is that we're really opening up a lot more operating accounts and we're bringing in a lot more DDA.

 We -- I'll go all at it. I won't give the figure, but our DDA growth in the first quarter, thus far, is pretty substantial and more than -- and it was more -- we had $1.5 billion growth in deposits in 2017 and more than $800 million was DDA.

 So if we lose some of the money market, that's okay, as long as the DDA continues to grow.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [39]
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 Right. And what is that today as a percentage of your total deposits?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [40]
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 About 33%. 33%, 34%. We're also -- we're competing against treasuries. We used to have substantial dollars off balance sheet into a money market fund, fidelity enrollment money market funds -- money market mutual funds. And we moved all that on balance sheet. Much so that we used to earn about $3.5 million in fees quarterly. Now we're earning about $250,000 quarterly because we don't have as many funds off balance sheet. We're competing with that as well.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [41]
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 I think most of us in this room probably recognize and you both -- Joe and Eric, you both mentioned that your private client teams are highly incentivized by deposit gathering. And it's not just gathering, it's maintaining those deposits over a period of time. So are there ways or other ways to kind of tweak the business model to really incentivize those teams even more? Or is there not even a necessity to do that?

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [42]
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 The model is behavioral. And it's behavioral to the point that if you're bringing DDA, you make a lot of money. It's 6 -- if you bring in a DDA account, it's 6x the revenue of a money market and 12x the revenue of a CD. So if you never bring in a CD, and you bring in DDA, you make a lot of money. And on the loan side, it's 3x as great in DDA account than it is booking a loan. And it's all based on average, so it doesn't matter how much you bring in today, it's how much stays. And I don't know if you have any thoughts, but I can't imagine us having to change that model for the amount of revenue we give them and that revenue, that spread we give them stays, where the Fed fund is a 0 or 6%, because our belief at Signature is that, DDA is always good and it may not be as valuable as Fed funds that was 1%, but it's what the franchise is made of and what the bank is made of. And when somebody values a bank they should be looking at their deposits, not their loans. It's a lot harder to bring in a deposit than it is to give the money out in a loan, especially when you don't give interest.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [43]
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 Right. Does -- with what we've seen in terms of the middle- to longer end of the yield curve so far in the first quarter, I mean some -- I was frankly surprised by seeing kind of mid-40 to upwards of 50 basis points of increase. Has it changed your thinking at all regarding instability in the first quarter?

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [44]
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 Yes. I think it would have, if we didn't see the significant deposit pressures that we're seeing. So it's being offset by that, but it's certainly helpful that all of our asset yields are repricing up. Beginning -- putting securities on today in the $340-ish million range, where that was 3% beginning of the year, so it's been significantly improved. There's certainly CPR speeds on the existing portfolio will slow down. Joe talked about the -- our 5-year fixed rate going up to 4.25%, us making 4 moves throughout the course of this year on that rate, so that's helpful. Signature Financial's generally coming in, and I'd say, $420 million to $450 million range with new growth, so again, that's up quite a bit from what we saw at the beginning of the year. So all asset classes have repriced up. Last quarter, we saw our first quarter of asset yield expansion in quite a while and now we think that should pick up from here. The offset is that the deposit pressures are intense. So -- and the more the Fed moves, the more frequently they move, the more severe if we saw a 50 basis points hike in there, the more pressures we're going to see on those deposits.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [45]
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 You mentioned Signature Financial, we have time for maybe one more question here. I mean, does tax reform change how you think about allocating growth capital towards certain businesses for Signature Financial as an example?

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 Eric Raymond Howell,  Signature Bank - EVP of Corporate & Business Development   [46]
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 Well, Signature Financial should be a -- big clients are benefiting from what's going on in the recent world. So we think that, that could be a nice catalyst of growth for Signature Financial. Again, the yields that we're seeing there have really picked up. The duration of that portfolio is about 2.1 years, so it's a very short-duration portfolio. So we like what we're seeing in that space. The one area of that group that we're being thoughtful around is Municipal Finance, since the tax breaks there aren't as great as they were, we're not seeing competition price that in quite yet. We're being a little conservative there and just being thoughtful around how we price any new business on that front. But the rest of it should -- we really are expecting with infrastructure spend and a lot of things that the President's talking about that we could see a nice pick up in that area.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [47]
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 As we're ending, I would like to ask everybody to call or write their congressperson because they need to vote to move Dodd-Frank $50 billion to at least $100 billion.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [48]
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 Seems like we're a lot closer to that possibly today than we were 12 months ago.

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 Joseph John DePaolo,  Signature Bank - President, CEO & Director   [49]
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 We are.

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 Jacob F. Civiello,  RBC Capital Markets, LLC, Research Division - Analyst   [50]
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 But that's all the time we have here for Signature. Please join me in a round of applause to thank them.




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