Signature Bank
Q3 2017 Earnings Call Transcript

Published: 19 Oct 2017

[Operator:]

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. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [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.

[Joseph DePaolo:]

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 Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

[Susan Lewis:]

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.

[Joseph DePaolo:]

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 a taxi medallion exposure. Additionally, we further invested in our future with the hiring of two 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 or $2.29 diluted earnings per share, an increase of 48 million or 64% compared with 67.1 million or $1.41 diluted earnings per share reported in the same period last year. The increase in net income was driven by 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 cost 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 2016 third quarter, deposits increased 2.3 billion and average deposits increased 2.9 billion. Non-interest 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 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%, 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, our portfolio continues 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 non-accrual is proving beneficial. We are working with our borrowers to refinance their debt. All payments including interests are now apply towards paying down principal. As such, non-accrual 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 non-accrual loans of taxi medallions. Therefore for the remaining portfolio of over 30 billion in loans there were only 24 million in non-accrual loans or 8 basis points demonstrating again the pristine quality of our portfolio. Our pass-due loan remained relatively stable with 30 to 89 day pass-due loans increasing 16 million to 45 million while 90 day plus pass-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 were for taxi medallion loans compared with 229 million for the 2017 second quarter and 100.5 million for the 2017 third quarter. The allowance for loan losses increased to 62 basis points in loans versus 60 basis points for the 2017 second quarter. Now onto the team front, we added two teams during the third quarter bringing our total team hires three year to four 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.

[Eric Howell:]

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, 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 deposits cost. Let’s look at asset yields and funding cost for a moment. Interest earning asset yields increased 4 basis points from one year ago and remained stable from the linked quarter at 3.66%. Yields on the securities portfolio decreased 8 basis point linked quarter to 2.97% giving a slight uptake 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. Now looking at liabilities, our overall deposit cost this quarter increased 6 basis points to 55 basis points compared to the 2017 second quarter. Average borrowings excluding subordinated debt increased to 158 million to 3.1 billion or only 7.5% of our average balance sheet. The average borrowing costs remain stable at 1.48%. Overall, the cost of funds for the quarter increased 6 basis points to 67 basis points. On to non-interest income and expense, non-interest 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. Non-interest 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 cost 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 strengthen 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 of 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.

[Joseph DePaolo:]

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 the 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 of 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 17th. Mike has been with us from the start and he'll be daily missed. We thank him for all the contributions he has made to the Bank which are too numerous to know here. In his place, we created two positions, Chief Lending Officer and Chief Credit Officer. Drawing upon the deep talent already in our institutions, 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 two 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're happy to answer any questions you might have. Christy, I'll turn it to you.

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] Your first question is coming from Ebrahim Poonawala of Bank of America.

[Ebrahim Poonawala:]

So Joe if you can touch upon means I appreciate the significant volatility on both side of the balance sheet. Looks like loan growth was much better than kind of what you've provided in 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 you seen over the last few quarters?

[Joseph DePaolo:]

I would adjust it from 4 to 6 to 3 to 5. Although, right now, the fourth quarter currently on deposit growth is 550 million as of the close of the business yesterday. And our average deposit growth as of the close of the business yesterday for the fourth quarter exceed 800 million, so although they're very strong, we think that with the current environment, being as it is that 3 to 5, it better reflects what we’d project.

[Ebrahim Poonawala:]

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?

[Joseph DePaolo:]

We see a good momentum in commercial real estate. Usually for Signature Financial, the fourth quarter is the best quarter in production. They had 250 million in the 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 four -- this quarter in 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.

[Ebrahim Poonawala:]

Understood. And just if we could maybe switch to the margin, appreciate sort of the pressure on deposit costs 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 will see what the Fed does then? But are you seeing some of this pressure abate or is it continuing?

[Joseph DePaolo:]

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 the plateau. So we’re hoping that from now until December, when the next raise is supposed to be that will 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 is only going to be a couple of weeks left remaining in the quarter.

[Operator:]

Thank you. Next question comes from Casey Haire with Jefferies.

[Casey Haire:]

I guess just following up on the margin outlook, given some abating pressures, can you just tie together and I know you guys talked about 3 to 6 basis points to margin pressure a month ago. Obviously, we’ve gotten a little bit more slope to the curve, how does the margin outlook look today?

[Eric Howell:]

We expect that will 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 at the yield curve remains similarly shaped to what it is today.

[Casey Haire:]

With the switching the 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 the stock price right now?

[Joseph DePaolo:]

That'd be hard to predict because we still consider ourselves growing $3 billion to $5 billion still a growth story. And although, equity will be ahead of that, we're still competing with the JPMorgan Chases of the world and having the strong capital helps us to continue to attract the type of clientele we like to attract. So I wouldn't predict at all right now when we'd ever entertain doing so.

[Casey Haire:]

Okay. And just last one on the expense front, good to see 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 of moving higher?

[Eric Howell:]

Yes, we're going to keep 10% to 15% guidance Casey for now. We still have a lot a work to do to seamlessly across 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 doesn't move and then 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.

[Joseph DePaolo:]

Yes, we would look for not only the change to lower but then the ultimate guidance we would get 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 the next year, I would think that we will still have some level of expense associated with it through '18 because it's going to be sometime before peter's down as to exactly how to interpret what the changes are.

[Casey Haire:]

Okay great. And just looking out, I mean when you guys see yourself crossing that line 2020?

[Eric Howell:]

Late '19 to early '20.

[Operator:]

Thank you. Next question comes from Jared Shaw with Wells Fargo Securities.

[Jared Shaw:]

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 your bank only filer?

[Joseph DePaolo:]

Even though we don't have a holding company, there still maybe 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 -- how much is personnel or how much about 50-50.

[Jared Shaw:]

Okay. And then -- thanks guys. And then shifting onto the provision and the reserve, it looks like you built the reserve of this quarter by 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?

[Eric Howell:]

I think it’s a little bit more of the mix shift as we see C&I becoming a greater portion of our growth profile. We obviously provide a little bit more of that and we do want to see our CRE portfolio.

[Jared Shaw:]

And then finally just from me. Any update on the pipeline from medallion sales? And should given where you mark those down and where the markets seems to be at this point opportunity for some potential gains there?

[Joseph DePaolo:]

We’re not really anticipating gains on that front. We’ve got a couple of sales within pipeline but nothing too meaningful there. But ultimately, we feel that is fairly valued, our cash flow models are coming in line with what we’re seeing in market sales. Being it's a very desperate market, a lot of that has to do with other people purchasing the medallions for all cash or whether financing has been provided at least still fairly large range of purchases. And really at this point, we just continue to line down that portfolio and we’ve had tremendous success this quarter and refinancing with the existing borrowers. And we expect to continue to do that and ultimately get principle payments and interest payments coming back to us which will help us to knock down the value of that portfolio.

[Jared Shaw:]

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 that earlier guidance of a $10 billion security portfolio at year-end? We should be a little bit below that unless we see a dramatic move in, in the 10 year?

[Joseph DePaolo:]

I think that’s a reasonable assumption.

[Jared Shaw:]

Great, thanks very much.

[Joseph DePaolo:]

I do want to add -- when you mentioned LCR, one thing I want to mention is, LCR requirements we’ve put in place for other similarly situated banks like us is actually as much a higher cost there, then there is for CCAR. So even through when we go above -- if we are above 50 billion and the 50 billion goes to a 100 billion, there still maybe 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%.

[Operator:]

Thank you. Your next question comes from Dave Rochester with Deutsche Bank.

[Dave Rochester:]

On the deposit side, are you guys seeing any competitors changed their earnings credit rates at this point? And how are you guys positioned on that versus competitors?

[Joseph DePaolo:]

Well, without giving out too much, we haven’t seen much in a way change with the earnings credit rate 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.

[Dave Rochester:]

So you guys view that as a competitive advantage for you when you’re trying to attract deposits?

[Joseph DePaolo:]

Absolutely.

[Dave Rochester:]

Okay, and on the NIM

[Joseph DePaolo:]

Our efficiency ratio allows us to do that.

[Dave Rochester:]

Yes, sounds good. And on the NIM, can you just talk about where your pricing multi-family at this point 5-1 ARMs predominantly, and then where securities or investment rates are today versus where they were for the quarter?

[Joseph DePaolo:]

On the five-year plain vanilla fixed multi-family, we’re at three and half to three and five eights. And our competitors, we believe we noticed as well as we do, we’re seeing our competitors at three in a quarter.

[Eric Howell:]

On the securities, Dave, we’re purchasing securities in the high 2s now.

[Dave Rochester:]

And then during the quarter that was what mid-2s, I guess 2.50 to 2.70 or something like that.

[Eric Howell:]

We really avoided buying at those levels and would have been at those levels.

[Dave Rochester:]

Got it. And then you mentioned securities pre-NIM hit the NIM a little bit this quarter. Can you just quantify that? And what's your outlook is for 4Q that’s baked into that guide?

[Eric Howell:]

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.

[Dave Rochester:]

And then just housekeeping item on the other income line and the tax rate going forward, we see the tax rate bounce up a little bit or is this actually good level going forward?

[Eric Howell:]

There was this discrete one-time 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 39% that we had.

[Operator:]

Thank you. Next question is from Steven Alexopoulos with JP Morgan.

[Steven Alexopoulos:]

Sorry, if I miss this, but on the third quarter deposit growth coming in so far below the mid-quarter guidance. What drove that? And on the flipside, why you’re seeing such a strong pick-up here in 4Q?

[Joseph DePaolo:]

Because from quarter-to-quarter, there is a lot of choppiness because deals are made and deposits flow in and out, I had given during the middle of third quarter or towards the end of the third quarter, I should say. When Eric and I were at a conference, deposit growth was around 770 million. We ended up being at 500 million. There were some deals that closed, funds that closed, money moving around. So there is 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 nearly because some things were moved up from the fourth quarter and some things were passed on from the second quarter into the third quarter, which is really a matter of timing. No special sauce so to speak.

[Steven Alexopoulos:]

Joe, if we look at the slowing deposit growth in the new range you’ve provided. Is it a case that the growth of the new teams are 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?

[Joseph DePaolo:]

Well, you know what, if you look at 2014 to 2016, we averaged just below 5 billion growth per year. And during that time, we had mentioned both Eric and I, that there was 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 we built 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. And 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. So right now they're using their existing cash which was something they were keeping with us. So, it's truly it just a matter of something that was a tailwind several years ago becomes a headwind today.

[Steven Alexopoulos:]

Okay that's helpful. Maybe just the final question. It was nice to see the provisions step down quarter even below the 20 million range you had talked about. Eric, how you're thinking about the provision now over the next few quarters?

[Eric Howell:]

For the fourth quarter, we're still going to keep that 20 million guidance in place because there is still choppiness in that medallion situation, and then hopefully, we should drop down to a normalized provision in 2018.

[Operator:]

Thank you. Your next question is from Chris McGratty with KBW.

[Chris McGratty:]

Thanks for taking the question. Eric or Joe, looking ahead what's kind of the multi-family and the CRE growth flowing a bit? And obviously you guys focusing more on C&I, are there opportunities to accelerate the diversification strategy? Many other portfolio acquisition opportunities to kind of -- or teams to really jump start the C&I from here? Thanks.

[Joseph DePaolo:]

Well, one of the things that we did with Mike retiring, we felt that it was at the site that we're at kind a make sense to have Mike's position to be broken into two, which allows the position of Chief Lending Officer to spend more time on growth. Whereas and we have one position, equal amount of time to spend on growth as it is on risk and all the associated details related to this. So with that move, there will be at least the more heightened awareness just simply because there will be more time.

[Eric Howell:]

And Chris, we continue to hire in Signature Financial and sales people on that front and 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 have been more of a C&I based book, and we're continuing to look for teams with the more of a C&I flavor to their business.

[Operator:]

Thank you. Your next question is from Ken Zerbe with Morgan Stanley.

[Ken Zerbe:]

Just going back to the deposit side, I understand it can be fairly lumpy and I totally under the comments about the fluff and it's not fussy anymore, if you will. But what is I guess the competitive advantage that Signature has in gathering deposits? And also, is it more in the CRE side or C&I side? I'm trying to figure out like other than rates decent offers like what drives people that to grow deposits? Thanks.

[Joseph DePaolo:]

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 concepts single point of contact at 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 100 team like having a 100 individual bank. So you always have that team as you’re advocate. You’ll always have that team as your traffic cop. You’ll always have that team as your ombudsman. That’s a clear advantage over big institution that moves you around. In fact as people want to grow within a JP Morgan Chase so to speak, they have to be promoted and therefore and lose the relationships that they have. Here at Signature, once you’re on a team and you run your team because you have a separate compensation model, because of the way we structured the institution, the client always feels that they are the only client, they are the top client. And you got to understand, when you ask about rate, our cost bringing 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 center of influence that they deal with constantly. And because we don’t have all those costs, we could pay a little bit more on rates. 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 markets, 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.

[Ken Zerbe:]

Okay, that’s actually very helpful. And then just one follow-up, in terms of the margin, presumably if the tenure goes higher, right or you have steeper harvest that’s beneficial. Is it just as equally impactful on your NIM, if the tenure goes down a similar amount? Or is there anything that you can do to help protect the NIM on the downside if it is to fall?

[Eric Howell:]

Yes, it’s a little bit less on the downside than it is on the upside at this point. But we are trying to add floating rate assets in the C&I portfolio which helps as we see it, if we see the short hand rise.

[Ken Zerbe:]

Okay, great. Alright thank you.

[Joseph DePaolo:]

Hey, Ken.

[Ken Zerbe:]

Yes.

[Joseph DePaolo:]

What you could do, if you want to have a further conversation on the structure, I’ll be glad to introduce to a team and you can come and open up an account for yourself.

[Ken Zerbe:]

I will take you up on that. We’ll do it offline though. Thank you.

[Operator:]

Thank you. Your next question is from David Bishop with FIG Partners.

[David Bishop:]

Circling back to the teams that you noted, you're at 100 right now right now. Where do you see looking out in a crystal ball for 2018? Or is that going to be a similar ad maybe four to five or maybe a little bit slower, two to three? I mean are you getting little bit choosy and pickier in terms of the types of teams you’re looking at to add to the Signature portfolio?

[Joseph DePaolo:]

Based on putting our business plans together for next year, we’re looking at four to five.

[David Bishop:]

And in terms of, you talk about the radius around the headquarters. Any thoughts of expanding that in terms of sort 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?

[Joseph DePaolo:]

Not really. I think, I would say because we have an office in Greenwich and because we’re dealing with some and that some we’re dealing with the number of clients Connecticut, we may go a little bit further. As long as it’s not suburban office space, but if it’s multi-family 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.

[David Bishop:]

And then just maybe, just curious maybe over the past call it two to three weeks or so. In terms of deposit pricing, I know when you spoke in the conference you’d seen a number of people running specials. Have you seen any sort of loosening of intensity there or pricing on the deposit side still just as intense?

[Joseph DePaolo:]

We’re seeing 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 two to three banks that are offering rates that are simply out of ballpark. And we’re not sure how they’re doing other than just buying.

[Operator:]

Your next question comes from David Chiaverini with Wedbush Securities.

[David Chiaverini:]

Question on the efficiency ratio outlook. In light of possible margin compression that you mentioned slowing balance sheet growth. Well, at the same time, there is 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 look out to ’18?

[Eric Howell:]

No, we highly doubt we’ll reach the high-30s. We should be relatively stable. Our expense guide was to low-end hopefully with the, of that range, and that should help to offset the pressures in the NIM. So it should be relatively stable efficiency ratio.

[Operator:]

Your next question comes from Matthew Breese with Piper Jaffray.

[Matthew Breese:]

I just wanted to touch on the loan growth and asset growth guidance and yields in the multi-family space. Given you remain above competition, it sounds like, by 25, 50 basis points and there is a slowdown in growth guidance. How much of that is -- how much of the slowdown in the growth guided because of rates? And how much is due to just overall slower multi-family activity in New York City? And with that, could you comment and what you’re seeing in terms of activity in New York City?

[Joseph DePaolo:]

I would say -- it’s not all certainly almost all of it has to do with the slowdown in activity. And 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 say -- it is why I don't say all I say almost because we may have lost a deal with two on pricing, but it's really more of the activity not with outcome.

[Eric Howell:]

And we've been traditionally priced what 25 to 38 to the point higher than market for as well as we can remember. So it's not the pricing.

[Matthew Breese:]

Right. And how far does that extend? I mean does this extend multi-family CRE? And then does it lead into C&I? Or is it just because the different asset class it doesn't impact it?

[Joseph DePaolo:]

It's a different asset class and it's different.

[Matthew Breese:]

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 them. 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?

[Eric Howell:]

Yes, the team that we hired or that we announced is predominantly C&I generating team, come with a substantial amount of deposit as well. Capital One background, but they also effectively built the commercial franchise with Banco Popular. So we're excited about opportunities that they can bring. With that, I'd say that they're predominantly C&I related.

[Matthew Breese:]

Okay. And then just a follow-up on the deposit cost discussion, where you're 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 DePaolo:]

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 a highest rate, a good 25 basis points above that.

[Operator:]

Your next question comes from Lana Chan with BMO Capital Markets.

[Lana Chan:]

On Signature Financial, can you give us an idea of how many sales people you have there? And what the yield are in the originations?

[Joseph DePaolo:]

It's approximately 30 people, sales people 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 their business.

[Lana Chan:]

And then just a follow-up on the commentary before about LCR. The movement of the 50 billion if or 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 as your deposit betas and as well as like HQLA under -- under your securities portfolio and under LCR?

[Joseph DePaolo:]

Well, we're currently going to have to continue to build the HQLA. We started that process albeit at a slow pace, and we'll continue to do that over the next several years. Now as we look across the 50 billion, remember LCR doesn't go into a place until a year after your average 50 billion per year or so. It's probably 2020 to 2021. On the deposit side, we've got a lot of work to do around our deposit betas. And we're putting systems in place we're working more granularly review deposit betas, individual clients as well as groupings of clients, so that we can get accurate treatment for them under the LCR.

[Lana Chan:]

Okay, and do you have an estimate in terms of how much of your securities is HQLA right now?

[Joseph DePaolo:]

No, I don’t have an estimate of that.

[Operator:]

This concludes our allotted time for Q&A 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 96636294. A webcast archive of this call also we found at www.signatureny.com. Please disconnect your lines at this time and have a wonderful day.