Signature Bank
Q4 2016 Earnings Call Transcript

Published: 19 Jan 2017

[Operator:]

Welcome to Signature Bank's 2016 Fourth Quarter and Year End 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 would be opened for your questions following the presentation [Operator Instructions]. It is now my pleasure to turn the floor over to Mr. Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

[Joseph DePaolo:]

Thank you, Crystal. Good morning and thank you for joining us today for the Signature Bank 2016 fourth quarter and year end 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 and annual 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 another year of strong growth and performance resulting in our ninth consecutive year of record earnings notwithstanding challenges in our taxi medallion portfolio. Additionally, for the fourth quarter, we again delivered strong average deposit growth and robust loan growth. Expended top line revenues and maintain solid credit quality leading to a record quarter of earnings. I’ll start by reviewing quarterly earnings. Net income for the 2016 fourth quarter reached a record 113.9 million or $2.11 diluted earnings per share, an increase of 10.9 million or 10.6% compared with 103 million or $2.1 diluted earnings per share reported in the same period last year. The improvement in net income is mainly the result of an increase in net interest income, primarily driven by strong deposit and loan growth. These factors will partially offset by an increase in the provision for loan losses as well as non-interest expense attributable in part to regulatory and compliance cost. Looking at deposits, deposits increased 466 million or 1.5% to 31.9 billion this quarter, and average deposits grew by 1.16 billion. For the year, deposit increased 1.5 billion and average deposits increased 4.5 billion. Non-interest bearing deposits of $10.5 billion represented 33% of total deposits and grew 2 billion or 23% for the year. The substantial deposit and loan growth coupled with earnings retention in our equity and subordinated debt raises led to an increase of 5.6 billion or 16.7% in total assets which crossed 39 billion. Now let’s take a look at our lending businesses. Loans during the 2016 fourth quarter increased 1.27 billion or 4.6%. For the year loans grew 5.3 billion and represent 74.4% of total assets compared with 71.1% one year ago. The increase in loan this quarter was primarily driven by growth in commercial real estate, multifamily loan and commercial and industrial loans. Turning to credit quality, non-accrual loans decreased to 157.6 million or 54 basis points of total loans compared with 162.8 million or 59 basis points for the 2016 third quarter, and 71.9 million or 30 basis points for the 2015 fourth quarter, however more than 85% or 135 million of the non-accrual loans are taxi medallions. Therefore, for the remaining portfolio of over 28 billion in loans, we have only 22 million or eight basis points in non-accruals. During the 2016 fourth quarter, we saw a decrease of $19 million in our 30 to 89-day past due loans to 109 million, in 90-day plus past due loans increased by 29 million to 57 million. However, the increase in the 90-day plus past due loans was predominately due to medallion loans that have mature yet continue to pay under their original term, and we are in the process of renewing. The provision for loan losses for the 2016 fourth quarter was 22.2 million compared with 80.5 million for the 2016 third quarter and 16.7 million for the 2015 fourth quarter. Net charge-offs for the 2016 fourth quarter were 13.5 million on an annualized 19 basis points, compared with charge-offs of 105.5 million or 146 basis points for the 2016 third quarter and 4.6 million or 8 basis points for the 2015 fourth quarter. The allowance for loan losses was 0.74% of loans versus 0.74% in the 2016 third quarter and 0.82% for the 2015 fourth quarter. Additionally, the coverage ratio increased slightly to 135%. For a moment let's review at teams. In 2016, we added three teams. We also appointed several veteran bankers to existing teams and earlier in the year opened our 30th office in Bay Ridge, Brooklyn. Looking ahead to 2017, the pipeline for teams is robust. 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 the net interest income and margin. Net interest income for the fourth quarter reached 296.8 million, up 28.5 million or 10.6% when compared with the 2015 fourth quarter and an increase of 2% or 6.3 million from the 2016 third quarter. For the year net interest income for the first time surpassed $1 billion. Net interest margin decreased 16 basis points in the quarter versus the comparable period a year ago and remained stable on a linked quarter basis at 3.14%. Excluding prepayment penalty income, core net interest margin for the linked quarter decreased to one basis point to 3.06%. And let's look asset yields and funding costs for a moment. Interest-earning asset yields for 2016 fourth quarter declined 10 basis points to 3.61% compared with the fourth quarter of last year, mostly due to a $4.2 million decrease in loan prepayment penalty income. On a linked quarter basis yields decreased just one basis point. Yields on the securities portfolio decreased five basis points linked quarter to 2.99%, due to a pickup in premium amortization from faster CPR speeds and lower reinvestment yields from most of the fourth quarter. This trend turned after the November elections and we anticipate yields to increase in the first quarter. Also, the duration of the portfolio increased to 3.71 years given the rise in rates. And turn it to our loan portfolio, yields on average commercial loans and commercial mortgages increased one basis point to 3.9%, compared with the 2016 third quarter. This is mostly due to a split rise in prepayment penalty income. Excluding prepayment penalties from both quarters yield remain in stable. And now, looking at liabilities, our overall deposit cost this quarter remained flat at 42 basis points. Average borrowing excluding subordinated debt decreased 371 million to 2.3 billion or only 6.1% of our average balance sheet. Given the lower cost nature of the borrowings that came off, the average borrowing cost increased 10 basis points from the prior linked quarter to 1.44%. The overall cost of funds for the quarter remained stable at 53 basis points. And onto non-interest income expense, non-interest income for the 2016 fourth quarter was 10.1 million, an increase of 700,000 when compared with the 2015 fourth quarter. The rise was across all non-interest income categories were partially offset by an increase of $1.2 million and other losses from additional amortization of low income housing tax credit investments. Non-interest expense for the 2016 fourth quarter was 95.9 million versus 88.4 million for the same period a year ago. The 7.5 million or 8.5% increase was principally due to the addition of new private client banking teams as well as further cost and our risk management and compliance activities. The bank also incurred increased FDIC assessment fees. Factoring in the year the significant hiring since last year and increased regulatory cost, the Bank's efficiency ratio still improved to 31.3% for the 2016 fourth quarter compared with 31.8% for the 2015 fourth quarter. And turning to capital, our capital ratios were fall well in excess of regulatory requirements and augment the relatively lowest profile with balance sheet as evidenced by Tier 1 leverage ratio of 9.61%. In total, risk base ratio of 13.46% as of the 2016 fourth quarter. And now, I’ll turn the call back to Joe. Thank you.

[Joseph DePaolo:]

Thanks, Eric. In summary, the 2016 fourth quarter contributed to yet another exceptional year for Signature Bank, where we grew deposits in astounding 5.1 billion or 19%. Increase loans by 5.3 billion or 22%, loans now account for 74.4% of total asset, significantly reduced our exposure in taxi medallion loans by writing down our Chicago portfolio while maintaining exceptional quality, credit quality and the remainder of loan portfolio. To this end, non-accrual loans excluding all medallions are only eight basis points of total asset. We expanded net interest income by 170 million or over 17% truly top line revenue growth, and as said earlier, net interest income for the first time surpassed 1 billion annually. We added three private client banking teams and several seasoned bankers to existing teams. We improved our already superb efficiency ratio to 31.7% while continuing to invest in our risk management and compliance launch, significantly bolstered our capital position with two successful offering, a common stock offering of nearly 320 million and our first subordinated debt offering of 260 million, and we delivered a 6% increase in net income to a record 396.3 million. In closing, we would like to thank all of our fellow colleagues for their efforts and execution which led to our ninth consecutive year of record earnings. We look forward to the opportunities 2016 will present for Signature Bank. Now, we're happy to answer any questions you might have. Crystal, we'll turn it back to you.

[Operator:]

The floor is now open for your questions. [Operator Instructions] Thank you, our first question is coming from Casey Haire with Jeffries.

[Casey Haire:]

Just wanted, I guess started on the NIM outlook sort of where -- I was surprised to see the securities book actually down on a quarter basis, where are new money yields on securities placements, and is there still a thought to grow the securities book?

[Eric Howell:]

Yes, Casey there's absolutely a thought to grow the securities books. It's a very advantageous market for us to do right now. Remember for most of the fourth quarter, there wasn't a very good market to invent them, and we actually saw a pickup of about $530,000 in our premium amortization expense. Remember, we used actual CPR speeds, not forward looking estimates. So, it takes a good 60 to 90 days for mortgages to work through the pipeline. So, we'll see the benefit of slowing CPR speeds much more so in the first quarter. So, it actually might be opposite direction in the fourth quarter, but we anticipate that will see a pickup in securities yields and overall NIM for the first quarter and for the foreseeable future anywhere around one to two basis points per quarter Casey because we're really seeing pickups in all of our asset categories in yields -- new yields that we're putting on the books today.

[Casey Haire:]

And just on the expense outlook. Obviously, some nice expense leverage this quarter. I can't remember last time you guys have done that. Just what was driving that and what is the -- I mean can we get improvement on an already lower efficiency ratio of 31% in '17?

[Eric Howell:]

We can, but albeit at a very slow pace. We remain in a heightened regulatory environment and we still have a fair amount of work to do before we cross through the $50 billion threshold. So, we're going to stay with our expense guidance of 10% to 15% for now. But we're hopeful that we'll be at the low end of that range.

[Casey Haire:]

And just lastly on the medallion front. Can you just give us an update on where some of the metrics are specifically the loan loss reserve ratio? And obviously, there's some activity in the quarter with some other banks taking their reserved coverage ratios meaningfully higher. Just curious what, why we’re not seeing the same at Signature?

[Eric Howell:]

While be mindful that, not all crimes are created equal, and those other banks might be dealing with some unrepeatable fleet owner that fortunately in the Europe we’re not dealing with. So, not all medallion monitors are same, Casey. I'd say, if you look at our Chicago portfolio, there is not really much for change there, but the biggest thing that that did happen in Chicago for us is that, one of the three fleet owners that we put on non-accrual last quarter actually brought us full current and continues to pay us. So that’s some good news that, I mean two out of the three large fleet owners, they are recurrent on their payments but they all remained non-accrual, we’re not about to put them back on accrual status. There were two sales in the quarter, so not much sales actually about 67.5 or 67,500 average, so that -- so our carrying value is well below the sales activity. So, Chicago, there is not too much of the change. The New York market remains barely stable. We reduced our overall balance by 24 million in the quarter, 568 million. We also increased our allowance on the portfolio by 12 million, bringing our allowance ratio to 7.8% on that portfolio. In taking our net exposure on the overall New York portfolio down to $524 million, so in total that net exposure is down $36 million for the quarter. As we stated in the past, these loans were primarily originated through brokers, many of which are fleet owners. We made significant strides this quarter to take over these loans on a direct basis, which will allow us to refinance these notes on a more timely manner. This should really help us to bring down our past few loans. Many of our 90-day past dues as Joe mentioned in our remarks are matured loans that continue to pay us their regular monthly payments, and we really anticipate being able to refinance these now.

[Operator:]

Your next question comes from the line of Ken Zerbe with Morgan Stanley.

[Ken Zerbe:]

Maybe a quick question on the pace of just total loan growth. It looks like, it's very strong growth, and I’ll certainly give you credit for it, maybe the little weaker than what I was looking for on then average basis, but very strong into period. I mean is it fair to say that most of your growth in the quarter came right at very end? And kind of sort of second part of the question is, when you think about 2017 what is implied for served total loan growth and/or total asset growth? Thanks.

[Joseph DePaolo:]

I'd say that large part of the growth came toward the end as you said. As we look forward to 2017, we still confident that we’re going to grow between 4 billion and 6 billion as we’ve been saying. We anticipate that there will be less growth in CRE as we’re seeing less appetite to refinance due to higher interest rates in cap rates. However, there is also less competition. So, as a result, we can be more selective. Although, we anticipate less growth in CRE, we expect that securities and C&I will make up for it, as there are far more attractive asset classes trust than they have been in the past within just rates going up. So, it will be a movement between asset classes that's still strong 4 billion to 6 billion growth.

[Ken Zerbe:]

Got it. $4 billion to $6 billion in total assets in the period basis just the super class. And then just maybe I have one follow-up. From the regulatory perspective, obviously just still lot of concerned that the OCC is pressuring some of the smaller banks. Are you able to comment on your experience with the OCC down or just brought regulatory pressures that you might be feeling or might not, how is that impacting Signature?

[Joseph DePaolo:]

Well, we're not regulated by the OCC where the FDIC in the New York State Department of Financial Services. Although, they still follow the same interagency guidelines, we have been over 300% outstanding loan balance -- CRE loan balances through compared to the capital since the middle of 2010. And I believe the loan with regulators when we concur with this that you have a much higher level of responsibility in terms of policies, procedures, systems and the like. So, the pressure we feel is to continue to make sure that our systems are more top of the line than they would be, if we were at the low 300%, and that we have a tight range on our portfolio in terms of information technology, and that's the pressure. And I believe some of the smaller institutions that we are approaching 300%, we are not anywhere in nearly they needed to be in order to past 300% and have the policies and procedures in place.

[Ken Zerbe:]

Got it, okay. And then just one really quick one on that the $1.2 million additional amortization of the low-income tax credits. Is that something -- is that a one-time item? Or is that something that sort of will continue at this pace going forward?

[Eric Howell:]

That will continue as we make low-income tax credit investments, we will see that continues to increase with an offset in our tax expense.

[Operator:]

Your next question comes from the line of Bob Ramsey with FBR.

[Bob Ramsey:]

I know you mentioned that there have been I guess a drop in some of the competitive -- competition there in New York in the multifamily market. Just wondering if you could share any color on where you see easing coming from, and what the opportunities are there as a result, and how you are seeing -- what you're seeing from customer demand too?

[Joseph DePaolo:]

We could be more selective and we've have been, and we've done that through interest rate as well. For instance, the five year fix since probably November has increased from 3% and 3.8% to I'll give you a range of 3.78% and 4% with pressure being more on the 4%. On the seven year, we were at 3 and 3.78 and we at a range of 4.5 to 4.3 quarters. So, it's allowed us to and this is why the rates have gone up to we act quickly and raise the rates and allows us to be more selective.

[Bob Ramsey:]

And has the softening of competition -- has that been more of the smaller guys? Or where are you seeing people pull back? Without naming names, who is it?

[Joseph DePaolo:]

I would agree, would be the smaller one.

[Bob Ramsey:]

Okay.

[Joseph DePaolo:]

Actually, as I say that there is also a mixture in there of some that off size as well.

[Bob Ramsey:]

Okay. So, I guess sort of broad base. And then sort of shifting gears to fee income certainly it seems like a good quarter for commissions and fees. Even though those aren't a real big piece of your revenue stream, just wondering if you could comment on what is giving you the lift there, and what higher rates may mean on that fee income piece?

[Eric Howell:]

We continue to add brokers in Signature Securities that helps to drive that or assets under management there continually grow as well as some fee income coming out of Signature Financial. So, those are primary drivers.

[Operator:]

Your next question comes from the line of Ebrahim Poonawala with BOA Merrill Lynch.

[Ebrahim Poonawala:]

I guess just first to follow up on what you said on expenses, the 10% to 15% growth, just wanted to get your views around -- obviously there's been some chatter around potential for the 50 asset threshold getting pushed higher. While I guess -- want to get a sense of how you guys feel about it? And secondly, is that sort of impacting how you're building up towards becoming a $50 billion asset bank?

[Joseph DePaolo:]

Well, we're pretty -- Ebrahim, we’re pretty optimistic that the 50 billion thresholds will eventually increase. However, until it actually does, we are not changing our plans, and we’ll continue to invest according to the 50 billion guidelines. We do anticipate that we Signature Bank will cross the $50 billion threshold in mid to late 2019, so we do have some time. And when we say mid to late 2019, we mean being four quarters average of 50 billion or more. But one thing we want to point out is this section of the war is ultimately anti-competitive and protectionist of the mega banks as it really stifles competition as no one wants to grow above that number. You should want more banks to grow past 50 billion. Banks of our size and capabilities are the only ones that can compete with the mega banks, and in fact in Washington, a build out would move the threshold to 125 billion would actually pass overwhelmingly in both the House and the Senate on a bipartisan and basis. The concern is that it gets quote up by trying to make too many changes at ones to Dodd-Frank. They really just need to move the number to allow for more competition in the marketplace and then they can deal with the rest. So, as you can tell, we do have an opinion on this.

[Ebrahim Poonawala:]

That is pretty clear. So I guess for now, no changes. If you see some movement that may have an impact on how we think about build out in terms of compliance costs down the road?

[Joseph DePaolo:]

Exactly, and even if it does move out, we have to learn what does change because we suspect that the regulators even if there is a change to 125 billion they keep certain things in place.

[Ebrahim Poonawala:]

Understood. And switching gears just on the deposit timing, obviously another strong quarter or year for deposit growth, I think as we start thinking about potentially getting multiple rate hikes this year, can you talk about in terms of avenues of deposit growth, your comfort on getting that 4 billion to 6 billion? And what would dictate you coming in at the higher end versus the lower end of that $4 million to $6 billion of guidance, when we think about deposit growth?

[Joseph DePaolo:]

Great question, but part of the question such as what avenues we could get the growth from is not something we would like to say publically because that would let our competition know where we're getting our deposit growth from. Or what I'll say is that, we have 98 teams, some of the teams that just came onboard in the last year or so started to kick in, the existing teams that have been around for a longtime have had double-digit growth in deposit growth. And we've a pipeline that's pretty strong of new teams and individuals coming onboard primarily with deposit growth in mind. So, I'm glad you brought up the question because those from Signature Bank that are listening will understand how important 2017 is for deposit growth.

[Ebrahim Poonawala:]

Understood. And one last question, if I can sneak it in. I was wondering if you had any sort of views on changes through 1031 exchanges, if we get to a tax reform at some point this year, and how it could impact the appetite and activity in the multifamily space.

[Joseph DePaolo:]

We do have some of that business, but don't really have an opinion it's just so much up in the air and rather not comment on which way they would go with it.

[Operator:]

Your next question comes from the line of Jared Shaw with Wells Fargo Securities.

[Jared Shaw:]

Just wanted to confirm the 4 billion to 6 billion growth is total asset growth not loan growth is that correct?

[Joseph DePaolo:]

Correct.

[Jared Shaw:]

And then we should still be looking at roughly a $10 billion securities book by the end of the year?

[Eric Howell:]

Approximately.

[Jared Shaw:]

Yes, okay. And then when you look at the -- where the -- that loan growth is coming from on the C&I side, is that a ramp-up of Signature Financial? Are you -- can you talk a little bit about the growth you are seeing there? Or is it more on the C&I, and more of the traditional New York City-based customers that we should be seeing that growth from?

[Joseph DePaolo:]

It's good question. It's actually a combination of both. We expect some growth in the traditional C&I, which we're starting to have as well as Signature Financial.

[Jared Shaw:]

And then, on the expense growth, the 10% to 15% guide, when you are talking -- when you're looking at the spending on new teams versus continued or finalization of the risk management and compliance costs, should we be looking at, on the team side, similar to what we saw in 2016, maybe a handful of teams and a handful of individuals added to existing teams with -- so a continued ramp-up in the risk management investment?

[Joseph DePaolo:]

Yes, on both fronts.

[Jared Shaw:]

And then on the risk management side, is that continued personnel hiring, or is that more systems and consultants, I guess for lack of a better word?

[Joseph DePaolo:]

It's actually both. It's little less on the consulting side, more on the systems and bringing on up our own new colleagues in lieu of having a consultant.

[Operator:]

You're next question comes from the line of Steven Alexopoulos of JPMorgan.

[Steven Alexopoulos:]

I wanted to start -- and maybe follow up on the NIM guidance that Eric gave to be up 1 to 2 basis points a quarter. That seems pretty low, given your comments around new loan and securities yields. Eric, could you run through -- what is the beta assumption you are using for the money market deposits?

[Eric Howell:]

Thus far with the couple of rate moves that we’ve have, we've seen very little pressure on the money market rates. I think over the course of the ramp one year, I think the beta is around 60% with the 10% decay assumption. But I have a feeling our modeling is very aggressive or conservative, let me say, on that front. We certainly depending on the frequency and the severity of the rate grow. We will see what happens with our deposit cost. But if they are less frequent and less severe, we should be able to continue the significantly lag on that front. So, ultimately, I think we're getting conservative in our guidance, but remember we do have a very large commercial real estate both that will take quite a while to re-price. So that's a bit of an anchor for us.

[Steven Alexopoulos:]

Right, right. And then, Eric, on the provision, this quarter you generally were pretty much right in line with the original guidance you gave, around 20 million. Do you still think that is roughly a good range here, near term?

[Eric Howell:]

Yes, we anticipate that, we’ll be at this alleviative level for a several quarters as we continue to work for the medallion portfolio.

[Steven Alexopoulos:]

Thanks. And maybe just one final one

[Joseph DePaolo:]

Well, there all the areas on we rated to the 50 billion that is going to continue to have. If we were going to incur, one example would be BSA AML. That is never going away and will probably continue to be hiking, not only on the regulatory side, but in the political legislature, they will never change it.

[Steven Alexopoulos:]

Okay. So should we assume that range will generally stay about intact, even if the 50 threshold was lifted?

[Eric Howell:]

It should ease soft, right. It’s very hard to quantify what that is going to be because you don’t know what the regulators are still going to believe as best practice around. So, but it should ease off some of the pressure on the expense growth.

[Joseph DePaolo:]

And one of the items -- one of the items is on the CRE side with the stress testing will continue to be doing that and that'd probably take on a more responsibility on our end. So, as much as the 50 billion we want to go away, there will be other things that will be worried about as we grow larger.

[Operator:]

Your next question comes from the line of Chris McGratty with KBW.

[Chris McGratty:]

Eric, maybe could you allocate the 1 billion, 2 billion free of loan growth between commercial real estate and C&I this quarter?

[Eric Howell:]

We had about a 180 million in C&I growth for the quarter. That was the combination of traditional C&I and the Signature Financial, multifamily grew about 383 million in the quarter. We didn't know with 450 or so in the CRE.

[Chris McGratty:]

And is that kind of -- is that a targeted mix, based on your comments, for 2017? Is that how we should think about the allocation of the growth?

[Eric Howell:]

We generally think we are going to see little bit less than CRE and more than C&I through the number of growth initiatives there that are starting to take hold. We're also hopeful that we will see Signature Financial continue back to normal growth as we put the medallion portfolio behind us. So, we are very focused on growth in that area.

[Chris McGratty:]

Great. And just one quick follow-up. You talked about increased pricing on your commercial real estate and multifamily. How are -- how has pricing changed on C&I, and how have credit spreads been trending over the past two quarters?

[Eric Howell:]

Not much of the change in spreads, but as obviously LIBOR is increased, prime is increased. So that's helpful.

[Operator:]

Your next question comes from the line of Lana Chan with BMO Capital Market.

[Lana Chan:]

Just wanted to follow up on that last question. Could you actually give us what the blended yield is on C&I loans right now?

[Eric Howell:]

I would say it's slightly over 4% right now.

[Lana Chan:]

Okay, and on new securities purchases?

[Eric Howell:]

Between 3.10 and 3.25.

[Operator:]

Your next question comes from the line of David Rochester with Deutsche Bank.

[Dave Rochester:]

On the deposit beta assumption, I just want to make sure I heard that correctly. You said you are using a 50% deposit beta with a 10% decay assumption for the recent rate hike?

[Eric Howell:]

Yes, it's right now its overtime. Right, it's over a couple of year period.

[Dave Rochester:]

Got you, okay. And then are you assuming any other rate hikes in that 1 to 2 BP up, or any other curves deepening in your NIM guidance for the rest of the year?

[Eric Howell:]

We're assuming two more rate hikes.

[Dave Rochester:]

Two more. And what's the timing on those?

[Eric Howell:]

March and then one later in the year.

[Dave Rochester:]

Okay. And then I appreciate the 4% yield on C&I. Where's the Signature Financial new production coming on right now?

[Eric Howell:]

They are in the low fours as well.

[Dave Rochester:]

Okay. Switching to provision real quick, are you thinking you can get to where you need to be on the medallion book after only a year of elevated provisioning, assuming that cash flows stabilize where they are today?

[Eric Howell:]

Well, if cash flow is stabilized where they are today, we are there, right. It's hard to -- we don’t have a crystal ball. But if we were to take a guess which way cash flows are going to go, we certainly would anticipate to go down before they go up, right. So, that $20 million level provisioning allows for further decline in cash flows in that space, but our models are based on the cash flows that happened during the quarter and sales are happened during the quarter. If they stay at those levels than we won’t have to provide further.

[Dave Rochester:]

Then you're good, okay.

[Joseph DePaolo:]

It's really hard to predict particularly if you have a change in administration in the New York City.

[Dave Rochester:]

And just one last one, on the teams, you said that the pipeline was robust. Was just curious if you are looking at more deposit teams, or if there are any lending areas you're looking to tack onto?

[Joseph DePaolo:]

More deposit, yes.

[Operator:]

Our final question comes from the line of Erik Zwick with Stephens Inc.

[Erik Zwick:]

Just curious, within your C&I portfolio, do you have any borrowers whose businesses are internationally exposed that could potentially face operating headwinds from a stronger U.S. dollar?

[Joseph DePaolo:]

I would say it would be inconsequential.

[Erik Zwick:]

Okay. And then finally, in your prepared comments, you noted the increase in loans as a percentage of total assets to about 74% at the end of 2016. Would you expect that to stay relatively consistent? I'm just trying to reconcile your comments about -- maybe increased C&I of loan growth

[Joseph DePaolo:]

Yes, I would say where we're exact now to slightly up.

[Operator:]

This concludes are allotted times for today’s conference call. I will now turn the conference back to Joe for any closing remarks.

[Joseph DePaolo:]

Thank you for joining us today. And if you want to characterize how the quarter went, I would quote President, Warren G. Harding, who said, a return to normalcy. Thank you. And I’ll turn it back to you, Crystal.

[Operator:]

If you would like to listen to a replay of today’s conference please dial 1800-585-8367 and refer the conference ID number 51388109. 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.