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Signature Bank (NASDAQ:SBNY)

Q1 2013 Earnings Call

April 23, 2013 10:00 am ET

Executives

Joseph J. Depaolo - Chief Executive Officer, President, Executive Director and Member of Risk Committee

Susan Lewis

Eric R. Howell - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Rahul Patil - Evercore Partners Inc., Research Division

David Rochester - Deutsche Bank AG, Research Division

Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Jason A. O’Donnell - Merion Capital Group

Bob Ramsey - FBR Capital Markets & Co., Research Division

Matthew T. Clark - Crédit Suisse AG, Research Division

Casey Haire - Jefferies & Company, Inc., Research Division

Herman Chan - Wells Fargo Securities, LLC, Research Division

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Signature Bank's 2013 First Quarter Results Conference Call. With us today are Joseph J. Depaolo, President and Chief Executive Officer; and Eric R. Howell, Chief Financial Officer. [Operator Instructions] This conference is being recorded, April 23, 2013. I would now like to turn the conference over to Joseph J. Depaolo, President and Chief Executive Officer. Please go ahead, sir.

Joseph J. Depaolo

Good morning, and thank you for joining us today for the Signature Bank 2013 First Quarter 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 statement. These factors include those described in our quarterly and annual reports filed with the FDIC, which you should read -- 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 J. Depaolo

Thank you, Susan. I will provide some overview into the quarterly results, and then Eric Howell, our Chief Financial Officer, will review the bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

2013 started off on another solid note with stellar deposit growth and strong loan growth, which led to a further transformation of our well-capitalized balance sheet. Loans are now 56.7% of total assets, and we've maintained solid credit quality. This led to top line revenue growth and our 14th consecutive quarter of record earnings.

I will start by reviewing earnings. Net income for the 2013 first quarter reached a record $50.6 million or $1.06 diluted earnings per share, an increase of $8.3 million or 20% compared with $42.4 million or $0.90 diluted earnings per share reported in the same period last year. A considerable improvement in net income is mainly the result of an increase in net interest income driven by continued core deposit and loan growth. These factors were partially offset by an increase in noninterest expense.

Looking at deposits. Deposits increased $718 million to $14.8 billion this quarter, including core deposit growth of $582 million. In the past 12 months, total deposits have increased $2.3 billion or more than 18%. Average deposits for the quarter increased $607 million or 4%. Noninterest-bearing deposits of $4.3 billion represented 29% of total deposits. With the substantial deposit and loan growth, as well as earnings retention, total assets reached $18.27 billion, an increase of $3 billion or 20% since the first quarter of last year. The ongoing strong core deposit growth is attributable to the unparalleled level of service provided by all of our private client banking teams who continue to serve as a single point of contact to their clients.

Now let's take a look at our lending businesses. Loans during the 2013 first quarter increased $592 million or 6%. For the past 12 months, loans increased $3 billion and now represents 56.7% of total assets compared with 48.2% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate, multi-family loans and specialty finance. As a reminder, due to the correctly anticipated 2013 increase in the capital gains tax, approximately $184 million in loans closed in the 2012 fourth quarter that would have otherwise closed in the 2013 first quarter.

Nonaccrual loans were $35.1 million or 34 basis points of total loans this quarter compared with $27.2 million or 28 basis points for the 2012 fourth quarter. Nonaccrual loans for the 2012 first quarter were $35.5 million or 48 basis points. The allowance for loan losses was 1.09% of loans versus 1.10% of loans in the 2012 fourth quarter and 1.25% for the 2012 first quarter. Additionally, the coverage ratio, or the ratio of allowance for loan losses to nonaccrual loans, continued to be a very healthy 322%.

The provision for loan losses for the 2013 first quarter was $9.9 million compared with $10.4 million for the 2012 fourth quarter and $10.7 million for 2012 first quarter. Net charge-offs for the 2013 first quarter were $4.5 million or an annualized 18 basis points compared with $5.9 million or 25 basis points for the 2012 fourth quarter and $5 million or 29 basis points for the 2012 first quarter.

Now turning to the watch list and past due loans. Watch list credit increased by just $500,000 this quarter to $153.4 million or 1.5% of total loans. During the 2013 first quarter, we saw a decrease in our 30- to 89-day past due loans of $6.9 million to $41.8 million, and we also saw a decline of $12 million in the 90-day-plus past due category to $16.7 million. While we are pleased that our credit metrics remain strong this quarter, we are mindful of the uncertainty in the economic environment and again, we conservatively reserve.

Just to review teams for a moment, 3 private client banking teams joined during the 2013 first quarter and thus far in the second quarter, we added a fourth team. Two of the new teams will be based in our soon-to-open second office in Staten Island, our 27th overall.

Looking at 2013, our pipeline remains very active as we continue to benefit from competing bankers that use Signature Bank as the bank of choice. We look forward to welcoming these talented bank 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 R. Howell

Thank you, Joe, and good morning, everyone. I'll start by reviewing net interest income and margin.

Net interest income for the first quarter reached $148.1 million, up $21.3 million or 16.8% when compared with the 2012 first quarter and an increase of 0.7% or $1 million from the 2012 fourth quarter. The linked quarter increase was negatively impacted by a decrease of $3.2 million in prepayment penalty income. Net interest margin was down 7 point -- 7 basis points in the quarter versus the comparable period a year ago and decreased 10 basis points on a linked quarter basis to 3.43%. The linked quarter decline was, again, mostly due to a $3.2 million reduction in prepayment penalty income or 8 basis points in margin.

When you exclude prepayment penalty income from the 2013 first quarter and the 2012 fourth quarter, core net interest margin for the linked quarter declined 2 basis points to 3.30%. The decrease in core margins was mitigated by loan growth and a further reduction in our deposit costs. Now let's look at asset yields and funding costs for a moment.

Overall, interest-earning asset yields declined 14 basis points this quarter to 4.02%, as we continue to feel the effect of the low interest rate environment and decreased prepayment penalty income. Given the strong deposit growth, we selectively added an average of $89 million in investments to our securities portfolio when we saw appropriate entry points. Yields on our overall investment portfolio declined 8 basis points to 3.11% this quarter, mostly due to increased premium amortization of approximately $1 million and the duration of the portfolio extended slightly to 3 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages declined 33 basis points to 4.77% compared with the fourth quarter of 2012. Excluding prepayment penalties from both quarters, yields would have declined 16 basis points.

And now looking at liabilities. Money market deposit cost this quarter further declined 4 basis points to 74 basis points as we again decreased deposit cost given the low interest rate environment. This decrease led to a decline of 4 basis points in our overall deposit cost to 54 basis points.

And on to noninterest income and expense. Noninterest income for the 2013 first quarter was $8.8 million, a decrease of $278,000 when compared with the 2012 first quarter. The decrease was driven by a $1.3 million decline in other income due to the amortization of low income housing tax credit investments. This decrease is partially offset by an increase of $1.1 million in net gains on sales of loans and our SBA pool assembly business.

Noninterest expense for the 2013 first quarter was $58.9 million versus $50.4 million for the same period a year ago. The $8.6 million or 17% increase was principally due to the addition of new private client banking teams and the launch of Signature Financial, which included the hiring of more than 50 professionals. And despite the significant hiring since last year, the bank's efficiency ratio remained stable at 37.5% for the 2013 first quarter compared with 37% for the 2012 first quarter.

Turning to capital. Our capital levels remained strong with a tangible common equity ratio of 9.39%, Tier 1 risk base of 15.21%, total risk-based ratio of 16.26% and leverage capital ratio of 9.31% as of the 2013 first quarter. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet.

And now I'll turn the call back to Joe. Thank you.

Joseph J. Depaolo

Thanks, Eric. Signature Bank started off the year with our 14th consecutive quarter of record earnings, supported by exceptional core deposit growth, strong loan growth, solid credit metrics and top line revenue growth, while we continue to invest in the future with a well-capitalized balance sheet and further private client banking team additions. Now we are happy to answer any questions you might have. Alicia, I'll turn it over to you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of John Pancari with Evercore Partners.

Rahul Patil - Evercore Partners Inc., Research Division

This is Rahul Patil on behalf of John. Just a quick question on your loan growth outlook. I know last quarter you mentioned that you budget around $2.2 billion in loan growth for 2013. This quarter, you had $600 million in loan growth just this quarter, and then considering that this quarter was affected by the pull forward in -- at year end '12, how do you look at your loan growth outlook going forward?

Joseph J. Depaolo

Well, we try not to take too much into account in the first quarter because there was a lot of mixed things in there, such as the pull forward into the fourth quarter, as you mentioned. And we also looked at the last 5 years and traditionally, this first quarter is usually the light quarter in terms of seasonality of the loan growth. So that would lead you to believe that we would be beyond the $2.2 billion in growth. But we'll wait and see what we do in the second quarter before we give you an idea of whether that figure would be too low and will be beyond the $2.2 billion. We just don't like to change after 1 quarter's growth.

Rahul Patil - Evercore Partners Inc., Research Division

All right. And then on the NIM, how should we look at NIM compression going forward through 2013? Should we expect the pressure to kind of ease -- the quarterly pressure to ease through the remainder of 2013?

Eric R. Howell

Yes, well for the next quarter, we expect that we'll see a 5- to 10-basis point decline in NIM mostly due to day count, continued deposit growth and really competition in all lending areas. We really see heated competition across the board in all the lending categories. But ultimately, we're focused on net interest income growth, and we expect that we'll continue to have that. And then after that, we're probably looking at a 3- to 7-basis point decline in core margins looking out a few more quarters.

Operator

Our next question comes from the line of Dave Rochester with Deutsche Bank.

David Rochester - Deutsche Bank AG, Research Division

Can you just give us an update on loan pricing? You mentioned more competition, and we heard from, I guess, some of the players in the market that they had lowered pricing during the quarter. But according to the brokers, you guys were able to hold the line. I was just wondering how you think that trends going forward.

Joseph J. Depaolo

Well, that's correct. In the first quarter, similar to the fourth quarter and the third quarter, we held the line on our pricing and we're able to get a 1/4% to 3/8% higher than most on the commercial real estate, multi-family world. What we have seen, though, a little lately, and we had some heavy discussions as to what we would do this quarter in terms of reducing pricing, we've seen some what we would characterize as overly aggressive pricing. You could say it's somewhat unexplainable. What I mean by that as an example, we've seen some banks do 35- and 40-year amortizations. We've seen some sub-3% 5-year fixed. We've seen 10-year fixed at 3%. We've seen 10-year fixed with no prepayment penalty, which we believe is overly aggressive and certainly things that we would not do. However, we can't expect our clients to be beyond 3/8% pricing from where we are to expect that. Some of the pricing is a 50- or 75-basis point differential, which although we're busy and our pipeline is pretty active, we probably -- for quality credits, that's what we're talking about here, quality credits, where you have an LTV 50% and below, we don't want to lose that opportunity and therefore, we have to consider bringing our pricing down. So you're correct, it's not only in the CRE and multi-family world. We're not seeing any relief in home [ph] loan category, whether it's specialty finance or C&I. In fact, in the C&I world, where the 2 big for sale banks are in our space or we're in their space, however you view it, we're seeing where a quality credit versus a mediocre credit, you would expect 100- to 150-basis point differential in pricing, we're seeing 25% of that. So maybe where the quality credit certainly deserves the lower pricing, some of the mediocre credits are commanding that as well because of the overly aggressive stance of some of the big banks. So we're not seeing relief anywhere.

David Rochester - Deutsche Bank AG, Research Division

So would you say that your 5 to 10 basis points in margin pressure outlook incorporates you're lowering pricing in 2Q? And I guess the 3 to 7 basis points beyond that, would that incorporate that as well?

Joseph J. Depaolo

Yes, I would say that.

David Rochester - Deutsche Bank AG, Research Division

Great. And just one last one on the funding cost side, you mentioned you were able to bring those down this quarter. Are there any additional plans to trim those rates this quarter? Have you already done that, or is that coming up?

Joseph J. Depaolo

We've done some of that. We brought it down from 78 basis points to 74 in the first quarter. That's on the interest-bearing money market. In the month of March, that rate was 72. So we expect to bring it down a little further in the second quarter. As Eric likes to say, we have a little runway left, but we're somewhat running out of the runway as we get more into the year.

Operator

Our next question comes from the line of Erika Penala with Bank of America Merrill Lynch.

Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division

This is Ebrahim on behalf of Erika. I guess one quick follow-up on the NIM, Eric. In terms of prepayment income, like, are we sort of running out of what the potential for additional prepay income might be as we go forward? Or is that going to be sort of a drag relative to where prepayment income was in the first quarter? Or it could still be volatile and could move higher quarter-to-quarter given the potential for loans that could still be sort of refinancing?

Eric R. Howell

Yes, it was. It's very difficult to predict human behavior, Ebrahim. But I think we expect that we'll see loan prepayment penalty income slowly go down over the course of this year. And if there is any type of signaling event that interest rates will rise, we'll see an obvious spike in that prepayment penalty income. But we expect from -- from the level of the first quarter, we expect that will steadily decline over the course of the year.

Ebrahim H. Poonawala - BofA Merrill Lynch, Research Division

Good. Okay. And I guess one follow-up in terms of the specialty finance portfolio. I guess it was $750 million at the end of the year. Like, would you have what the quarter end balances were and in terms of your outlook and where -- how do you see the progress of that business? I guess it's been about a little over a year since we went and entered that business.

Eric R. Howell

Well, they were just shy of $1 billion at the end of the first quarter. Now in April, they've crossed that $1 billion threshold. We're obviously pleased with that level of growth. Looking out for next year, it's still difficult for us to predict what their growth is going to be just having one year under our belt. And now that they've got that $1 billion on the books, we're seeing prepayments from that. So we're having to fight -- swim upstream a little bit now that we're seeing that portfolio pass back, which is a good thing. So we'd be more than pleased if they would put on another $1 billion over the course of the next year.

Operator

Our next question comes from the line of Steven Alexopoulos with JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

I wanted to follow up first on some of the margin commentary. It looks like core loan yields x prepays are down roughly 20 bps a quarter, last 2 quarters. Do you expect that to continue at about that pace? And from roughly 4.55% or so, where do you see the bottom -- that bottoming, given where you're bringing new loans in the portfolio?

Joseph J. Depaolo

We expect the decrease for the last several quarters to continue, as you suggested. I don't know where the bottom is yet. I will tell you this. There are certain loans across all categories that we would not meet the pricing that's currently being suggested by some of our competitors today. Without giving away too much, I won't say what those prices are. But I will tell you this: we will not be doing 40-year amortization loans. We will not be doing 10-year fixed at 3% and no prepayment penalties. It just doesn't make sense because there are quality credits out there that don't want to deal with some of the competitors, don't want to deal with the Fannie Mae and would prefer to deal with the quality professionals we have. And that gives us a little bit of an advantage that we can price a little higher so that we're not getting into the sub-3s on commercial real estate or sub-2s on C&I. So it's hard to predict, Steve, where the bottom is. I just know that there are certain loans in certain categories we would not be able to compete with what we -- again, I'll characterize as overly aggressive pricing.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Joe, to follow up on that commentary on the overly aggressive pricing, do you think we could see your loan growth perhaps slow through the year? I mean, is it to the point where you're walking away from more and more deals now?

Joseph J. Depaolo

No. Actually, if we lower our pricing, we actually had these conversations over the last week or so, we would expect our loan growth to increase. We just believe that there are some out there that would really prefer to do business with us. And if we just slightly lower our pricing, our volumes would go significantly higher. So we're not seeing that there will be a slowdown in the growth if we don't meet some of that pricing. Conversely, if we meet some of that pricing, we'll see a significant increase in the growth. I mean, that's what we believe.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. Maybe I could shift gears to expenses for a minute. And Eric, could you help us understand why we didn't see a seasonal increase in the comp expense? It seemed total reported expenses were even a bit below the guidance you suggested last quarter. And do you still expect roughly 10% year-over-year total expense growth in the next few quarters?

Eric R. Howell

Yes, well, with 2 less days in the quarter, that helps us out a bit on the expense front. So that probably added a couple percent or took a couple percent out of expenses. We did have a few weeks of the Signature Financial hirings in the first quarter of last year. So that's probably where we were off on the 20% guidance year-over-year growth and came in a little bit better than expected. Now in the second quarter and moving forward, since we've had Signature Financial and those hirings on board since the second quarter of last year, this year, we still expect that 10% is a good number.

Operator

Our next question comes from the line of Jason O'Donnell with Merion Capital Group.

Jason A. O’Donnell - Merion Capital Group

Contrary to the trend we witnessed over the last few quarters, it looks like your reserve as a percentage of loans is relatively stable linked quarter. Is that a function of a lower contribution this quarter from the multifamily segment or a more cautious outlook? Or are there other factors in there that are impacting the trend?

Eric R. Howell

Well, some of that had to do with less charge-offs, so that was beneficial to the overall allowance. But we're just mindful of the overall economic environment. We added some more, as we have every quarter, into our economic reserves. We're a little bit concerned still that we've been in this not-so-good operating environment for extended period of time, and we're mindful of the growth that we've been putting on in all of our various asset classes. So we just feel that we should continue to be conservative in our provision.

Jason A. O’Donnell - Merion Capital Group

Okay. And in terms of the overall outlook on the reserve though, just given kind of the contribution for multi-family and what you're seeing, is it fair to assume sort of a continued downward bias in the reserves to loans ratio, or is that not a safe assumption at this point?

Eric R. Howell

No, I think it's safe to assume that there will still be a downward bias in that.

Jason A. O’Donnell - Merion Capital Group

Okay. Great. And just one housekeeping item. What was your OREO expense for the first quarter?

Eric R. Howell

0.

Joseph J. Depaolo

0.

Jason A. O’Donnell - Merion Capital Group

0. Okay.

Operator

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

Bob Ramsey - FBR Capital Markets & Co., Research Division

Just a couple of questions left. One, last quarter I thought the other expense line had some extra expenses related to Hurricane Sandy. And so while total expenses look good this quarter, I was a little surprised to see that line item increase this quarter off of that base. Is there anything unusual in there this quarter?

Eric R. Howell

No. There's nothing unusual in there. There's nothing more due to Sandy. I think it's just growth-related increase in expenses.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. Fair enough. And then I was wondering if you could comment a little bit on the new team outlook. Obviously, you all have hired 4 new teams here to date. You've sort of hit where you had conservatively targeted to do this year. Just curious what the pipeline looks like, what you're hearing from bankers out there on the street and how you're thinking about new teams through the rest of the year.

Joseph J. Depaolo

Well, pipeline is -- and it's rare for me to say very active, but I'll say very active. We have -- exciting that we've already brought on 4 teams, and we expect to bring on some more. We don't have a number for you because we're in varying stages, of course, of discussions with different teams. One thing I will point out, if you noticed, 2 of the 4 teams that we've hired thus far came from Citibank, which is fairly new for us. We see some opportunity there to bring on some teams that we've never seen in the first nearly 12 years of our existence. So that bodes well for us. It seems like there's new fertile ground for us to hire from. They're making some internal changes within the institution that has allowed us to talk to some people that have been there for not only years but decades. So it bodes well for us. We're going to continue to make that investment, and we'll also hire throughout the institution. In the commercial real estate area, we'll be doing some additional hiring and in financial, we'll be doing some additional hiring.

Operator

Our next question comes from the line of Matthew Clark with Crédit Suisse.

Matthew T. Clark - Crédit Suisse AG, Research Division

On the new teams, can you give us a sense for, of the 4 you hired, maybe what was the largest team that you brought on in terms of their legacy portfolio? Just trying to get a sense for size-wise.

Joseph J. Depaolo

They were all -- I would say the first 4 teams are more deposit-driven than loans-driven. I won't give you -- I won't be able to give you any balances in terms of the size but they're on average about 4 people -- 4 team members per team on average. And I will tell you, 2 are in Staten Island; 1 is in Great Neck, Long Island; and 1 is going to be based in Brooklyn, of the first 4 teams.

Matthew T. Clark - Crédit Suisse AG, Research Division

Okay. And on the commission line, that seems to -- can you give us a sense for whether or not that has bottomed in the last couple of quarters? It's ticked back up. Just curious on what your thoughts are going forward. I'm sure higher rates would help but...

Eric R. Howell

The higher rates would certainly help. But we did see some good activity out of our brokerage channel with the equity markets picking back up a bit. So we're hopeful that it's thought about at this point, but still can't predict -- depends on where rates go.

Matthew T. Clark - Crédit Suisse AG, Research Division

Okay. And then the $600 million of loan growth this quarter, can you break it down for us in terms of what came from multi-family series, C&I? And sounds like Signature Financial is about $225 million maybe?

Eric R. Howell

That's about right. It was $375 million out of multi-family, another $56 million out of commercial property, and then C&I was about another $150 million of that.

Operator

Our next question comes from the line of Casey Haire with Jefferies & Company.

Casey Haire - Jefferies & Company, Inc., Research Division

I was wondering, I know you guys have talked about sort of on your long-term horizon about eventually going outside the footprints of possibly New Jersey, Connecticut. I was just wondering, given what sounds like a more competitive marketplace locally, if that pulls forward those plans.

Joseph J. Depaolo

What will pull forward the plans would be the opportunity. Believe it or not, the competitiveness in the marketplace is not -- will not drive that. The reason for it is so few banks control 60% of the market. So there is a lot of fertile ground not only for us to continue to grow, but all the banks that have been coming in from Florida, Connecticut, New Jersey, Rockland County, there's certainly room to take -- continue to take business away from the 2 big for sale banks, which control so much of the market. We'll go into New Jersey and Connecticut when we see some opportunity. And we actually, over the past several years, have been telling you, telling the market, that we're always considering it, and we're still considering Connecticut and New Jersey because we still have -- they're an outgrowth of what we do in the concentric circle growth of our business. But I don't think the competition will push us there.

Casey Haire - Jefferies & Company, Inc., Research Division

Okay. Understood. And then just a question about capital. I mean, I know you guys have plenty of cushion versus that 8% floor. But you are consuming capital at a decent clip here with just given the balance sheet growth. We have seen some other banks take advantage of low rates and issue some preferreds to shore up the Tier 1 leverage ratio. I was wondering, is that something you consider.

Eric R. Howell

It's -- we have such an abundance of capital, and our internal capital generation is really pretty high, $50 million a quarter, that I don't really see us raising capital anytime soon, whether it be in a common or a preferred [indiscernible].

Operator

Our next question comes from the line of Herman Chan with Wells Fargo Securities.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Back on the aggressive pricing commentary that you guys mentioned, how much of the loan book is that risk related to, that overly price -- overly aggressive pricing that you've seen? You've mentioned not doing the 10-year fixed with no prepayment penalties. How much of that business are you doing currently at a 10-year?

Joseph J. Depaolo

Well, very little, if any, on 10-year. We have a product that we use which is a step-up, which we can do 3 years, 3-year -- 3 tranches of 3 years where the price steps up; and then we also do 4-year, 3-year, 3-year. So it's essentially a 9-year or a 10-year where the rate steps up in the second and third tranches, although the third tranche is really an option for them because there's no prepayment penalty. So we think -- we thought of some creative ways to do things, and we're continuing to think of other creative ways of being able to match the competition without giving up too much yield. But certainly, we're not lowering our credit standard. I don't think -- I've never viewed it that our portfolio is at risk. I view it as how much growth do we want to have. We feel that we'll continue to have growth with the current environment, with our current pricing. And that if we met the overly aggressive pricing of our competition, our growth could go to stratospheric measures. So we're not concerned too much about what is that risk.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Got it. And you mentioned the active pipeline in recruiting. With some new competition coming into your markets, as you articulated earlier, have you seen the competition for hiring intensify at all? And have you also had to change any -- your compensation model at all for the team hires?

Joseph J. Depaolo

Well, I'll answer the latter part first. Our compensation model is extremely competitive. If you are very good at developing business, it's hard to match our compensation model. Regarding with the recruitment, I think that our record shows -- and that's why -- our record shows our consistency of the way we do things and the environment that would create for the bankers to work in. And that allows us to have an advantage, I believe, over some of the other institutions in terms of recruiting. So we haven't seen the competition increase, no.

Operator

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

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Eric, just a follow-up on the expense guidance. Can you remind us what the -- I think I missed it -- the expense guidance is for the rest of the year?

Eric R. Howell

10% quarter-over-quarter. So...

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

So 2Q-over-2Q?

Eric R. Howell

2Q over 2Q, correct.

Operator

Our next question comes from the line of Peyton Green with Sterne Agee.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

One question, Joe, and maybe we're all getting caught a little bit too much in the 90-day trap here. But at the margin, when you look at building Signature over the last decade or so. Do you think the hiring pipeline activity, plus the improving market share mining outlook outweighs the pricing competition or is it -- what's your thought on that?

Joseph J. Depaolo

No. I don't think it outweighs the pricing competition. To some extent, it does because we're able to get -- on the loan side, we're able to get between 1/4% and 3/8% higher. But I think once you go beyond 1/4% and 3/8% because of the overly aggressive pricing, no matter how much the client loves a banker, it's hard when it's 50-basis point, 75-basis point differential.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Okay. Great. And then in terms of the hiring pipeline, I mean, where would you or how would you characterize the level of the pipeline compared to prior years?

Joseph J. Depaolo

Probably exactly as it's ever been.

Operator

There are no further questions at this time. I'd like to turn the conference back to management for closing remarks.

Joseph J. Depaolo

Thank you for joining us today. We appreciate your interest in Signature Bank. As always, we look forward to keeping you apprised of our developments. And Alicia, I'll turn it back to you.

Operator

Ladies and gentlemen, this concludes Signature Bank's 2013 First Quarter Results Conference Call. If you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325 or (303) 590-3030, with access code 4612827 followed by the pound sign. An archive of this call can be found at www.signatureny.com. ACT would like to thank you for your participation. You may now disconnect.

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Source: Signature Bank Management Discusses Q1 2013 Results - Earnings Call Transcript
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