Signature Bank's (SBNY) CEO Joseph DePaolo on Q3 2016 Results - Earnings Call Transcript

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Signature Bank (NASDAQ:SBNY) Q3 2016 Earnings Conference Call October 20, 2016 10:00 AM ET

Executives

Susan Lewis - IR

Joseph DePaolo - President and CEO

Eric Howell - EVP, Corporate and Business Development

Analysts

Jared Shaw - Wells Fargo Securities LLC

Dave Rochester - Deutsche Bank Securities, Inc.

Ebrahim Poonawala - Bank of America

Christopher McGratty - Keefe, Bruyette & Woods, Inc.

Casey Haire - Jefferies & Co.

Bob Ramsey - Friedman, Billings, Ramsey & Co.

David Long - Raymond James

Steven Alexopoulos - JPMorgan

Ken Zerbe - Morgan Stanley

Operator

Welcome to Signature Bank's 2016 Third Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer, and Eric R. Howell, Executive Vice President, Corporate and Business Development. Today’s call is being recorded. [Operator Instructions].

It is now my pleasure to turn the floor over to Mr. Joseph 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 2016 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 statements - financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

Let's start with our taxi medallion portfolio. The tale of two cities continued to play out. During the past 18 months, we have tried to communicate the distinctions between the Chicago and New York marketplaces in terms of usage, acceptance and regulatory support. We feel this quarter's actions largely put our highest concerning portfolio behind us. We took significant measures by writing down each Chicago medallion to $60,000, leaving us with a total net exposure of $45.8 million. On a $38 billion balance sheet that equates to 12 basis points.

While we continue to aggressively workout the New York medallion portfolio, medallion utilization, right of [ph] participation and regulatory support is stable, allowing for more practical management on this portfolio. It is also important to underscore that despite the unfortunate actions with Chicago, our capital ratios remain above our target as a result of full earnings retention.

Looking at the remainder of our business, our fundamentals have not changed. Signature Bank delivered another exceptional quarter of growth surpassing $1.8 billion in deposit growth. Our second-best deposit quarter ever, and $1 billion in loan growth. As we grow, we continue to expand our geographic outreach for securing deposits on a national basis. Our capabilities, service and trusted reputation for safety have always enabled the Bank to compete with major financial institutions throughout the New York metropolitan area. Now, these attributes afford us the opportunity to go on to deposits in other regions of the country as well.

Now, let's take a look into earnings. Net income for the 2016 third quarter was $76.1 million or $1.41 diluted earnings per share compared with $96.2 million or $1.88 diluted earnings per share reported in the same period last year. The decline in net income is the result of a $61.7 million provision for loan losses for the Chicago taxi medallion portfolio. Excluding the provision expense associated with this portfolio, net income would have been $113.7 million or $2.11 diluted earnings per share.

Looking at deposits. Deposits increased $1.8 billion or 6% to $31.4 billion this quarter. Our second-best deposit quarter ever. And average deposits grew $1.4 billion. Since the end of the 2015 third quarter, deposits increased $4.8 billion, and average deposits increased $4.4 billion.

Non-interest bearing deposits of $9.7 billion represented 31% of total deposits and grew $322 million this quarter. The substantial deposit and loan growth coupled with earnings retention in our equity and subordinated debt raises led to an increase of $5.9 billion or 18% in total assets since the third quarter of last year.

Now, let's take a look at our lending businesses. Loans during the 2016 third quarter increased $1.06 billion to $27.8 billion. For the prior 12 months, loans grew $5.5 billion and represents 73.5% of total assets, compared with 69.6% one year ago. The increase in loans this quarter is primarily driven by growth in commercial real estate and multi-family loans.

As previously noted, we again saw deterioration in our medallion portfolio, which of course impacted our credit metrics. However, the remainder of our portfolio is performing remarkably well.

Non-accrual loans increased to $162.8 million or 59 basis points of total loans compared with $129.5 million or 48 basis points for the 2016 second quarter and $59.6 million or 27 basis points for the 2015 third quarter. However, more than 85% or $140 million of the non-accrual loans are taxi medallions. Therefore, for the remaining portfolio of over $27 billion in loans, we have only $22.7 million in non-accruals or eight basis points, that’s exceptional credit quality.

During the 2016 third quarter, we saw an increase of $16.5 million in our 30 to 89-day past due loans to $128.2 million, while the 90-day plus past due loans increased $1.6 million to $27.8 million.

The provision for loan losses for the 2016 third quarter was $80.5 million compared with $33.3 million for the 2016 second quarter and $11.4 million for the 2015 third quarter. Net charge-offs for the 2016 third quarter were $100.5 million, of which $95.1 million was for Chicago taxi medallion loans compared with $50.4 million for the 2016 second quarter and $5.5 million for the 2015 third quarter.

The allowance for loan losses was 74 basis points of loans versus 84 basis points in the 2016 second quarter. It was 82 basis points for the 2015 third quarter. Additionally, the coverage ratio remained supportive at 126%.

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 third quarter reached $290.5 million, up $40.5 million or 16% when compared with the 2015 third quarter and an increase of 3% or $8.8 million from the 2016 second quarter. Net interest margin decreased eight basis points in the quarter versus the comparable period a year ago and five basis points on a linked quarter basis to 3.14%.

Excluding prepayment penalty income, core net interest margin for the linked quarter decreased five basis points to 3.07%. Two basis points of decline was driven by the reversal of interest related to the Chicago taxi medallion portfolio. In addition, the decrease was due to an increase in premium amortization on securities, lower reinvestment rates on securities and excess cash on hand from robust deposit growth.

Let's look at asset yields and funding costs for a moment. Interest-earning asset yields decreased two basis points from a year ago, and decreased four basis points from the linked quarter to 3.62%. Yields on the securities portfolio decreased seven basis points linked quarter to 3.04%, given a pickup in premium amortization on securities from faster CPR speeds and lower reinvestment yields. The duration of the portfolio remained stable at 2.6 years.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages remained fairly stable at 3.89%, which is down three basis points. Now, looking at liabilities, our overall deposit costs this quarter increased one basis point compared to the 2016 second quarter. Average borrowings, excluding subordinated debt, decreased $374 million to $2.7 billion or only 7.3% of our average balance sheet. The average borrowing cost increased nine basis points from the prior quarter to 1.34% mostly due to the paydown of lower cost short-term borrowings.

Overall, the cost of funds for the quarter remained stable at 53 basis points. And on to non-interest income and expense, non-interest income for the 2016 third quarter was $11.1 million, an increase of $3.2 million, when compared with the 2015 third quarter. The rise was due to an increase in net gains on sales of securities and loans.

Non-interest expense for the 2016 third quarter was $96.2 million versus $86.2 million for the same period a year ago. The $10 million or 11.7% increase was principally due to the addition of new private client banking teams, as well as an increase in costs in our risk management and compliance activities. The Bank also incurred additional FDIC assessment fees.

Factoring in the significant hiring since last year and increased regulatory costs, the Bank's efficiency ratio still improved to 31.9% for the 2016 third quarter compared with 33.4% for the 2015 third quarter.

And turning to capital, our capital ratios were all well in excess of regulatory requirements and augment the relatively low-risk profile of the balance sheet, as evidenced by a tier 1 leverage ratio of 9.51% and a total risk-based ratio of 13.56% as of the 2016 third quarter.

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

Joseph DePaolo

Thanks, Eric.

Before we take your questions, let’s make it very clear. The fundamentals of our business have not changed at all. We continue to see massive opportunities in the marketplace to bring on solid client relationships. Also, as I noted earlier, we are expanding our geographic outreach for securing deposits on a national basis. The Chicago medallion write-down caused the first blip in our earnings in nearly a decade. It is now effectively behind us, and we look forward to getting back to posting traditional Signature Bank type quarters.

Let’s look at the fundamentals. In the first nine months, we grew deposits by over $4.6 billion parenthetically [ph] for the quarter, deposit growth of $1.8 billion was the second-best ever. We've grown loans by $4 billion. Pre-tax, pre-provisioning earnings were up 24.5% thus far in 2016.

Net income even when flat during the significant provisioning for the Chicago taxi medallion loans was still up 5%. Our capital ratios remain strong and supported with our depositors. And we’ve added three high quality teams to our network as well as expanding existing teams to the appointment of several bankers. The fundamentals remain strong. And now, we are happy to answer any questions you might have. Laurie, I’ll turn it over to you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Steven Alexopoulos of JPMorgan.

Steven Alexopoulos

Hey, good morning everybody.

Joseph DePaolo

Morning.

Steven Alexopoulos

Maybe I'll start, so regarding the incremental provision for Chicago at the Barclays Conference which was only a couple of weeks ago. You guys essentially got it to provision thing flat with the first quarter, what changed over the last two or so weeks so late to decide to take this larger reserve?

Eric Howell

Steve on the last day of the quarter, the two largest fleet owners did not make their payments. Therefore, we placed them on non-accrual. We also saw further sales in Chicago at the press levels and there is truly a lack of transparent information from the Chicago TLC as well as the fleet owners especially given the fact that they stop paying us. So, we decided to utilize in more heavily weight sales activity versus our cash flow modeling it in that marketplace and therefore, that really led to the charge-off that we have in the quarter.

Steven Alexopoulos

Okay. So, this is less of a proactive measure, it’s more related to these loans moving into default essentially?

Eric Howell

That was certainly the triggering event, the loans moving into default, we didn't see this marketplace stabilizing, we certainly expected it to continue to get worse, that - those two fleet owners going to non-accrual really gave us a moment to look at that marketplace and to recognize where it was going and effectively rip off the band aid and be done with it.

Steven Alexopoulos

Got it, okay. Could you give the update on the New York taxi book in terms of balances, reserves, NPLs et cetera?

Eric Howell

Sure, remaining balance in New York is $593 million, our carrying cost there is approximately $600,000 per medallion, little bit under $600,000 per medallion. But that service coverage ratio is for the fleet perhaps 1.42 times and individual medallions are out 1.2 times. LTVs for the fleet is around 81%, individual medallions are right around 100%.

We took charge-offs of $3.2 million in New York in the quarter, we have reserves of about 5.5% on that portfolio and we closed on 20 sales in the quarter. 16 medallions that we auctioned in the second quarter closed for $635,000 each and we also sold four individual medallions for an average price of approximately $600,000.

Steven Alexopoulos

Okay, that’s helpful. Thank you. And maybe just one final one with the Chicago taxi book now largely behind you, that’s clearly a positive. With that said, you know the remaining overhang at least from the stock seems to be the concentration of commercial real estate loans. Can you just talk about your plans to work through that challenge, might you consider any bold steps such as you know somewhat we saw in Chicago to put that behind you as well.

Joseph DePaolo

There is nothing - Steve, there is nothing to put behind us as it relates to the commercial real estate. Since 2010, we have been over 300% of capital. So, there is no surprise there, we have been on the radar screen of the regulators for many, many years. What really it comes down to is that regulatory guidelines of mandate that if you have a CRE concentration, you should have extra safeguards in place. You should have practices, policies, and procedures that always top of the line, you should have documentation that's enhanced and we agree with that. So, we haven’t had any discussions about slowing down the growth of the portfolio as it relates to the regulators, it’s more make sure that if you're going to keep your balances or growth above 300% then you have to take responsibility to - and we agree with this to have the best of the best practices.

Steven Alexopoulos

Okay, but Joe if you think longer-term, do you plan on bringing that concentration down maybe for a mix shifting of the loan portfolio or you’re very comfortable where it is or growing it?

Joseph DePaolo

Well, we are comfortable where it is, I mean going forward, we want to have a better mixture as we grow $46 billion in total assets each year, we want to have an increase in our investment portfolio, we certainly like to get that up to $10 billion. We’d like to have more C&I and more from Signature Financial, but we’ll still continue to do the business that we have been doing.

I think the slowdown in CRE is not so much what the Bank wants to do, but that there will be somewhat of a slowdown because there'll be less refis, because let's face it, over the last several years, a number of clients have refi multiple times, so instead of going from the five handle to a three handle, you are now going from a three handle to a three handle. There is not much more to extend out and there is not much more in terms of dollars to take out. So, there may be somewhat of a slowdown and we’ll be ready for that by us increasing the C&I and the Signature Financial part of our business.

Steven Alexopoulos

Okay. Got you, that makes sense. Thanks for all the color.

Joseph DePaolo

Right, thank you.

Operator

Your next question comes from the line of David Long of Raymond James.

David Long

Good morning guys.

Eric Howell

Good morning David.

David Long

Loan growth, the way I look at your loan growth relative to peer, still very, very good and a billion dollars, it’s nothing to shake a stick at here. But the comments you made towards the two-thirds of the way through the quarter, given those comments that were made in that conference. It looks like loan growth may have slowed into the end of the quarter. Can you maybe just talk about the pace of the loan growth and maybe how may that compare to what you’re expecting here in the fourth quarter?

Joseph DePaolo

Well, loan growth was $1.06 billion, but when you take the charge-offs, which we had at the last day of the quarter and we had some pay downs on the last day or two of the quarter, so we really got about $1.2 billion. So, that’s what happened when we made the decision to charge-off the loans that affected the growth in the quarter, but we have a pretty strong pipeline for the fourth quarter going into the first quarter and we are just about at $4 billion in growth, in loans for the year at least through the first nine months. So, we will be somewhere between $5 billion and $6 billion growth for the year.

David Long

Got it, okay. And then as a follow-up, on the deposit side obviously very good growth there as well. The national deposit initiative that you’ve mentioned a couple of times that seems relatively new and just wanted to see, if you can give us some color on what may have provoked that or give me just a little more color around what your expectations are there?

Joseph DePaolo

Sure. We've been talking about the deposit initiatives the way at several quarters almost the last year and a half. We really said that we - and I will give you one example, but we said that we want to try and be coy, but we really don’t want talk about the deposit initiatives, because we don’t want our competitors to know. But to give you an example of one, we're doing a 1031 business like kind exchanges and just several years ago we were doing that business with clients in New York, now we are doing in 11 additional states. We have business in 11 states in addition to New York.

Not that we're doing business in those states, but we have clients in those states and that’s because of our reputation for service and the attention we pay to these types of clients that we're able to now gather deposit on a nationwide basis, for example, in Florida, the state of Washington, Texas, Oregon, Arizona, Pennsylvania, California. We're not lending there on the traditional C&I basis, what we're doing is just gathering deposits so that’s one of the initiatives. So, that’s why we are very optimistic of our ability to continue to grow on the deposit side, because let's face it, we will only be deposit gatherer, because not only do we have the market opportunity in New York, we have some market opportunities in other parts of the country.

David Long

Got it. Thank you for the color.

Joseph DePaolo

Thank you.

Operator

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

Ken Zerbe

Thanks. Good morning.

Eric Howell

Good morning.

Joseph DePaolo

Good morning, Ken.

Ken Zerbe

Just want to start with the NIM outlook obviously, I think I heard two basis points of the NIM came from the Chicago portfolio. But when you look out for the next quarter or two, is there any reason to assume that the decline slows at all? Thanks.

Eric Howell

Yeah. When you look out kind of actually it looks a little more favorable than this quarter. So, we expect that the core NIM will be pretty stable, really flat to let’s say a slight downward bias maybe a basis point or two. But at these levels we really expect them to be fairly stable.

Ken Zerbe

And what is that being driven by, is it better yields on CRE or something else?

Eric Howell

That’s certainly part of the equation. We have some borrowings that are going to re-price lower, so that helps. We anticipate that premium amortization will pick up, but at a slower pace, so that’s pretty controlled. It’s really continuing to grow loans as a percentage of the balance sheet. That’s certainly an initiative that we expect will continue. It’s all those things taking together and there is just less pressure on the asset side with refinances, most people have refinanced their rate lower at this point. So new assets that we are putting on are coming at similar levels to what’s rolling off.

The biggest really driver to where ultimately NIM’s grow our deposit growth. If we see very robust levels of deposit growth, that will take us time to deploy and will give off a few basis points of NIM in that and we're happy to do that any quarter.

Ken Zerbe

Got it. Understood, okay. And then not that we're going to hold it provision expense outlook, but it seems that with Chicago kind of hopefully behind you it sounds like New York taxi still a modest headwind. How do you guys feel about sort of the prior guidance of sort of that $20 million a quarter should be more or less broadly?

Eric Howell

Yeah. We feel it’s much safer to say that now with Chicago behind us, that will be closer to that first quarter level of $20 million.

Ken Zerbe

Got it. Okay. All right, thank you.

Eric Howell

Thank you.

Joseph DePaolo

Thank you.

Operator

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

Joseph DePaolo

Chris?

Operator

It appears that line is disconnected. Your next question comes from the line of Bob Ramsey of FBR Capital Markets.

Bob Ramsey

Hey, good morning guys. Was there any provision for the New York taxi book this quarter and do you currently have any medallions in OREO or any forthcoming medallion sales?

Eric Howell

We really tap that provision pretty flat in New York. We shifted from using estimates on loss factors there that utilizing our own loss factors and now that we have a pretty decent history of losses in the New York portfolio. And so that really kept everything stable there and we have about 5.5% reserves on New York portfolio. We do have some repo assets, we got about $6.5 million and repossess the assets and we do anticipate some - a couple of sales going forward. Most of what we're doing is working with the borrowers and really use the refinancing with our existing borrowers.

Bob Ramsey

Okay, got it. And then, could you talk about, I guess within the New York taxi book. The increase in non-accrual loans this quarter?

Eric Howell

Yeah, as we said, we expected non-accruals in past, there was the increase we kind of anticipate that will happen again in the fourth quarter and it should start to slowdown and reverse over the course of next year. It took us some time for us to change our operations from really a sales culture to workout culture. But we've done that now; we're actively pursuing restructuring the bulk of the non-accruals in the past dues. And we - like I said, we anticipate that that that will slowdown in the fourth quarter really start to reverse through the course of next year.

About 80% of our New York portfolio is paying right now. So, that's about $410 million, our current - there is another $36 million that are just chronic slow pairs so that typically in that 30-day delinquent bucket and we're working with them on restructuring to get them fully current. And we've got another $34 million out of mixture, but are still paying. So, we really just need to get around to refinancing those allowances.

So, if you look at the non-accrual bucket, we've got approximately $90 million in New York City medallions in non-accrual. Of the $90 million, $19 million are paying us on refinance terms. So, we'll need some seasoning there and we can put them back on accrual. $41 million are not paying us and are in workout and we're attempting to engage the borrower in a restructure that will afford them the opportunity to retain and operate the medallion before we commence foreclosure. And we've got $30 million in the foreclosure process with attorneys. We expect some of them will come back to the table and ultimately restructure others, we will repossess, take them into other assets and potentially resale them or lease them to an approved operator. So, that's the plan on the non-accruals right now.

Bob Ramsey

Got it. And then could you talk to maybe about to what degree, there is any concentration maybe what is the size of the biggest lending relationship fleet operator or what have you in the New York book?

Joseph DePaolo

In New York, I don't have the details on the largest fleet, but we only have a little over 100 million of fleets operators in New York. So, the majority of that portfolio was to individual operators.

Bob Ramsey

Okay. Great.

Eric Howell

The 100 million that we do have, the sweet spot, we're not concerned about it all. There are at 140 debt service coverage and the LTVs are very strong. So, the fleets are not concerned about at all. The information that we're getting out of fleets is pretty strong. They're at near or 100% utilization now and that was just a 15% reduction in the lease fees. So, the fleets are performing pretty well.

Bob Ramsey

Great.

Joseph DePaolo

Conversely, I want to say, conversely in Chicago with the fleets we have the question of guarantee and we're going - we're using resources to aggressively pursue those personal guarantees in Chicago.

Bob Ramsey

Okay, great. Shifting gears a little bit and then I'll hop off. But when you talk about sort of growth annually next year, being in the $4 billion to $6 billion range, could you sort of maybe breakout what the mix is of loans versus securities, since you guys are talking a little bit about increasing securities, is it 75, 25, is it 60, 40, is it 80, 20 any sense of how that mix shakes out?

Joseph DePaolo

It usually depends on the - the rates of update. What the yield curve is going to be. Every one of those percentage you gave shaking our head, yes. So, it's hard to say, but we're going to make the - certainly an effort to increase the portfolio. It'll be best to talk on - as we get in the first quarter, fourth quarter earnings call in January, we'll have a better idea.

Bob Ramsey

Okay. Fair enough. Thank you, guys.

Joseph DePaolo

Thanks.

Operator

Your next question comes from the line of Christopher McGratty of KBW.

Christopher McGratty

Yeah, thanks for taking the questions. Sorry about that. Joe, you talked about your capital ratios really unaffected with the action. It what appears to be more defined growth target including next, any comments about external use or needs of capital and also maybe remind us the target you're looking at?

Joseph DePaolo

External usages as in terms of...

Christopher McGratty

I'm sorry, external capital raising, capital raising.

Joseph DePaolo

Capital raising. Well, right now we have no plans. If we have the traditional Signature Bank quarters, we'll have a pretty decent income that we invest back in and that certainly should support our growth. If anything, if I had to guess between an equity raise and a debt raise, if there is anything in the future, it's more of a debt raise than there would be an equity raise. We think that would be strategically the better thing to do, but right now we don't have any plans other than to invest our earnings back into the institution.

Christopher McGratty

Okay, great. Thanks for that. Maybe kind of a strategic question, you guys all own quite a bit of stock and obviously, you're all align with shareholders and I believe in the past you both work for Florent Parent [ph]. Given really the regulatory burden we're seeing kind of constant [ph] models, and some precedents of some domestic banks partnering with kind of foreign buyer, is there a situation that would ever make sense again?

Joseph DePaolo

It's hard to comment on something like that, because it's just guess work. So, I will say that our chairman once said that you become to sale of the day you go public, because you are in the public arena. And so, since March 22nd of 2004, we've been in the public arena and that's pretty much more like a comment on, Chris.

Christopher McGratty

Okay. Thanks for taking the question.

Joseph DePaolo

Thanks.

Operator

Your next question comes from the like of Dave Rochester of Deutsche Bank.

Dave Rochester

Hey, good morning, guys.

Eric Howell

Good morning.

Joseph DePaolo

Hey, Dave. Good morning.

Dave Rochester

A quick one on your NIM guide, flat to down two bps, you mentioned deposit growth there be and a swing factor there. Are you just assuming loan growth effectively matches deposit growth going forward? How should we think about that?

Eric Howell

We anticipate the deposit growth to outpace loan growth and that will have some level of security portfolio growth.

Dave Rochester

Okay. So, that's - all right, got you there. And then, I know this is hard to predict, but can you just talk about how much you expect to overall activity in the CRE and multi-family markets in New York to actually slow next year. I know you mentioned less refi activity but it seems like that loans made three or four years ago today come up to the end of their fixed periods, next year, close to it, it seems like you'll still see a decent amount of refi activity as those guys come back to lock in for a longer fixed period and then you'll have purchase sale activity on top of that, just trying to get your sense for how much of a slowdown you think there is going to be, just to try to get an idea of where loan growth could go in those segments?

Joseph DePaolo

It's so hard to predict. What I will say something I did say earlier, some of the smaller institutions that are in the CRE business have slowed considerably or out of it. And as a result, there may be some pickup to offset some of that slowdown, but it's just so hard to predict.

Dave Rochester

Okay, but you now look for a big drop off in activity at this point, are you?

Joseph DePaolo

No, we’re not looking for big drop off, should there be bonus we’re also trying to do more C&I and we have some municipal business that we do at Signature Financial, so with that added business, if there is a slowdown at all that should pick it up.

Dave Rochester

And in terms of the market demand for those asset classes, the B&C, CRE space and rent stabilized multi-family you’re still seeing a decent amount of market demand for that product?

Joseph DePaolo

Yes.

Dave Rochester

Okay, great. And then, I guess just switching to your pipeline comment, it sounds like you’ve got a strong pipeline heading into 4Q just curious how that compared to the pipeline heading into the third quarter?

Joseph DePaolo

I wouldn’t say, it was slower, but in the last two weeks I would say it’s a little bit of ahead.

Dave Rochester

Okay, great. And then just one final one on your provision color, I appreciate it hearing by your increased confidence there, but it seems like with Chicago potentially completely behind you at this point and your color on New York would suggest you tend to think that you’re not looking for any material provisioning there going forward that you could potentially come below that $20 million level that you talked about a couple of quarters ago, is that fair I mean are you thinking that the $20 million is not to set a hard top on it, but that you feel pretty comfortable that you can come below that?

Joseph DePaolo

Why don’t we just stay with the $20 million and we'll let you decide whether or not it should be better.

Dave Rochester

Okay. All right. Thanks, guys.

Joseph DePaolo

Okay, thanks Dave.

Eric Howell

Thanks, Dave.

Operator

Your next question comes from the line of Ebrahim Poonawala of Bank of America.

Ebrahim Poonawala

Hey, guys, good morning. I just have one remaining question and I'm sorry if I missed it, but I'm wondering Joe, if you had any thoughts around just the overall multi-family market in New York means you’ve seen a considerable slowdown both in terms of rent growth in terms of plus significant amount of supply coming to the market. I think outside of the regulatory scrutiny as we look out over the next 18 to 24 months, do you see any rebound in activity levels just in the overall market that could surprise to the upside when we think about multi-family growth for you guys?

Joseph DePaolo

The market that we’re in, we actually have not seen a surplus of building. That’s been more at the higher end and in fact we see a slowdown in more building because of the 421-A certificate that it no longer available and so we haven’t seen any sort of building going on in the marketplace that we deal in the multi-family region.

Ebrahim Poonawala

Understood, means and so fair to say I mean you’re seeing no - I understand the pressure has been at the high-end condo market, but you’re saying nothing of that is filtering through in terms of the segment that you are active in?

Joseph DePaolo

No, not meaningful.

Ebrahim Poonawala

Not meaningful, all right. Thanks, a lot. That’s all I had.

Joseph DePaolo

Thank you.

Operator

Your next question comes from the line of Casey Haire of Jeffries.

Casey Haire

Thanks. Good morning, guys. I had a follow up on the deposit growth guide. I know it can be very uneven, but the fact is that a billion-aided deposit growth this quarter that annualizes the $7.2 billion and now that you guys are pursuing deposit growth on a national scale that’s $4 billion to $6 billion of asset growth driven by deposits does look a little conservative just wondering your thoughts there are you guys just playing it safe as you start this national deposit gathering initiative?

Joseph DePaolo

Well, Casey deposits are hard to predict because of the inflows and the outflows that happen. We’re picking up very nice clients on a national basis, it’s something that takes time and I do appreciate giving us the confidence that we can do $1.8 billion every quarter but that’s hard to do so I think the $4 billion to $6 billion is probably right for now. Maybe at the higher end so to speak but I wouldn’t go beyond that.

Casey Haire

Okay, fair enough. A question on expenses you guys have been with Chicago now behind you is there any expense relief, we might see from with less workout expense in Chicago?

Joseph DePaolo

No, we don’t see that at all, we’re still bringing on teams or individuals that have been joining existing teams, we’re - in other areas such as cash management compliance, lending support all that wire transfer all these areas in the institution that need to meet the growth that we’re having and in fact that we expect to be targeting $50 billion we’re getting paid for that. So, we’re going to continue to have expenses at that level.

Casey Haire

Okay, understood. Just last one for me, on the - can you break down the loan mix of the $1.60 billion in loan growth this quarter by product and then also the tax rate are little lighted 39 assuming that’s the charge knocking down the pre-tax income. Does that jump up to 40% going forward? Thanks.

Eric Howell

Yes, Casey to be safe, you should take the tax rate back up to 40%. On the loan growth CRE grew $448 million, multi-family grew $419 million, we had growth in C&I about $58 million that was obviously net of the large write-down would have been $150 million those are the main growth buckets.

Casey Haire

Thank you.

Eric Howell

Thanks.

Joseph DePaolo

Thank you, Casey.

Operator

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

Jared Shaw

Hi, good morning.

Joseph DePaolo

Good morning.

Eric Howell

Good morning, Jared.

Jared Shaw

You had mentioned a target of $10 billion on the securities portfolio is that a longer-term target or is that as we look at this deposit growth coming in over the next time, you called five or six quarters. We should expect to see that securities line growing quickly in the in 2017?

Eric Howell

The five or six quarter number seems about right.

Jared Shaw

Okay, is that making any change in your investment, your general investment strategy or is it just getting bigger in what you’re doing.

Eric Howell

It's just getting bigger in what we were doing. No one anticipated changes there.

Jared Shaw

And then on the expense side, you had mentioned you have been hiring the risk management in compliance side. Is that fully staffed up at this point now or do you anticipate further growth in there to...

Joseph DePaolo

Well, what’s interesting is that when you think you reached a level, the next year you find out there is more to do, the point is more procedures and more policies that need to be put in place, because those regulatory - additional regulatory requirements. So, the answer is no, so it will still happen. And plus, we’re targeting to putting a few more collection people, because one thing that is clear and I mentioned a few second ago that in Chicago we have the personal guarantees of the fleet owners and we’re not going let up, and we want to get those recoveries and I am saying this is second time, because I am hoping that they are listening.

Jared Shaw

Okay. And then on the - on those headcounts adds on the risk management compliance, how many people are we talking that have been added over the course of you know call to last year in those areas?

Joseph DePaolo

Several dozens, you know between compliance internal audit, risk management, like risk management without giving details of people, risk management doubled in size. But it’s not anyway near you know the thousands of people that the chases are hiring. We’re doing these two things; one, we bear responsibility for the size of institution we are to have things in place and two, for the last year or so we’ve also been preparing for $50 billion whether that number stays at 50 or not, we’re preparing for it. And our expectations a lot of that we’ll be ready, so that there is not anyone quarter that has a large expense, because we had to put people in place that we missed and we’re not going to miss with our plan that we have that with following adhering to. So, it will continue probably for the foreseeable future.

Jared Shaw

Great, thank you. That’s all I had.

Eric Howell

Thank you.

Operator

Your next question comes from the line of Lana Chen [ph] of BMO.

Unidentified Analyst

Thanks. Good morning.

Joseph DePaolo

Good morning Lana.

Unidentified Analyst

Couple of questions. I might have missed on the deposits but did you breakout how much of your deposit growth of $1.8 billion this quarter came from the national deposit business and how they are right now?

Joseph DePaolo

No, we don't really no. the answer is no. I didn't give the breakdown we have to don't have it broken it down out that way.

Unidentified Analyst

Okay. And is this national - are these national deposits this initiative, would they be considered LCR friendly?

Joseph DePaolo

I would say, it depends. I would say mostly yes. And one thing I do want to see that these initiatives that we're talking about have been going on for the last I should have say this earlier have been going on for the last year and half. These are the initiatives that I mentioned that we had entered into, because we saw some of the good banks falling down and handling some of the initiatives. So, the growth of deposits that both national and local.

The reason why I say it depends, but it's mostly favorable to us is because the way we are asking for the deposits. We not only want some of the deposits that fluctuate at the money market, but we're also asking for the operating accounts.

Unidentified Analyst

Okay. Thank you for that. And just as follow-up to the taxi portfolio particularly in New York. I mean given the way the stocks have been acting. It seems like I just want to get your philosophy in terms of why not be more proactive in writing down or taking bigger reserves on the New York portfolio. It seems like you've got some enough earnings power this year to build that portfolio or that reserve pretty meaningfully. And maybe fill that up and hopefully option off more of those loans at a lower value at some point in time?

Eric Howell

All indications that we have in the marketplace Lana is that we're just not seeing a need for that. And I think our orders will have a tough time with us just building reserves about support for that.

Joseph DePaolo

And then the methodology we use for Chicago is similar to the methodology we use for New York. And if you come up with the number that we have to book is that what you say to be very hot if you further beyond that without the support.

Unidentified Analyst

Okay. Thank you.

Joseph DePaolo

Thank you, Lana.

Operator

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