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Signature Bank/New York NY  (NASDAQ:SBNY)
Q3 2018 Earnings Conference Call
Oct. 18, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2018 Third Quarter's Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer; and Eric R. Howell, Executive Vice President, Corporate and Business Development. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions, following the presentation. (Operator Instructions)

It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Crystal. Good morning and thank you for joining us today for the Signature Bank 2018 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 -- Media Contact

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 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 -- President and Chief Executive Officer

Thank you, Susan. I'll provide some overview into the quarterly results, excuse me. And then Eric Howell, our EVP of Corporate and Business Development will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

Signature Bank delivered a strong quarter of financial performance, where, once again, we saw a solid deposit and loan growth, expanded top-line revenues and further improved our credit quality. More importantly, we continued to invest in our future with the hiring of four private client banking teams, bringing the total to eight for the year.

Let's start by taking a look into earnings. Net income for the 2018 third quarter was $155.4 million or $2.84 diluted earnings per share, an increase of $31 million or 25% compared with $124.5 million or $2.29 diluted earnings per share reported in the same period last year. The increase in net income was primarily due to a rise in net interest income and decreases in the provision for loan losses and income tax expense. These items were partially offset by an increase in expenses due to the addition of new private client banking teams.

Looking at deposits, deposits increased $1.1 billion to $36.1 billion this quarter, while average deposits grew $1.3 billion. Since the end of the 2017 third quarter, deposits increased $2.4 billion and average deposits increased $2.3 billion. Non-interest bearing deposits of $12.2 billion represented 34% of total deposits, and grew $350 million this quarter. Our deposit and loan growth led to an increase of $4.5 billion or 11% in total assets since the third quarter of last year.

Now, let's take a look at our lending businesses. Loans during the 2018 third quarter increased $980 million to $35.1 billion. For the prior 12 months, loans grew $3.9 billion and represent 76.6% of total assets compared with 75.5% one year ago. The increase in loans this quarter was primarily across the board, as traditional C&I increased 5.2%, specialty finance increased 3.6% and multi-family and commercial real estate loans again increased.

Turning to credit quality, our core portfolio continues to perform remarkably well. Excluding medallion loans, non-accrual loans are $22.5 million or just 6 basis points of total loans. Overall, non-accrual loans decreased again this quarter by $24 million to $134 million, as we further worked down our remaining medallion portfolio. 83% or $111.7 million of the non-accrual loans are taxi medallion loans.

Our past due loans remained in their normal range with 30 to 89 day past due loans at $59 million, while 90-day plus past due loans remained low at $6.5 million. The provision for loan losses in the 2018 third quarter was $7.4 million compared with $8 million in the 2018 second quarter and $14.3 million for the 2017 third quarter. Net charge-offs for the 2018 third quarter were a negligible $11,000 compared with $3 million for the 2018 second quarter. The allowance for loan losses increased slightly to 63 basis points of loans.

Now, on to the team front. We have had a very active quarter and year. During the quarter, we added four new banking teams, bringing our total to eight for the year. This includes a nine-person team to establish our fund banking division. Six teams are based in New York, while two are of San Francisco office. Additionally, we hired eight banking professionals in both our ABL and specialty finance businesses to further our diversification strategies. Our pipelines in both New York and San Francisco remain active. And we look forward to the ongoing opportunities to attract talented banking professionals to our network.

At this point, I'll turn the call over to Eric and he will review the quarter's financial results in greater detail.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

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

Net interest income for the third quarter reached $324.8 million, up $16 million or 5.2% when compared with the 2017 third quarter and an increase of $3.8 million from the 2018 second quarter. Net interest margin decreased 17 basis points in the quarter versus the comparable period a year ago and 6 basis points on a linked quarter basis to 2.88%. Excluding prepayment penalty income, core net interest margin for the linked quarter decreased 4 basis points to 2.85%. The decline was predominantly driven by a decrease in prepayment penalty income of $2 million to a six-year low of $4.1 million and increased deposit costs due to further Fed rate increases.

Let's look at asset yields and funding costs for a moment. Interest earning asset yields increased 3 basis points from the linked quarter to 3.85%. Yields on the securities portfolio increased 9 basis points linked quarter to 3.26%, given a slight slowdown in premium amortization and better market conditions for reinvestment. The duration of the portfolio remained stable at 4.1 years. And turning to our loan portfolio, yields on average commercial loans and commercial mortgages increased 2 basis points to 4.05%, driven by the higher interest rate environment, despite a $2 million decrease in prepayment penalty income.

Now, looking at liabilities, our overall deposit cost this quarter decreased to 12 basis points to 88 basis point -- I'm sorry, increased 12 basis points to 88 basis points compared with the 2018 second quarter, driven by further Fed rate increases, leading to heightened competition. Average borrowings, excluding subordinated debt, decreased $543 million to $4.9 billion or 10.7% of our average balance sheet. The average borrowing cost increased 17 basis points to 2.17%. Overall, the cost of funds for the quarter increased 10 basis points to 1.06%.

And on to non-interest income and expense, non-interest income for the 2018 third quarter was $4.5 million, a decrease of $3.6 million when compared with the 2017 third quarter. Excluding an increase of $4 million in tax credit investment amortization, non-interest income grew $400,000 for the quarter. Non-interest expense for the 2018 third quarter was $117.2 million versus $105.6 million for the same period a year ago. The $11.6 million or 11% 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 related activities. The Bank's efficiency ratio was 35.6% for the 2018 third quarter versus 33.3% for the comparable period last year and 34.5% for the 2018 second quarter.

And turning to capital, the Bank declared a cash dividend of $0.56 per share payable on or after November 15, 2018 to common stockholders of record at the close of business on November 1, 2018. In the third quarter of 2018, the Bank paid a cash dividend of $0.56 per share to common stockholders. The payment of $31 million had a negligible effect on our capital ratios, which all remain 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 9.67% and a total risk based ratio of 13.44%, as of the 2018 third quarter. Additionally, yesterday, our stockholders approved our common stock repurchase plan, which we will begin to execute depending on growth and stock market conditions.

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

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Eric. We are pleased to have reported another clean quarter, where we had strong deposit growth of $1.1 billion with solid increases across all lending businesses. We grew top-line revenues, we maintained our best-in-class efficiency ratio and we provided a 15% return on equity. During the past few quarters, Signature Bank has executed several growth initiatives, paving the way for the future direction of this institution. These strategies include taking our successful single point of contact model outside of the metro-New York area, where we spent 17 years building the foundation of our business and bringing it to San Francisco after we identified a glaring need.

In the first quarter of 2018, we appointed a digital asset banking team because we want to be nimble and ready to change as the market evolves. Just recently, we hired a nine-person team focusing on capital call and subscription finance for private equity firms. We anticipate this to become meaningful -- to become a meaningful part of our business in the not too distant future, both loans and first and foremost deposits. And lastly, we have been heavily investing in our infrastructure with the implementation of new systems for loan operations, which is now in place, credit approvals and foreign exchange as well as enhanced payments platform.

And now, we are happy to answer any questions you might have. Crystal, I'll turn it over to you.

Questions and Answers:

Operator

The floor is now open for your questions. (Operator Instructions) Thank you. Our first question is coming from the line of Ken Zerbe with Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Good morning.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

I guess, maybe just starting off just in terms of the very strong deposit growth that you guys had in the quarter. Can you just elaborate a little bit, like, what kind of yields or deposit costs do you have to offer to those customers to bring them on? And is it any different from your overall portfolio? Great, thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

While we're trying to stay away from 2%, on the money market side, it's an average of somewhere between 1.5% and 1.75% on the money market, but they have -- they've been the clients has to have demand accounts, DDA non-interest-bearing. As I said earlier, we had grown non-interest bearing $350 million out of the $1.1 billion. So there's a necessity on the clients and to keep their operating accounts as they're going to get interest at that level on their money market. And we're finding that a number of banks are paying up in the 2% and a little above 2% range, but you really have to look at the fine print because it's all teasers for the most part.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. Helpful. And then in terms of the private equity team that you brought over, can you just help us size that opportunity? Like -- I know you said sort of meaningful growth. Like, how much in loans, if you look out over, say, the next 12 months, are you guys expecting? And also, if you can address the deposits, like, how deposit-rich those customers are and what that could actually add to your business?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, the business that they had at their previous bank, they were pretty much self-funded because the lines -- I'll give you an example, utilization in the lines should be about 50% or thereabouts. So we expect the growth to be starting with a B as opposed to an M, a $1 billion as opposed to a $1 million in terms of commitments and then the outstandings would be about 50% of those commitments and we would expect that the deposits would exceed the outstandings on those commitments. So this is a team that has probably best-in-class for the space that they're in. And in fact, we've already added a 10th person on from another institution, a big player, that will join us after his Garden leave is over some time at the end of the year. So the expectations are pretty large.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Understand. And the $1 billion was over the course of a year, correct?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, correct.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. And then just one last question. Just in the buybacks area, I think you mentioned you got approval. Is there anything that's stopping you from getting a little more aggressive in terms of -- it sounds like you are going to wait possibly or delay buybacks? Like, is there any reason why you wouldn't be more aggressive in starting that fairly soon?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well, we are waiting on final regulatory approval, which we expect that to come soon. Once we receive that -- now, I mean, at this stock level, we anticipate that we will be buying back. We do have to triangulate that with how much in capital we want to maintain for our depositors, how much growth prospects we have that's really key and we want to retain that capital for growth. And then ultimately, our commercial real estate concentration, we want to be able to continue to bring that down. So that's really our binding constraint on how much we can buyback, but at this stock level, it certainly would make sense for us to be purchasing stock.

Ken Zerbe -- Morgan Stanley -- Analyst

All right, perfect. Thank you very much.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Ken.

Operator

Our next question comes from the line of Dave Rochester with Signature Finance.

Dave Rochester -- Deutsche Bank -- Analyst

Hey. Good morning, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Dave.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Dave.

Dave Rochester -- Deutsche Bank -- Analyst

Not sure how I became a part of Signature Financial, but --

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Love to have you on-board.

Dave Rochester -- Deutsche Bank -- Analyst

It's great to hear. Thanks. Just --

Joseph J. DePaolo -- President and Chief Executive Officer

The application for the 401(k) (inaudible).

Dave Rochester -- Deutsche Bank -- Analyst

Well, hey, just to start on the deposit front. I was just wondering, if you guys can make any comments on the start to the quarter here on the growth front? You guys had a great quarter growth in 3Q. I was just wondering, what the start look like this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

It's positive. I -- we get in trouble when we say what it's like because the choppiness of the deposits. And the fourth quarter is the one that has the most choppiness, but it's positive.

Dave Rochester -- Deutsche Bank -- Analyst

Okay. And just switching to the NIM, we've seen the backup in the middle of the curve here. Was just wondering, if you guys still feel pretty good about your NIM guidance for 4Q? And if you could just give us an update on how you think about that trend next year? That would be great.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yeah. I mean, we're still in that 3 to 6 basis points of court NIM compression in the fourth quarter. Where we end up within that range will predominantly depend on where deposit growth is.

Dave Rochester -- Deutsche Bank -- Analyst

Okay.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

As we look forward from that, we anticipate two to maybe three Fed moves next year. If it's two moves, we should see NIMs start to move up during the course of the year, certainly in the latter half of the year, we should see that. If it's three moves, it will be pretty stable. And if it's four moves, we'll see a little bit of downward pressure. But the asset side of the balance sheet is starting to catch-up to the liabilities now and that's helping us offset some of this deposit pressure.

Dave Rochester -- Deutsche Bank -- Analyst

I know you guys had started a new program of sorts, where you're going out to some of your multi-family commercial real estate customers that have the lower, like, three-type coupons and checking to see if they could refi. Is that -- have you guys been pretty successful with that program? And then just any comments there will be great.

Joseph J. DePaolo -- President and Chief Executive Officer

There has been success. Although, relative to how large the portfolio is, it's going to take some time, but we are gaining a 100 basis points or thereabouts with the refis, but it's like moving the battles -- or not the battleships, like moving an aircraft carrier, but it is going to be positive to the revenue.

Dave Rochester -- Deutsche Bank -- Analyst

Great. And then, I guess, in this newer rate environment with the higher middle of the curve and whatnot, can you just give an update on where you are seeing new loan yields and securities purchase rates at this point?

Joseph J. DePaolo -- President and Chief Executive Officer

On the loan side, CRE, we're seeing 4 and 7 8s -- not that we're seeing, that's what we charge, the 4 and 7 8s, just slightly under 5. I think, we're more than 25 basis points higher (inaudible). I think the spread between what we're charging and what others are charging is larger, but we're still getting our share of business.

Dave Rochester -- Deutsche Bank -- Analyst

And so the CRE, is that just pure CRE or does that include multi-family or you're (inaudible) multi-family?

Joseph J. DePaolo -- President and Chief Executive Officer

Sorry, that was the multi-family, the five-year.

Dave Rochester -- Deutsche Bank -- Analyst

Okay. So for the five-year multi-family is 4 and 7 8s?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

Dave Rochester -- Deutsche Bank -- Analyst

And then, where are you on C&I?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

C&I, we're north of 5% now. Signature Financial is approaching the 5% level and securities are in the mid 3%s.

Dave Rochester -- Deutsche Bank -- Analyst

Mid 3%s. Great. Great. And then just maybe one last one on expenses. I know you've been pretty active on the team hires this year. I was just wondering, if you still feel pretty good about that high single-digit level for this year? And then as you think about the trend for next year, do you think that maybe that trend can be a little bit better than this year, just given you've got the roll-off of the FDIC surcharge?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yeah, I think we're going to up our guidance a little bit to around 10% versus the high single-digits, given all the hiring that we've done.

Dave Rochester -- Deutsche Bank -- Analyst

Okay.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

And we -- and the hiring that we see in the future.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Dave, you're really on your game when you talk also about the FDIC. We thought we would be able to get away with when we start saving that, everybody would know.

Dave Rochester -- Deutsche Bank -- Analyst

Well, are you guys thinking 10% for next year as well or is it high-singles?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

That's still -- it's still 10%. There's a potential for high-singles, but let's go with 10%.

Dave Rochester -- Deutsche Bank -- Analyst

Okay.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

We've got quite a few teams that we're talking to and quite a few systems improvements that we're making that will hit next year.

Dave Rochester -- Deutsche Bank -- Analyst

Okay. All right. Great. Thanks guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks Dave.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thanks, Dave.

Operator

Our next question comes from the line of Ebrahim Poonawala with Bank of America Merrill Lynch.

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Ebrahim.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning.

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

So most of my questions have been answered. Just a couple of follow-ups. Joe, one around, do you -- is there a level of the five-year or the 10-year rate that you believe could cause your CRE borrowers to sort of get a little more active in refinancing because it feels like, given where prepay is over this quarter, there is just no momentum to -- or urgency for them to refi? So would love to get your thoughts on how you think that could shape up if the 10-year holds or even moves higher from here.

Joseph J. DePaolo -- President and Chief Executive Officer

Well, interestingly enough, activity has picked up in the fourth quarter for refis. And I think it was really a matter of timing. We had a number of refis, where we see prepayment penalty income already in October that could've easily been done in September. So it really hasn't slowed down to a trickle, but it actually picked up a little in the fourth quarter.

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

And do you see any, from a cycle standpoint, where absolute level of rates are that could lead to a little more pickup, where prepay for the full year next year could be higher than what we've seen for the last few quarters or is it just too hard to say that?

Joseph J. DePaolo -- President and Chief Executive Officer

No, I think it -- I don't believe it would be higher and improving. I don't think next year would be higher than this year in prepayment penalty income. We've seen a small decline since 2015 and we would expect that to continue.

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just one follow-up, Eric, on the deposit side. So when we look at the cost of interest bearing deposits, 17 basis points in 2Q, 18 in third quarter. When I think about your margin guidance for potentially flat to back -- maybe higher back half of the year, do you expect this 18, 20 basis point increases that we've seen to get -- accelerate or remain at these levels or slowdown, given what you're doing on the sort of team hiring and deposit growth front?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

They are strictly going to depend on how many Fed moves we see next year. If we see two Fed moves, it will slow down, certainly on the off quarters, where there is no Fed move. We typically see tremendous amount of pressure for a few -- a week or two before a Fed move and then certainly the month after a Fed move and then things kind of settle down and the pressures lighten up and it's really just bringing on those incremental depositors that might cost us a little bit more. So if the Fed moves four times next year, we're going to see pressure every single quarter. They move twice, we're going to have a few quarters, where we're not going to see that pressure and it's going to give us ample time for the assets to catch up. I mean, that's really the key of the equation.

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

Perfect. Very helpful. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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

Casey Haire -- Jefferies & Co. -- Analyst

Yeah. Thanks, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Hi, Casey.

Casey Haire -- Jefferies & Co. -- Analyst

Eric, follow-up question on -- good morning. Follow-up question on the NIM guide. And, obviously, deposit growth is a wildcard, but what -- just trying to figure out the sensitivity to the NIM guide, what level of deposit growth would violate -- would deliver a NIM compression below that 6 basis points -- sorry, greater than 6 basis points?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Probably -- yeah, if we see less than $500 million, I would think we'd see a little bit more pressure.

Casey Haire -- Jefferies & Co. -- Analyst

Okay. Great. And then just switching to sort of the NIM dynamics on -- I noticed the securities portfolio was up this quarter. I would have thought that it would have been a better use to pay down the borrowings, which you did, but I would have thought that you'd be a little bit more aggressive on the borrowings, paydown would have been better, more beneficial for NIM than growing securities. So can you just take us through the strategy there? And what we should expect from -- for the securities portfolio going forward?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well -- I mean, we had a very robust level of deposit growth throughout the quarter, so we did pay down borrowings pretty aggressively -- average borrowings are down over $500 million, but it did give us an opportunity to invest a little bit in securities portfolio. And, Casey, we've talked in the past about how we like to have a sizable securities portfolio, gives us a lot of liquidity, it gives us a collateral for borrowings. So we really like to grow that securities portfolio, at least in line with the balance sheet.

Casey Haire -- Jefferies & Co. -- Analyst

Okay. So it's --

Joseph J. DePaolo -- President and Chief Executive Officer

Casey, to follow up on the deposits, the $500 million, it also depends on how -- what percentage of that is going to be DDA and what percentage is going to make it money market because if $500 million --

Casey Haire -- Jefferies & Co. -- Analyst

Yeah. Okay --

Joseph J. DePaolo -- President and Chief Executive Officer

-- if 80% of it is DDA, then it's going to be a positive and not a negative to the NIM range.

Casey Haire -- Jefferies & Co. -- Analyst

Right. And the DDA has held -- I mean, it was pretty good growth this quarter. So -- I mean, you're not -- is there any attrition baked into your NIM guide or is there just no fluff within the DDA?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

No, we don't have much of an interest and we've really seen us maintain that 33% to 34% level of DDA throughout this rising rate environment, so that's been a real positive. And we've said it before, and Joe has certainly talked about it at nauseam over the years, right, about how we've had this buildup and fluff on the balance sheet as people were really hoarding cash. Given the environment that we're in, people are utilizing that cash again, and that cash is typically coming out of the money market funds. So the fact that quarter after quarter after quarter, we're growing our core deposits or our DDA deposits, more importantly, shows that we continue to add core deposits with our core clients to our Bank and that's really the key for us.

Casey Haire -- Jefferies & Co. -- Analyst

Got you. Just last one on the tax rate, what -- should we assume that continue -- the tax rate continues to climb lower? And then the negative fee line climbs higher?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

We should, but I'd stick with the 25% to be safe. But hopefully, we'll continue to see those tax credits work their way through and drive that down, but I would stay with 25% to be conservative.

Casey Haire -- Jefferies & Co. -- Analyst

Okay, great. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Casey.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Casey.

Operator

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Jared.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

I guess, just on the -- following up on the deposit side, I know it's tough to predict some of the flows. But when you look at the growth, the end of period growth, how much of that do you think is retainable or sustainable from where we finished the quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I would say, all of it is retainable. But when you look at $35 billion, $36 billion in total deposits, every day there are transactions going in and out, whether it's a 1031, whether it's an operating account or a payroll account, on average -- one of the things that has helped us over the years is the growth has been there, but I always tell everyone, the growth numbers are not as great as I look at those things, it's our retaining percentages, which are very high that enables us to have the growth. So most of it is retainable.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, great. Thanks. And then on the capital call lending teams, I guess, how are you planning on breaking into that business? Is that going to be really leading with price initially, as you establish yourself in that market? And then, do you see sort of ancillary business coming from that, whether it's banking, the companies that are actually being funded or banking the individuals that are part of those partnerships?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I think because the team we hired that is best-in-class in that space, we've been in the business for 30 years because the gentleman heading up the team, Tom Byrne, is enjoying it for 30 years. A lot of the reasons that we don't do advertising is because the advertising is done by them just simply joining us. And because we hired a number of star players, not only from Silicon Valley Bank, but from other institutions that are part of the team, we are going to get our share of the business and we're going to see a flow already in the fourth quarter and there's going to be some results in January when we release earnings about the number of commitments we have and number of loans outstanding as a result of the business. So it's not something that we have to ease in, it's something that we're actually doing and the team has actually hit the ground running.

Jared Shaw -- Wells Fargo Securities -- Analyst

That's great. And then, any sort of second derivative business from --

Joseph J. DePaolo -- President and Chief Executive Officer

Oh, yeah. I'm sorry.

Jared Shaw -- Wells Fargo Securities -- Analyst

The actual capital call --

Joseph J. DePaolo -- President and Chief Executive Officer

Yes. We would think that we can -- the private equity firms, we can not only do their fund business, but we can do the business itself, the -- all the different operating accounts they have. And then when we do the partner loans, we've started to do that with some firms to partner loans and then there is a number of offshoots, the portfolio companies. And we'd be able to thank them as well. So you have the portfolio companies, the partner loans, we have the funds themselves and then capital call piece. And then we expect to have self funding with the deposits that they will attract.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. And then finally from me. As you look at potentially hiring more teams in this space, do you think that would be more West Coast? Is the West Coast still as much of an expansion opportunity as you initially thought? And could we see more of a geographic shift over 2019 and 2020?

Joseph J. DePaolo -- President and Chief Executive Officer

Yeah. I would say that we would probably have this team expand and instead of having multiple teams, we have this team expand to the West Coast, the Mid West or wherever we believe is best for us to grow the business. So I think it would be just an expansion of the existing team we have.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great, thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Jared.

Operator

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

Chris McGratty -- KBW -- Analyst

Hey, good morning. Thanks for the question. Joe and Eric, the -- just circling back to the team, the capital call team, Silicon Valley is obviously very established in the business with a lot of momentum. I'm interested in how are you able to lure the team away? Was it simply autonomy or perhaps a compensation structure? And also, was there a look in your mind if there was a lock-up on that team between when you had the conversations and when they joined?

Joseph J. DePaolo -- President and Chief Executive Officer

Chris, I wouldn't get into that much detail on how we attracted the team nor would I get into details about lock-ups and things like that. I would just say that it's a best-in-class team. Similar to when we brought on the digital team in the first quarter, similar to when we brought on the commercial real estate group nearly 11 years ago or 6.5 years ago when we hired Signature Financial, we always look for best-in-class and certainly compensation is part of that, they're all well paid and they'll continue to be well paid here, but I just could not get into the details. Other than that, they're going to hit -- they actually have hit the ground running.

Chris McGratty -- KBW -- Analyst

Okay, thanks for that. In terms of how these recent team hires affect your kind of balance sheet growth expectation, should we still be assuming the same level of asset growth relative to prior guidance, the 3 to 5?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

Chris McGratty -- KBW -- Analyst

Okay. And then maybe last one, if I could sneak one in on capital. You talked about the buyback in kind of the context of CRE concentration. Could you -- maybe I missed it, could you repeat what the CRE concentration was at quarter end and kind of where you're hoping to manage that to just -- so we can get a sense of how aggressive you'll be with the buyback? Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

In the mid 500s (inaudible) 565 or 5 thereabouts. And our expectation is over time to get in the 400s and so that's what we will manage to when we do the buybacks. That will be one -- as Eric said earlier, there are many facets that we have to take into account. This happens to be one of them, but it's somewhat the binding constraint because we don't want it to be growing just simply because of the buyback. And we're going to be growing the institution, so we are -- that will be clearly a consideration, as we have a few more (inaudible) loan deposits over a $1 billion, you'll -- that will be a constraint on what we would buyback as well.

Chris McGratty -- KBW -- Analyst

Got it. Thanks for the questions. Appreciate it.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Austin Nicholas with Stephens.

Austin Nicholas -- Stephens -- Analyst

Hey, guys. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning.

Austin Nicholas -- Stephens -- Analyst

Pretty much all my questions were answered, but maybe just a more broad one on non-bank competition. Are you seeing any changes in the appetite from the insurance companies and debt funds in terms of their appetite for taking loans to the secondary market? I think pretty clearly that's been aggressive over the last couple of quarters, but any changes or line of sight you're seeing in that behavior, as you look out over the next couple of quarters?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, interestingly enough, the biggest non-bank competition is the United States Government, the -- through the agencies. We've seen some deals, excuse me. We've seen some deals out there that we would be criticized for if we did them for the length of time the loan is booked or the term, I should say, for the amount of interest only period, the interest rates and the LTV. So more so than any insurance companies or any other non-bank competitors, it's really the agencies that are out there. The good news for us is many of our clients don't want to deal with them because they want to have flexibility over time, but they are the largest non-bank competitor.

Austin Nicholas -- Stephens -- Analyst

Understood. That's helpful. And then maybe on the West Coast strategy, I know you put some numbers around the capital call hires and the potential there. Do you have any update on maybe the West Coast strategy and the kind of the deposits that have been brought in so far and maybe your expectations as you look out to next year?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yeah. I mean, we're really just getting started out there. So we've seen a few deposit accounts be opened, the loans we're starting to make now, but we really anticipate that there will be an area of growth for us next year.

Austin Nicholas -- Stephens -- Analyst

Understood. That's all I got. Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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

Steve Alexopoulos -- JPMorgan -- Analyst

Hey. Good morning, everybody.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Steve. Good morning.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Steve.

Steve Alexopoulos -- JPMorgan -- Analyst

Just -- I wanted to start with a few follow-ups on the deposit side. First, could you give color on the strong growth in the non-interest-bearing in the quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we stress that anybody that becomes a client that we want the operating accounts and we also stress that if they want to have -- be a client here that it just can't be totally money market. And if they want to really become a client, they have to bring in DDA. And in some instances, we require a certain amount of DDA in order for them to participate in programs and where all the fees will be waived. So we usually go for between 20% and 30% DDA for real estate management companies, as an example.

Steve Alexopoulos -- JPMorgan -- Analyst

Okay.

Joseph J. DePaolo -- President and Chief Executive Officer

And behaviorally, on the compensation model, it's by far the greatest level of revenue comparable to a CD or a money market account.

Steve Alexopoulos -- JPMorgan -- Analyst

And then Joe, when you think about competitors offering 2% or higher on certain products, do you ultimately need to follow them on a lag basis or are you more likely to maybe slow growth in certain products if the environment just continues to get worse?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, this is what we try to say to the bankers, Steve, that there was something, of course. So if a competitor that is not the bank for existing client offers 2% rate, we usually within 25 basis points of that, so we try to get away with the 1.75% or 1.85%, knowing that it's a hassle for them to move. And then -- so there is somewhat of a differential for most, not all.

Steve Alexopoulos -- JPMorgan -- Analyst

And Eric, would deposit costs be up another 12 bps, a good range to expect here in the fourth quarter?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

It's certainly reasonable.

Steve Alexopoulos -- JPMorgan -- Analyst

Reasonable, OK. Then one final one. On the capital call business build-out, do you have the full team in place at this point or do you still need to build out that team to get some of the growth numbers you're talking about?

Joseph J. DePaolo -- President and Chief Executive Officer

No, we have the full team in place. Team would grow because we have an opportunity to do business geographically. Although, this team does business nationwide. Like the person we're adding on in a couple of months is in North Carolina. The 10th person that's joining the team, he is a big player and we don't need a 10th or an 11th player to make the numbers we'd like to make, but it's sure going to help exceed those numbers.

Steve Alexopoulos -- JPMorgan -- Analyst

Okay, great. Thanks for all the color.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Steve.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Steve.

Operator

Our next question comes from the line of Dave Bishop with FIG Partners or FIG.

Dave Bishop -- FIG Partners -- Analyst

Hey, good morning, gentlemen.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Dave.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Dave.

Dave Bishop -- FIG Partners -- Analyst

Hey, Joe. Obviously, the -- there's a strong growth in team adds this year. Does that impact your appetite or desire to add next year? Do you think you'll tap the brakes a little bit or will you still be as opportunistic as ever as you move into 2019?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I remember when we started the Bank and we had an opportunity to bring on eight teams from E.A.B. Citibank and I was worried about the expense and brought on four instead of eight and I chopped that up to one of my biggest regrets. So I won't let it happen again. Which means that --

Dave Bishop -- FIG Partners -- Analyst

Got it.

Joseph J. DePaolo -- President and Chief Executive Officer

-- appetite for opportunity in bringing on teams will not slowdown. If that means we have to have a 30% increase in expense, so be it because the revenue would soon thereafter follow.

Dave Bishop -- FIG Partners -- Analyst

Got it. And then in the preamble, you were going through some of the growth rates. I hear that commercial real estate multi-family was flat or down or just -- just curious on the growth rate this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, the commercial real estate is probably at or slightly down because we're slowing that growth a little bit because we want to transform the balance sheet to have more floating rate. So we're going to continue to grow, but at a slower pace.

Dave Bishop -- FIG Partners -- Analyst

Got it. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

This concludes our allotted time and today's teleconference. If you'd like to listen to a replay of today's conference, please dial 1800-585-8367 and refer to conference ID 1869699. 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.

Duration: 46 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan Lewis -- Media Contact

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Ken Zerbe -- Morgan Stanley -- Analyst

Dave Rochester -- Deutsche Bank -- Analyst

Ebrahim H. Poonawala -- Bank of America Merrill Lynch -- Analyst

Casey Haire -- Jefferies & Co. -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Chris McGratty -- KBW -- Analyst

Austin Nicholas -- Stephens -- Analyst

Steve Alexopoulos -- JPMorgan -- Analyst

Dave Bishop -- FIG Partners -- Analyst

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