Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Signature Bank (NASDAQ:SBNY)
Q3 2019 Earnings Call
Oct 17, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2019 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. [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, Nicole. Good morning, and thank you for joining us today for the Signature Bank 2019 third quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

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

The 2019 third quarter was our strongest quarter for deposit growth in the last three years, leading to solid earnings. The quarter included record average deposit growth of $1.75 billion, which allowed us to substantially pay down higher-cost borrowings. Additionally, we made significant strides in transforming our balance sheet to include more floating rate assets by increasing commercial and industrial loans by $885 million, and meaningfully decreasing fixed-rate commercial real estate loans. We're really firing on also this quarter with contributions from more traditional private client banking teams and Signature Financial.

The major initiatives we put in place over the last several quarters by helping to drive deposit growth, as well as further our asset and geographic diversification strategy. This includes the launch of Signet, as well as contributions from the digital banking team, the Fund Banking Division, and the Venture Banking Group.

Moreover, we recently added a specialized mortgage servicing banking team focusing on treasury management products to deposit rich residential and commercial mortgage servicers among others. This team now has the necessary infrastructure in place to support their clients' needs and is officially open for business.

Now, onto the quarter. Signature Bank delivered another quarter of solid performance led by a record $1.75 billion average deposit growth, while maintaining overall strong credit quality and delivering solid earnings. Net income for the 2019 third quarter was $148.7 million $2.75 diluted earnings per share, compared with $155.4 million with $2.84 diluted earnings per share for last year.

The decrease in net income was due to a rise in non-interest expense from the significant investments in new private client banking team, including 55 professionals across the Fund Banking Division, the Venture Banking Group, and the Specialized Mortgage Servicing Banking Team. We look forward to the future contributions to grow the earnings from these new teams.

Now, looking at deposits. While confronted by a challenging deposit environment, we've increased deposits by over $1.5 billion to $39.1 billion this quarter, and average deposits grew a record $1.75 billion. Since the end of the 2018 third quarter, both period ending and average deposits have increased by $3 billion. Non-interest bearing deposits at $12 billion represent 31% of total deposit. Deposit and loan growth coupled with earnings retention led to an increase of $3.5 billion or 8% in total assets from a year ago.

Now, let's take a look at our lending business. During the quarter, in keeping with our diversification strategy, we made a conscious decision to not refinance CRE loans where no deposit relationship existed. We have essentially exited most of these one-sided loan relationships. We do not expect the same level of decline perspectively.

As a result, loans during the 2019 third quarter increased $5 million to $37.9 billion. For the prior 12 months, loans grew $2.8 billion. This quarter, we significantly increased floating rate C&I loans by $885 million, driven primarily by our Fund Banking Division. And conversely, we dramatically decreased our fixed-rate CRE portfolio by $873 million. Floating rate loans are now 17% of total loans, which is a dramatic improvement from 10% a year ago. Our loan to deposit ratio is now at 97%, and our CRE concentration declined to 511% from its peak of 590 -- 593%.

Turning to credit quality. Our portfolio continues to perform well. Non-accrual loans of $32.5 million or just 9 basis points of total loans compared with $41.3 million or 11 basis points for the 2019 second quarter. Our past due loans remained in a normal range, with 30 to 89-day past-due loans at $59 million, 90 days plus past-due loans at a low $1.9 million.

Net charge-offs for the 2019 third quarter were $2.9 million or 3 basis points, compared with net recoveries of $3.7 billion [Phonetic] for the 2019 second quarter. Provision for loan losses for 2019 third quarter was $1.2 million, compared with $5.4 million for the 2019 second quarter. The allowance for loan losses remained stable at 64 basis points of loans and our coverage ratio stands at 746%.

My last point before I turn the call over to Eric, I just want to remind you on the team front. We've added four private client banking teams, including the 28 person Venture Banking Group, which already has made meaningful contribution this quarter, and the 15-member Specialized Mortgage Servicing Banking servicing team, which is now ready for business.

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 $328 million, up $3.2 million, when compared with the 2018 third quarter, and an increase of $1.7 million from the 2019 second quarter. Net interest margin decreased 20 basis points in the quarter versus the comparable period a year ago, and declined 6 basis points on a linked quarter basis to 2.68%. Excluding prepayment penalty income, core net interest margin for the linked quarter decreased 5 basis points to 2.66%. 4 basis points of this decrease was from excess cash balances driven by significant deposit growth.

And let's look at asset yields and funding costs for a moment. Interest earning asset yields decreased 9 basis points from the linked quarter to 3.94%. The decrease in overall asset yields was driven by higher cash balances and lower reinvestment rates in all our primary asset classes from a lower rate environment. Yields on the securities portfolio decreased 9 basis points linked quarter to 3.18% due to the dramatic decline in market rates, which also led to our portfolio duration coming into 2.2 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages decreased 4 basis points to 4.2% compared with the 2019 second quarter. Excluding prepayment penalties from both quarters, yields decreased 2 basis points. Prepayment penalties for the 2019 third quarter remained low at $2.1 million compared with $3.6 million for the 2019 second quarter, and $4.1 million in the 2018 third quarter. We anticipate that prepayment penalty income will remain low as a result of the slowdown in CRE transaction activity from the changes in rent regulation and the low-interest rate environment.

Now, looking at liabilities. Our overall deposit cost this quarter increased by 2 basis points to 1.21%. However, they appear to have peaked in July, which is a good sign for future quarters. Average borrowings excluding subordinated debt decreased $1.1 billion to $5.2 billion or 10.5% of our average balance sheet. The average borrowing cost decreased 4 basis points from the prior quarter to 2.59%. Overall, the cost of funds for the linked quarter decreased 2 basis points to 1.4% as lower-cost deposits replaced higher cost borrowings.

And on to non-interest income and expense. Non-interest income for the 2019 third quarter was $6 million, an increase of $1.4 million when compared with the 2018 third quarter, mostly due to a rise of $1.3 million in fees and service charges. Non-interest expense for the 2019 third quarter was $134.3 million versus $117.2 million for the same period a year ago. The $17.1 million or 14.6% increase was mostly due to the meaningful addition of private client banking teams.

The bank's efficiency ratio was 40.2% for the 2019 third quarter versus 39.4% for the 2019 second quarter. The efficiency ratio has been negatively affected by the declining NIM and our investments in long-term strategic initiatives.

And turning to capital. In the 2019 third quarter, the bank paid a cash dividend of $0.56 per share. Additionally, the bank increased its stock repurchases to 630,000 shares of common stock for a total of $75 million. The dividend and share buybacks had a minor effect on capital ratios, which all remained low in excess of regulatory requirements and augment the relatively low-risk profile of the balance sheet, as evidenced by our tangible common equity ratio that increased 5 basis points to 9.51%.

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

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Eric. This quarter, we continued to execute our game plan by significantly growing deposits $1.5 billion, including increasing average deposits by a record $1.75 billion, improving our liquidity position by reducing borrowings of $1 billion -- by $1 billion, excuse me and decreasing our loan to deposit ratio to 97%; increasing floating rate, commercial and industrial loans by $885 million, and reducing fixed rate commercial real estate loans by $873 million grew our commercial real estate concentration to 511% from its peak of 593%.

Now, we are happy to answer any questions you might have. Nicole, I'll turn it over to you.

Questions and Answers:

Operator

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

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

Good morning, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ebrahim.

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

I guess first question, Eric, if you can just talk about in terms of the margin outlook, particularly in the context of where you see cost of interest bearing deposits going over the next few quarters, and just the thought process around the excess liquidity, given the negative carry of the cash versus the borrowings that you have on the balance sheet?

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

Sure, Ebrahim. We expect that NIM next quarter will be flat with a slight downward bias, given the fact that we are still sitting on cash, and we had some pretty significant deposit flows again thus far this quarter. We're obviously looking to deploy that into loans, and we do anticipate that we'll have significant loan growth in the fourth quarter, we have a pretty robust pipeline. And we do not anticipate having anywhere near the level of CRE run-off that we had in the third quarter. So that should bode well for the margin.

Ultimately, we're looking at use that cash to put into loans or to pay down higher-cost borrowings. We predominantly paid off the overnight borrowings that we can't, so we are waiting for term borrowings to come due which we have a fair share of that coming due in November and December. So given all of that, we expect to maintain margins with a slight downward bias.

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

And just the cost of interest bearing deposits, do you expect that to start trending lower, and to what magnitude?

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

It's been trending lower. July was really our peak in the deposit costs. We've seen it come down 8 basis points from that peak. And really the July move, we moved down our deposit costs, but not nearly as much as we did coming off the September move. So that should really bode well for October and for the fourth quarter.

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

Got it. And just moving to deposit growth, as we think about going forward, if you could remind us in terms of where we are in terms of the two or three different teams that you hired over the last year in terms of their production levels? And what do you expect from the mortgage servicing team in terms of deposit growth, like, should we expect growth to begin kicking in, in the fourth quarter, and if you can put a framework around the magnitude of growth that team can bring?

Joseph J. DePaolo -- President and Chief Executive Officer

This mortgage servicing banking team is now open for business in the fourth quarter. What they were doing was preparing along with a lot of our operations and administrative and support teams to work to get ready for this quarter. So with the $1.5 billion growth that we had in third quarter, none of it came from the mortgage servicing team because they weren't open for business until now in the fourth quarter.

So again that really bodes well because we expect significant deposit growth over the next couple of years from that team. That team controlled over $22 billion in deposits at Wells Fargo. The Venture Banking Group, they've contributed during the third quarter a little over $100 million in deposits, and we expect that level on a quarterly basis going forward. And the Fund Banking team is contributing in large part on the loan side. It's going to take them a couple of years or so to work up where they would be funding themselves. So we're very excited about the near-term and intermediate-term future because we've been having such success in growing deposits. And now we're going to have even more success with the teams that we just aided on.

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

And do you think, Joe, just tied to the mortgage servicing team given just the size of what they did at the previous bank, could deposit growth over the next 12 months trend closer to the higher end of your $3 billion to $5 billion target?

Joseph J. DePaolo -- President and Chief Executive Officer

It could. It's a very possible. Right now, the deposit growth for the year for the last 12 months or so have been $3 billion, so we could -- right now, as Eric mentioned, the deposit flows in the fourth quarter, although it's only 17 days, pretty good.

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

Got it. Thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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

Joseph J. DePaolo -- President and Chief Executive Officer

Jared?

Jared Shaw -- Wells Fargo Securities -- Analyst

Can you hear me, guys?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, we can.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Sorry about that. Just following up on the margin, what should we -- what term borrowings are rolling off, as we look over the next few quarters? And once we see those paid down, should we expect the cash position to get back to a more normal position? I know you said that deposits will first be used to fund loans, but with that -- with the borrowing levels down, that should be a good pickup for margin.

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

Yes. We've got about $400 million roughly in borrowings per quarter, that we should be able to pay down. As we said, we've got a robust loan pipeline that we can easily see $1 billion in loan growth. So certainly, -- as well as $500 million, but we could see $1 billion in loans this quarter. So we anticipate putting the cash to good use.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay.

Joseph J. DePaolo -- President and Chief Executive Officer

And those borrowings were at about 2.5%.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, great. And then on the CRE pay-down, do you say that the non-relationship refi opportunity sort of done, or it's the pace won't be at the same level? And if it is still continuing, I guess how much more could we see in terms the reshifting of out of CRE from that?

Joseph J. DePaolo -- President and Chief Executive Officer

It's virtually done. We're now doing business this quarter, essentially done with -- you know, there could be some stagger here and there, but it's essentially done. So our expectation is, let's say, flat growth on CRE with the Fund Banking team as well as the traditional C&I teams making up for a lot of the growth going forward.

Jared Shaw -- Wells Fargo Securities -- Analyst

And then just finally from me. As the CRE capital concentration keeps coming down and your stock price looks attractive here, should we or could we expect to see the buyback to become a bigger component of capital management? And what's your appetite I guess, for reloading that if you finish out the $500 million earlier than expected?

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

Well, I mean, it was -- we meaningfully increased it this quarter, so I think you could see similar levels, if not a little bit more going forward. As you said, certainly a lot of that dependent on stock price, somewhere there, where that is and where growth comes in. We do -- we did increase it a bit this quarter as we saw that our loan growth was going to be a little bit less than typical. So we anticipate that, that loan growth will be a much more positive than it was this quarter. So we'll have to take that into account as well.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. But in terms of that CRE as a percentage of capital, are you feel comfortable with it here just above 500% and continuing to be in the market with the buyback?

Joseph J. DePaolo -- President and Chief Executive Officer

We think it will drift to under 500% and [Indecipherable] so we're comfortable at that level, yes.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thanks a lot.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ken.

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

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

I was hoping you guys could address sort of the NIM outlook a little bit. And I guess it's -- I know your comments that it's going to be relatively flat to down a little bit in the fourth quarter. But I guess everyone, me and probably whole market look at you guys is being liability sensitive, and this should be a fantastic time to own Signature to be Signature because your deposit costs going down, you're going to have NIM expansion. We're not seeing that yet. Can you just talk about sort of why fourth quarter is flat to down in terms of NIM? And if you can, definitely love to hear more about early 2020 as well. Thanks.

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

Well, there is a couple of things going on, Ken. I mean, first of all, we have an inverted yield curve, so that's not very helpful at all -- I mean, the asset side of the equation. So we're going to continue to see pressures on the asset yields.

But there is also a lag to our ability to reprice deposits down. And I think you've got to look out several quarters and really to a time when the Fed stops cutting, we'll continue to be reducing deposit costs. So our process is very negotiated with our clients. We're not like a traditional retail bank where we can just cut costs across the board. So it's a negotiated process and it takes time for us to work through those negotiations. But ultimately, we will reprice down deposits enough to more than offset the reductions on the asset side, but it's going to take a little bit of time.

Joseph J. DePaolo -- President and Chief Executive Officer

And we're a lot more interested in bringing in new business to continue to grow the existing clients that we have. And if that cost us a 1 basis point or 2 basis points in NIM, that's so be it because we want to build the franchise value. And we find that it's better to build and have a little bit more cost than it is to make the client opportunities pass away.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Totally understood. I mean could there be a point in first half of next year where you actually do you see NIM expansion, if the in-curve remains inverted?

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

Yes, there absolutely could be and should be.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay, perfect. And then just second question I had. In terms of the CSO, [Phonetic] I would imagine there's going to be a fairly sizable below the line or AOCI hit from CSO. But my question really is more on the ongoing impact of CSO given you're running off the CRE book releases flat to down a little bit. Do you have any guidance in terms of sort of the ongoing quarter-by-quarter provision expense?

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

Unfortunately, it's a little bit early for us to tell. We're still finalizing our models and running through parallel test some levels. So it's hard for us to predict the go forward. Certainly, there will be more volatility to that as I'm sure you're hearing from many of the banks. But ultimately, our longer-dated CRA -- CRE portfolio of mostly, 4 and 5 rated credits requires a bit more provisioning than 3 to 4 rated, well structured Fund Banking capital call facilities that we're putting on. So that should be beneficial to the go-forward provisioning. But we still have to see and we still have to finalize all of those models.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay, all right. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Steven Alexopoulos with J.P. Morgan.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hey, good morning, everybody.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, good morning, Steve.

Steven Alexopoulos -- J.P. Morgan -- Analyst

I wanted to start, what was the capital call loan growth in the quarter?

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

It was -- it approximated $900 million.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. So it stepped up. Was that a function of line utilization, Eric? That's a bit higher than where you've been running in terms of growth.

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

No. It was mostly new facilities that were put in place, that were pretty fully drawn.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. Okay, that's helpful. And in terms of the reduction in CRE loans in the quarter, was that all in multi-family, and how did the renovation portfolio balances change in the quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

It is mostly multi-family. We had two very large loans that helped drive the reduction. There a $100 million facility and a $104 million facility we have opened in a few years that we had the loan and we weren't able to establish any sort of relationship. And as a result, it -- that drove us to have a reduction of nearly $900 million in CRE, which we're really happy about because that was the whole purpose.

Steven Alexopoulos -- J.P. Morgan -- Analyst

And the renovation portfolio, Joe, added the balances there change in the quarter?

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

It's down slightly.

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Down a bit? Okay. And then finally, do you guys wrap up? I know you're doing Phase 2 of the deep dive into the multi-family portfolio. Is that done and what did you learn from that test?

Joseph J. DePaolo -- President and Chief Executive Officer

We learn that, [Phonetic] there will be -- we find very little effect or we expect a very little effect on our portfolio.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay, terrific. Thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Steve.

Operator

The next question is from the line of Chris McGratty with KBW.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hey, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Chris.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Eric, I want to go back to the deposit conversation for just a minute. I think -- and Joe, you mentioned that you could be at the high end of 3% to 5% [Phonetic] if the momentum continues on deposit growth. I guess the question is net balance sheet growth, how much you're borrowings are elevated to where they were pre-cycle? What's the right amount of borrowings for the Company? And maybe what I'm asking is, like the 3% to 5% total asset growth like where do you expect to be in that range once you put the pieces together?

Joseph J. DePaolo -- President and Chief Executive Officer

The right amount of borrowings we believe is about 7%. And we think that we're going to have significant deposit flows. We will deploy reductions of borrowings and you have loan growth. We expect to have loan growth, just from the Fund Banking team, we expect up with the $750 million in growth per quarter. Not including Signature Financial, not including the Venture Banking Group, we'll have somewhere between $750 million and $1 billion a quarter, and that will be all funded by deposits.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. And that 7%, that's a [Phonetic] proportion of interest bearing liabilities. Is that the right denominator?

Joseph J. DePaolo -- President and Chief Executive Officer

Assets.

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

Yes, assets.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Of assets, OK, great. And then maybe one more if I could. Maybe I missed it, the expenses, I think last quarter, you said, kind of mid-teens, kind of gliding toward that 12% as you make these investments and grow into them, any update on that in terms of timing?

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

Yes. It came in a little bit better this quarter than we anticipated, and still want a standard say a 12% to 16% range to be safe. Fourth quarter will be closer to that 16%, hopefully, a little better, and then we'll see it trend down to 10% to 12% by end of 2020.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you, Chris.

Operator

The next question is from the line of Brock Vandervliet with UBS.

Brock Vandervliet -- UBS -- Analyst

Thanks. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Brock.

Brock Vandervliet -- UBS -- Analyst

Good morning. On the Specialized Mortgage Servicing Banking Team, I think that's the fourth title, obviously, tied to a monumental amount of deposits at the former shop. How do you look at in a recreating that business at Signature? Is it kind of a straight percentage of that jackpot number over a period of years, or do you have them on kind of a cadence of quarterly deposit generation that you think they can do? How do you think about that?

Joseph J. DePaolo -- President and Chief Executive Officer

We think about it way we do it about each of the teams over the last 18 years, almost 19 year is that, they are very experienced. They have been within institution for a long time. The relationship is primarily with them and not with the institution. And they'll market themselves that way. And deposits will flow whether it's from the existing institution or from other institution. We may just -- the person that leads that team as we're doing it for 26 years, we had over $22 billion in deposits. So the formula is not -- the secret sauce is, hiring the right people. And we hired -- we were able to get the team that we wanted. So there is no -- nothing special other than the team itself.

So how we -- to give you an example. We don't necessarily set up a goal for them. We just basically take it on face value that they're going to be able to generate significant amount of deposits based upon the type of clientele they have, whether it comes in, in fourth quarter, or comes in the first quarter, or comes in 2021, over a series of years, it will happen.

Brock Vandervliet -- UBS -- Analyst

And then a number of say $500 million a quarter after these folks have been in place for some period of time would seem reasonable?

Joseph J. DePaolo -- President and Chief Executive Officer

More than reasonable.

Brock Vandervliet -- UBS -- Analyst

Okay.

Joseph J. DePaolo -- President and Chief Executive Officer

The one thing about this team that differs from the other teams is that, with the teams, and I mean 100 or so that we have who work very hard to grow their books of businesses. Usually, those teams, we're talking about $5 million to $10 million in deposits, sometimes $20 million in deposits; with the Specialized Mortgage Servicing Banking Team, here we're talking about hundreds of millions in deposits.

Brock Vandervliet -- UBS -- Analyst

Got it.

Joseph J. DePaolo -- President and Chief Executive Officer

So generating $500 million a quarter is not underground.

Brock Vandervliet -- UBS -- Analyst

And on the expense growth, was some of that guidance, is just based on an infrastructure need for this team? Or is most of that plumbing in place and it's more just comp?

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

It's more just comp. I mean that plumbing is essentially in place. We probably had 95% of what they needed. We're already a fairly sizable player in that space, so it's really just the composition.

Brock Vandervliet -- UBS -- Analyst

Okay. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you, Brock.

Operator

Your next question is from the line of Lana Chan with BMO Capital Markets.

Lana Chan -- BMO Capital Markets -- Analyst

Hi. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Lana.

Lana Chan -- BMO Capital Markets -- Analyst

I'm just trying to understand more what drove such a strong growth in deposits this quarter since the mortgage servicing team hasn't started contributing yet? Was there a meaningful pickup in short-term escrow deposits this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

No. It basically is the 100 or so banking teams continuing to work hard. We had a quarter -- the second quarter, we had over $900 million in deposit. So it's not unusual, although it's the best deposit quarter we had in three years, that's because the competition has been very tough. I'll tell you one area, the EB-5 [Phonetic] area. Prior to this quarter, we had 10 straight quarters of decline in EB-5, and it was actually down $1 billion in deposits over those previous 10 quarters. It actually reversed here in the third quarter, and actually went up because the government finalized some regulations. And we expect EB-5 to contribute going forward.

Lana Chan -- BMO Capital Markets -- Analyst

Okay, thank you. That's helpful. And...

Joseph J. DePaolo -- President and Chief Executive Officer

In fact, most -- Lana, in fact, most of the growth is core deposit growth.

Lana Chan -- BMO Capital Markets -- Analyst

Okay, fantastic. And can you give us idea of, in terms of the Mortgage Servicing Banking Team, the deposits that they should be bringing aboard, can you give us an idea of, like what the average rates would be on those types of deposits, just for modeling purposes?

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

Yes. They're going to have -- initially, they're going to be bringing over the excess funds of our clients, so those rates will be I'd say around 2% now, maybe a little under that. But over time, they are going to start to garner more of the operating accounts, and those are non-interest bearings. So they should get to a very high level of non-interest bearing to overall deposits. To be safe, between 30% and 50% of their overall should be in DDA, so that should meaningfully bring down their overall deposit cost. But initially, they're going to bring in over the higher cost interest-bearing deposits for us, so that it's easiest to move.

Lana Chan -- BMO Capital Markets -- Analyst

Okay, got it. And just one more question if I could, on the commercial real estate multi-family. Given where rates are and I don't know if you've changed your multi-family pricing recently, I don't think you had up until a while ago. How do you keep your balances flat going forward when sort of transaction volumes have really got ground or halt, or frankly, reform and you are seeing a lot of competition in the space with pricing?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, when we -- during the third quarter, when we were reducing the portfolio, our pricing was about 60 basis points above that of our competition. Now in the fourth quarter, it's back to the norm, which is usually about 25 basis points higher where we able to keep our -- the book that we have, and attract a little bit of the business that's transacting out there. So it's really a matter of keeping what we have.

Lana Chan -- BMO Capital Markets -- Analyst

Okay. Thank you, appreciate it.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

The next question is from the line of David Long with Raymond James.

David Long -- Raymond James & Associates, Inc -- Analyst

Good morning, everyone.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, David.

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

Good morning, David.

David Long -- Raymond James & Associates, Inc -- Analyst

Here we've talked a lot about some of the recent teams and the hires, and sort of new business lines. What is your appetite at this point to add to the fund services and the venture capital teams?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I mean they're fairly new, so they have been adding person here and there to fill in the openings that they need to. Our appetite would be fine if we could find as Tom Byrne says, all stores out there.

David Long -- Raymond James & Associates, Inc -- Analyst

Got it. And as far as the build-out on the West Coast, where does that stand at this point, and again your appetite to still add people there?

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

Yes. I mean, we're fully built out there. We have four traditional banking teams. We also have representation from the venture team, the Fund Banking Division, and [Indecipherable] what is out there with a few others who runs our specialized mortgage banking services teams. So we are actively looking to hire more traditional banking teams there, and we anticipate that probably next year. Now it's getting a little bit late in the year for us to add, but we'll probably look to add teams there next year.

Joseph J. DePaolo -- President and Chief Executive Officer

I mean, our appetite is that -- is such that we would open up an office in Los Angeles if we found the right team.

David Long -- Raymond James & Associates, Inc -- Analyst

Got it. I appreciate the color, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

This concludes our allotted time in today's teleconference. If you'd like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID number 8188917. A webcast archive of this call can also be found at www.signatureny.com. [Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan J. Lewis -- Media Contact

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

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Steven Alexopoulos -- J.P. Morgan -- Analyst

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Brock Vandervliet -- UBS -- Analyst

Lana Chan -- BMO Capital Markets -- Analyst

David Long -- Raymond James & Associates, Inc -- Analyst

More SBNY analysis

All earnings call transcripts

AlphaStreet Logo