Signature Bank
Q1 2015 Earnings Call Transcript

Published: 21 Apr 2015

[Operator:]

Welcome to Signature Bank’s 2015 First Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph DePaolo, President and Chief Executive Officer and Eric 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 DePaolo, President and Chief Executive Officer. You may begin.

[Joseph DePaolo:]

Good morning and thank you for joining us today for the Signature Bank 2015 first 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 contains 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 on 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 performance in greater detail. Eric and I will address your questions at the end of our remarks. Signature Bank delivered another exceptional quarter of growth and performance resulting in our 22nd consecutive quarter of record earnings. We again delivered strong deposit growth and record loan growth, expanded top-line revenues, maintained stellar credit quality and continue to invest in our future with the hiring of three private client banking teams. I will start by reviewing earnings. Net income for the 2015 first quarter reached a record $83.4 million or $1.64 diluted. An increase of $17.4 million or 26.3% compared with $66 million or $1.37 diluted earnings per share reported in the same period last year. The considerable improvement in net income is mainly the result of an increase in net interest income, primarily driven by strong deposit growth and record loan growth, each again surpassing $1 billion [ph]. These factors were partially offset by an increase in non-interest expense attributable to our revenue growth initiatives as well as impart regulatory and compliance cost. Looking at deposits, deposits increased $1.4 billion, or 6.2%, to $24 billion this quarter including core deposit growth of $1.1 billion, and average deposit growth of $1.2 billion. Since the end of the 2014 first quarter, deposits increased $5.7 billion, core deposits increased $4.3 billion and average deposits increased $5.6 billion. Non-interest bearing deposits of $7.4 billion represented 30.6% of total deposits and grew $288 million this quarter. The substantial deposit and loan growth coupled with earnings retention led to an increase of $5.5 billion or 24% in total assets since the first quarter of last year. The ongoing strong deposit growth is attributable to the superior level of service provided by all of our product client banking teams who continue to service as a single point of contact to their clients. Now, let’s take a look at our lending business. Loans during the 2015 first quarter increased a record $1.44 billion, or 8.1%, to $19.3 billion. For the prior 12 months loans grew $1.5 billion and represents 67.5% of total assets, compared with 61% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate and multi-family loans. Our credit quality remains solid this quarter with non-accrual loans increasing to $27.8 million or 14 basis points of total loans, compared with $21 million, or 12 basis points for the 2014 fourth quarter and $36.2 million, or 25 basis points for the 2014 first quarter. The provision for loan losses, for the 2015 first quarter was $7.9 million compared with $7.6 million for the 2014 fourth quarter and $8.2 million for the 2014 first quarter. Net charge-offs for the 2015 first quarter were $1.5 million or annualized 3 basis points, compared with net recoveries of 181,000 or 0 basis points for the 2014 first quarter and net recoveries of 244,000 or 1 basis points of the 2014 first quarter. Consequentially the allowance for loan losses was 0.88% of loans versus 0.92% for the 2014 fourth quarter and 1.01% for the 2014 first quarter. Additionally the coverage ratio remained very strong at 614%. Now, turning to the watch list and past due loans, watch list credits increased by $21.3 million to $143.8 million, or a low 0.75 basis points of loans compared with $122.5 million, or 86 basis points of loans for 2014 first quarter. During the 2015 first quarter, we saw an increase of $23.9 million in our 30 to 89 day past due loans to $46.8 million and 90-day-plus past due loans increased slightly by 600,000 to $3.8 million. While we are pleased that our credit metrics were strong again this quarter, we remain mindful of the uncertainty in the global economic and political environments and again we appropriately reserved. Just to review teams for a moment, we are off to a solid start in 2015 with the addition of three teams, our team pipeline remained active and we look forward to the opportunities for attracting talented banking professionals to our network. Also in the first quarter we opened our 29th and first out-of-state banking office in Greenwich, Connecticut. 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 net interest income and margin. Net interest income for the first quarter reached $222.5 million, up 36 million or 19%, when compared with the 2013 first quarter, an increase of 3%, or $6.8 million from the 2014 fourth quarter. Net interest margin decreased 13 basis points in the quarter versus the comparable period a year ago and increased 3 basis points on a linked quarter basis to 3.26%. Excluding prepayment penalty income, core net interest margin for the linked quarter increased 4 basis points to 3.17%. Approximately 2 basis points of the linked quarter increases were due to two less days in the quarter. Additionally margins were positively affected by the deployment of excess cash balances into loans at the end of the fourth quarter and an increase in loans as a percentage of the balance sheet. And let’s look at asset yields and funding costs for a moment. Due to the prolonged low interest rate environment and heightened competitive landscape interest earning asset yields declined 20 basis points from a year ago, however on a linked quarter basis yields increased 1 basis points to 3.72%. The linked quarter increase was driven by the deployment of the excess cash balances into loans at the end of the fourth quarter less headwinds from the CRE refinance activity and an increase in loans as a percentage of the balance sheet. Yields on the securities portfolio declined 6 basis points linked quarter to 3.14% given the challenging market for securities reinvestment due to compressed spreads and lower treasury yields, the duration of the portfolio decreased slightly to 2.69 years. And turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 8 basis points to 4.09%, compared with the 2014 fourth quarter. Excluding prepayment penalties from both quarters, yields would have declined 5 basis points. And now looking at liabilities, our overall deposit cost this quarter declined 2 basis points to 43 basis points mostly due to an increase of 7.4% or nearly $500 million in average non-interest bearing deposits. Additionally money market cost decreased 3 basis points as we continue to lower rates given the prolonged low interest rate environment. With the substantial deposit growth in the quarter, average borrowings decreased 180 million to $1.9 billion or only 6.8% of our average balance sheet. Given the short-term low cost nature of the borrowings we paid off, the average borrowing cost increased 6 basis points from the prior quarter to 1.42%. Overall the cost of funds for the quarter decreased 3 basis points to 50 basis points. And onto non-interest income and expense, non-interest income for the 2015 first quarter was $10.1 million, an increase of $3 million when compared with the 2014 first quarter. The increase was mostly due to a rise in net gains on sales of loans of $2.7 million predominantly from our SBA pool assembly activities. Non-interest expense for the 2015 first quarter was $81.7 million versus $70 million for the same period a year ago. The $11.7 million or 16.7% increase was principally due to the addition of new private client banking teams, our continued investment in the growth of Signature Financial as well as an increase in cost in our risk management and compliance activities. Factoring in significant hiring since last year and increased regulatory cost, the Bank’s efficiency ratio still improved slightly to 35.1% for the 2015 first quarter compared with 36.2% for the 2014 first quarter. 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 Tier 1 leverage ratio of 9.25% and a total risk based ratio of 13.08% as of the 2015 first quarter. And now I'll turn the call back to Joe. Thank you.

[Joseph DePaolo:]

Thanks, Eric. Once again this quarter we have demonstrated the strength, stability and consistency of our distinctive business model, with 95 private client banking teams now in place providing clients with exceptional service to our single point of contact approach. We delivered record earnings, strong deposit growth, record loan growth, solid credit metrics and top-line revenue growth. During the first quarter, we again made significant investments in the future with the addition of three private client banking teams while also increasing personnel in our equipment financing group. We remain focused on growing our network, by continuing to attract veteran bankers who flourish at Signature Bank and in turn provide the level of service to which our clients have grown accustomed. Now we are happy to answer any questions you might have. Lorry I’ll turn it over to you.

[Operator:]

The floor is now open for questions. [Operator Instructions]. Your first question comes from the line of Dave Rochester of Deutsche Bank.

[Dave Rochester:]

Hey, good morning guys, great quarter.

[Joseph DePaolo:]

Hey, Dave good morning.

[Dave Rochester:]

Eric can you talk about your NIM outlook, if you still feel good about that flat to modest pressure through 2015 and what kind of rate expectations you have embedded in that? That would be great.

[Eric Howell:]

Hey Dave, we do expect core NIM to be relatively stable with perhaps a slight bias downward given the rate environment that we’re in. Day count certainly for the second quarter will be a negative so that will probably take out 2 basis points in the second quarter. We’ll have some modest pressure from CRE refinance activity, but it’s less of a headwind given that people are really refinancing that to extend duration and less through reduced rate. We have deployed much of our excess liquidity so that should be helpful, but the lower tenure will continue to really affect our reinvestment rates on the securities portfolios. So I’d say we’ve got a slight bias downward, but most of that’s going to be predicated upon deposit growth that’s probably the biggest factor at this point, if we have robust quarter of deposit growth again then we will see our NIMs negatively affected, but that’s a trade-off we’re willing to take every quarter.

[Dave Rochester:]

Any concern about securities premium amount popping up or you’re pretty well structured there right so you probably not much...

[Eric Howell:]

Yeah the structures that we put in not much of a concern, certainly if they stay at these levels for a while we’ll see some more premium amortization. But between the structures we put in place and the focused on the underlying collateral within our securities we feel pretty comfortable that that’s going to be fairly well contained.

[Dave Rochester:]

And on the loan growth this quarter was outstanding, can you talk about some of the maybe the larger transactions you’ve done just in terms of multi-property deals and then on the loan pipeline how does that look heading into 2Q? And if you have any visibility for more larger deals? Any color there would be great.

[Joseph DePaolo:]

Yeah, on the CRE world, multi-family world. During the first quarter we did five loan packages comprised of 51 loans and we did two other larger loans above $25 million for a total of 53 loans. So about $691 million, primarily multi-family. How that compares to the fourth quarter to give you an idea we did one loan package and five large loans for a total of 11 total and $400 million in the fourth quarter. So we’re having a real opportunity to do more and more packages. The loans are pretty granular not anyone loan is very large within the package. In fact with the beginning of the second quarter we already did one loan package of $94 million with 8 loans.

[Dave Rochester:]

Great, thanks. So it sounds like some of that momentum is continuing into the second quarter?

[Joseph DePaolo:]

Yeah I would say that we have a pretty robust pipeline. Although I’m not sure we’ll duplicate 1.44 again. But we actually have another package closing at the end of April beginning in May for about $80 million, so yeah the momentum is there.

[Dave Rochester:]

Yeah, so great color there. And just lastly, can you just talk about the strength in the SBA this quarter, what drove that and what will be maybe more normalize level that we should expect going forward?

[Joseph DePaolo:]

We have been building up loan warehouse there for little while and we brought on some additional sales people over the years that are really gaining some traction in that space and I think that there is just people are scrambling for government guaranteed assets with any type of yield to them right now so that helped the equation. We don’t anticipate having gains quite at these levels I would look back to last year’s levels for the second, third and fourth quarter of this year.

[Dave Rochester:]

Okay great, thanks guys, appreciate it.

[Joseph DePaolo:]

Thanks, Dave.

[Operator:]

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

[Ebrahim Poonawala:]

Good morning, guys.

[Joseph DePaolo:]

Good morning.

[Eric Howell:]

Good morning.

[Ebrahim Poonawala:]

So, just Joe I guess if you can comment in terms of what the hiring environment looks like today both in terms of the private client side as we look out for the rest of the year and also in terms of Signature Financials and sort of expanding that sales team what we should expect as the year unfolds?

[Joseph DePaolo:]

On private client teams like we said earlier we hired three thus far in the first quarter. Our pipeline is relatively active. We have I would say a fourth team joining us probably within the next several weeks and then we have another handful or so in various stages of discussions. On the Signature Financials side we are looking at several lines of business one of the lines of business that we are looking at is municipal, which we are probably bring on a team shortly, to give you some background the senior guys from Signature Financials when they joined us three years ago their business was $4.5 billion in outstanding at Capital One of which $2 billion was in the municipal area. So, we are very encouraged by this new vertical that come in not new to them, but new bank that’s for a critical services like police cars, fire trucks, and alike. And usually three to ten years fully amortizing is the standard on a selective basis we may do 15 year fully amortizing and that’s just one example of new verticals that Signature Financials will be using and we will see whether or not we could take advantage of GECC, I do know that they are very familiar with them and we are going to try to do some hiring around the country from GECC and also see what sort of loans or assets they have for us to pick and choose from, because there will not going to be multi-billion large packages there is going to be some opportunities for capital markets desk to buy some of that.

[Ebrahim Poonawala:]

That’s helpful. I was going to ask you on GECC so that is helpful, thank you. And just another question sort of on a separate subject Eric, if no one knows when. but if the Fed lifts rates in the back half of the year, how should we - if you can sort of talk through big picture how we should think about the sensitivity of the assets and the liability side from short rates moving higher even if we gets no move on at the longer end of the curve?

[Eric Howell:]

We’ve got a significant amount of cash flows from our securities portfolio and from deposit growth that’s going to allow us to be nimble in really any environment. So we will look to obviously put those to use in higher yielding assets when and if rates do rise you should see a pick-up in Signature Financials loans because they are priced to swap market, so that should be beneficial. We do expect that it will be a ramp scenario versus a shock scenario so we are better positioned for that. And a lot of our modeling our disclosures or all of our modeling and our disclosures doesn’t factor in growth, it’s static and we obviously expect to have growth in a raising rate environment. And we really have a tremendous amount of borrowing capacity that’s going to be beneficial and we will able to pull on that when we see opportunities to on board assets at attracted yields. So all those thing should be beneficial to us when rates rise and we think we are well positioned for that.

[Ebrahim Poonawala:]

Got it, thanks for taking my questions.

[Joseph DePaolo:]

Thank you.

[Operator:]

Our next question comes from the line of Lana Chan of BMO Capital Markets.

[Lana Chan:]

Hi, good morning.

[Eric Howell:]

Good morning.

[Joseph DePaolo:]

Good morning Lana.

[Lana Chan:]

Quick question on capital ratios, when I look at the risk weighted capital ratios declining because of the growth clearly in the commercial real estate multi-family, how do you think about those, how do you think about the capital ratios and adequacy over next year given the type of growth that you’re putting on?

[Joseph DePaolo:]

There is two ways of looking at it, in the past the more immediate past when we did a comparison of our capital ratios versus the typical failed [ph] banks, the mega bank. We always felt we had to keep capital levels higher than our competitors because they were $2.5 trillion in size and we wanted our client who keep substantial deposits with us that are uninsured to sleep well at night. What we’re now thinking that with buffers with the bigger banks are going to have to keep large amounts of capital and maybe we don’t need to keep this large amount because we don’t have risky assets and we don’t need the buffers that they need. So maybe it’s a complete turn and you don’t have to keep capitals very high. So we are kind of at on the fence at a tipping point of which way to go, so we’re not sure yet.

[Lana Chan:]

Would the leverage ratio still be the sort of primary ratio for focus for you guys?

[Joseph DePaolo:]

I wouldn’t say so.

[Lana Chan:]

Okay, thanks Joe.

[Joseph DePaolo:]

Okay Lana, thank you.

[Operator:]

Your next question comes from the line of Steven Alexopoulos of JPMorgan.

[Steven Alexopoulos:]

Hey, good morning everyone.

[Joseph DePaolo:]

Good morning, Steve.

[Steven Alexopoulos:]

I wanted to start and follow-up on the larger loan deals that closed in the quarter. Could you give us some color on the environment for these, maybe talk about how many are coming to market, how many are you winning what’s your share and then the competitive environment for these?

[Joseph DePaolo:]

Well I can tell you why we are getting. We have a commercial real estate banking team in Melville that does an extraordinary job of closing in a timing manner with great efficiency. And in 2013 we had an opportunity to do two large packages where time was important or of the essence and that allowed us to build a reputation in Melville that large loans, large packages I should say, granular loans to be closed in the timely fashion and we’re getting our opportunities more than before. Now one of the factor you have to put in there is that several years ago before 2013 we weren’t doing the larger loans or packages because we were still doing in the $3 million to $5 million or $3 million to $10 million range, but as we’ve gotten larger we feel more comfortable particularly in the multi-family ground to do the larger loans. The larger packages I can’t tell you what the opportunities are how many they are in the market, all I can tell you is that we’re getting off fair share. Some of refinances are from other institutions and similar outright purchases and sales. But when you look at in the granular there is not any one big particular loan within the package.

[Steven Alexopoulos:]

Okay, that’s helpful Joe. And I wanted to follow-up on Erik’s comments that clients are extending duration, which I guess has taken some pressure off on loan yields could you give more color on exactly what are you seeing in terms of duration extension?

[Joseph DePaolo:]

Yes, what we’re seeing in our clients in their third, fourth or fifth year of loans are right now extending the duration and looking for seven and ten year loans. We will go out to seven years in a very selective basis, but we will not do a 10 year loan. But we continue to see this refinance the way it happened because the clients are looking to lock in these lower rates for longer.

[Steven Alexopoulos:]

That’s helpful. And then just finally, I think I have to ask a question on the tax in medallions somebody was going to, can you talked Erik maybe where the balances were at quarter end, maybe split it up by market talk about any pressure you might be seeing there I don’t know if that was what contributed to the watch list and NPAs? Thanks.

[Eric Howell:]

It did a little bit there is truly difference between the New York market and Chicago market, which are the two markets that we really are active in. Currently in New York we have a 1005 medallion loans total is $632 million. Out of those 1005 loans we have nine that are delinquent, seven of those are 30 days and two are 60 days. Those are very normal numbers of delinquency. In fact we had nine a year ago and we had very similar numbers in the prior years as well. A lot of those are medical related reasons why people go delinquent and we’re really not at all concerned about that. Utilization in New York remains high at 93% to 94%. Our LTVs in New York are at approximately 77% currently and our debt service coverage is right around 1.3 times. And those are based on the latest lowest values which is 900,000 for a corporate medallion and 800,000 for a personal medallion. So we feel pretty good about New York, the cash flows are strong there and we’re really not seeing really many issues there. Chicago is a little bit different story. Clearly it’s a more volatile environment politically. So we’re keeping a very close eye there and we’ve effectively backed away from that market lending wise as well as really New York for that matter. Cash flows have been affected there by a lease cap reduction about $595 per week, so that’s affecting the cash flows a bit there. Currently in Chicago we have 753 medallion loans totaling $174 million approximately $32 million is pass due and $3 million is on non-accrual. And we did take a charge-off of about $590,000 in the first quarter on 11 medallion loans. But we’re actively working with the owners and drivers there to restructure those credits we’ve seen utilization down to about 85%, but we still do have a LTV at 92% and that’s based on a value of $250,000. One of the good things to note in the last quarter in Chicago is that there were five sales three at $270,000 and two at $290,000. So we’re using a $250,000 value and that’s giving us a 92% LTV and our debt service coverage is right around 1.2 times. So we still feel that we’re going to come out okay in the Chicago area, but we are keeping a very close eye on it and we’re really actively managing through that portfolio at this point.

[Steven Alexopoulos:]

Alright, that was a great color. Appreciate it.

[Operator:]

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

[Ken Zerbe:]

Great, thanks. One of your competitors or probably one of your competitors earlier this week was making comments on commercial real estate deals done around the New York market and if I can quote them accurately they basically said a 10 year CRE deal somewhere let’s call it just over 2%. Are there any circumstances or situations where you guys might actually want to do those types of loans and have you been?

[Joseph DePaolo:]

No and no. To give you a little color we’re doing five year top multi-family like you said. We’re doing five year fixed at 3 and 3.8. That interest rate has not changed since March of 2014. And we will if it’s a great LTV maybe going at lower, on seven year we had recently raised our rates 3 and 3.25 to 3.78. Although we’ll do seven years at 3.25 and as we’ve seen some deals we’ve done a little lower than that just because the LTVs were again fantastic. We stayed away from doing 10 year deal and unless it’s a floating rate although might get bodies if it starts with the two.

[Ken Zerbe:]

Okay, no that helps. And Eric duration extension that you were talking about are these guys who were in a five year loan moving into a seven year loan or do you think it’s something different?

[Eric Howell:]

No, no I mean that certainly indicates for many of them they have a five year loan they going seven or looking to go at 10, which we want to cancel or at seven years, going to seven years.

[Ken Zerbe:]

Got it, perfect. Thank you.

[Operator:]

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

[Casey Haire:]

Hey, good morning guys.

[Joseph DePaolo:]

Hey, Casey, good morning.

[Casey Haire:]

Quick question on deposit growth and deposit pricing, obviously very strong quarter with deposit up $1.4 billion and money market pricing down, I know you mentioned low rates is the driver, but I just wondering given that some of your larger scale competitors have been quite publicly looking to get rid of excess deposits if that’s what sort of contributing to the strong deposit growth and flexible pricing?

[Joseph DePaolo:]

Not a greater amount we’re seeing a little bit more this quarter where there may be opportunities for some of the bigger banks to have to get out to some of the lines of business, so I would say that impart it contributes.

[Casey Haire:]

Okay. Do you see that as a significant opportunity for you guys or is that just a nice tailwind?

[Joseph DePaolo:]

Well we want to be involved in some of that and I’d say some of it because we want to be able to have a relationship, we don’t want to be the place where excess deposits stay and you don’t be able to build any sort of relationships there. So yes we see a great opportunity, but not to be a depository just for excess funds.

[Casey Haire:]

Okay, understood. And then just following up on the municipal business seems like a decent opportunity for you guys. Is that - are those floating made loans and if so that could potentially improve the asset sensitivity profile?

[Eric Howell:]

No that typically not floating the terms can run from anywhere from three to ten years in some cases they can go up to 15 years on a fully amortizing basis. But they are fully amortizing loan, so that will help the asset sensitivity a little bit.

[Casey Haire:]

Okay. But they are fixed rate though?

[Eric Howell:]

They are fixed from anywhere from three to ten years.

[Casey Haire:]

Got you, thank you.

[Eric Howell:]

Okay.

[Joseph DePaolo:]

Okay, Casey.

[Operator:]

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

[Jared Shaw:]

Hi, good morning.

[Joseph DePaolo:]

Hi Jared, good morning.

[Jared Shaw:]

Just two questions. First, when you look at the teams that you hired in the first-half of 2014 would you say that they have start hitting their strides is that reflected in the numbers we saw this quarter or they are still sort of developing their book and brining it overdue loan to Signature?

[Joseph DePaolo:]

I would say they are not hitting their strides yet, they are in various stages that’s why we love the opportunity because 2013 and 2014 teams from where we start to contribute this year.

[Jared Shaw:]

Okay, great. And then on the regulatory expense side last quarter you had spoken about with the strong growth layering in a little more regulatory expense how was the implementation going there, should we expect to see continued ramp up as the balance sheet continues to grow?

[Eric Howell:]

I don’t think you will see a continued ramp up in this spend, we have spent a significant amount of money in 2014 and we are spending a lot in 2015 as well, but I don’t think you will see an end to the spend either Jared, we are going to continue to spend significant amount around regulations and compliance. So I don’t see it trending off or trending down, but I wouldn’t see a significant uptick either.

[Jared Shaw:]

Okay, great. Thank you.

[Eric Howell:]

Thank you.

[Joseph DePaolo:]

Thank you, Jared.

[Operator:]

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

[Unidentified Analyst:]

Hey, good morning guys, this is actually Mike Parito stepping in for Chris.

[Eric Howell:]

Good morning, Mike.

[Unidentified Analyst:]

Asking the expense question a different way looking back over the last few years you guys have kind of ranged from like low to high teens on a year-over-year expenses growth basis taking to some of your previous comments about some of the team hiring outlooks and the record growth to start the year are you guys thinking that you are going to end up on the higher range of that in 2015 or do you think there will be some moderation in the back half of the year?

[Joseph DePaolo:]

I think it will be some moderation and we don’t expect it to be any more than what we have said because we build in the fact that we are going to hire teams and we are also building the fact that we are going to have regulatory and compliance cost increase as a result of stress testing and some of the other things that we’re doing. So that was all anticipated. Now that could change - if we come out one day and say we just hired eight new teams and that would change and we would let you know that.

[Unidentified Analyst:]

Okay, thanks. And then any thoughts or expectations on last couple of quarters it’s been very modest, but the loan growth has outpaced the deposit growth just a dollar basis. I know if some of the teams you’ve hired recently have more of a deposit focus, do you guys think you’ll be able to keep that trend going as we go forward here or is it going to be a little bit more volatile well volatile is not the right word, but jump back in forth like it has like in the past.

[Joseph DePaolo:]

Well actually over the last 12 months we grew deposits $5.7 billion and loans $5.1 billion. So it could change from quarter-to-quarter but what we’ve seen on average on an annual basis it’s been very close it’s been within several hundred million. So we’re pretty comfortable either way.

[Unidentified Analyst:]

Okay, thanks.

[Joseph DePaolo:]

If we think in one or the other we’re pretty comfortable thanks.

[Unidentified Analyst:]

Alright, thanks.

[Operator:]

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

[Unidentified Analyst:]

Good morning. This is Martin [ph] for Rob Ramsey.

[Joseph DePaolo:]

Good morning.

[Unidentified Analyst:]

You mentioned that you made five loan packages last quarter, was it more backend loaded or spread out throughout the quarter?

[Joseph DePaolo:]

I think that was fairly spread out throughout the quarter, I wouldn’t say this quarter was fairly spread whereas in the third quarter and the fourth quarter we had a significant amount of loans closed at the very end of the month of the quarter. In fact in the fourth quarter we had about maybe $600 million in loans closed in the last 15 days. I think here in the first quarter we’ve seen a more normal or ratable amount of closing throughout the quarter.

[Unidentified Analyst:]

Got it, thank you. And for the loan prepayment figure do you actually have a dollar amount for that and what’s the outlook for the prepayments going forward?

[Eric Howell:]

Well we expect prepayments to continue to trend down slightly. The number for penalty income was $6.1 million this quarter versus $6.9 million for the fourth quarter. So we expect that that trend where it continues to trickle down will continue to occur, but it can be quite volatile.

[Unidentified Analyst:]

Okay got it. And then for a non-accrual loans they went up $7 million this quarter and is there any - can you give us some color around that?

[Eric Howell:]

Well they are coming-off in all-time well. So given our growth in loans we fully anticipated that we’d see an uptick in non-accrual loans. About 3 million of it was in the taxi space and another $1.6 million from a Signature Financial.

[Unidentified Analyst:]

Got it. And just one more before I hub back into the queue. I see that you have a very good loan growth obviously, and going forward for 2015 do you see it being funded rather from the deposit side or from reduction securities and short-term investments?

[Joseph DePaolo:]

By deposits.

[Unidentified Analyst:]

Deposits. Got it thank you very much.

[Joseph DePaolo:]

Thank you.

[Operator:]

The next question comes from the line of Joe Fenech of Havde Group.

[Joseph Fenech:]

Good morning, guys. Last few quarters I’d say we came away from these calls feeling pretty good about the ability to protecting them mostly because of the positive shift that you guys have had in the mix of both side of the balance sheet. But a lot of that you just referred to Joe had to do when loans are funded in the prior quarter then the excess cash. It sounds like the excess cash situations mostly played out it doesn’t seem so the loan fundings were you had that same dynamic you had last quarter. So was it fair to say Eric will it be a little more challenging to maintain margin the way you had the last few quarters without that benefit or are there other factors that may be offset that as I’m not thinking about the margin outlook is pretty much the same and you feel as good about margin as you did coming off the last few calls.

[Eric Howell:]

I think the margin outlook is pretty much the same Joe. The fact that we’ve deployed that cash is going to be beneficial for this quarter as well.

[Joseph DePaolo:]

Although won’t helped greatly it will help that we’re going to have a full quarter of the money market deposits all upon the business in personal side on the personal side they came down March 1st, on the business side they came down February 1st. So we had two months of one and one month of the other for the second quarter we’re going to have a full three months of both where the rates are lower. So that may help somewhat.

[Joseph Fenech:]

Okay. And then I understand the rationale so you have commented in the past letting the allowance drift lower here, the allowance ratio, especially when you look at where peers are, but are we approaching guys now sort of the lower end of the threshold in terms of where we could see that go or could this continue for a while longer? And if so, what sort of a peer comparison you guys looks to that might give us a sense for where we might ultimately be headed there?

[Joseph DePaolo:]

It’s not so much a peer comparison as it is what your - what economic factors you see, the type of industries you are in and your own performance. And it’s really hard to say, what range you could be in, because when you are sitting down with your regulators and your auditors and you have to prune out what - where you are, with your performance, it’s hard to pinpoint other institutions and what they are doing, because they want to know what you are doing. So there is no bright line here. The one thing I can say is we are - our allowance includes a percent, a basis point against multi-family at a higher rate than our competitors. So there could be some room for it to downshift little bit more.

[Joseph Fenech:]

No fair enough, just in prior quarters, you guys had said that, that could drift lower. So I guess you are still saying the same thing, is what I’m hearing that it could still drift lower from here.

[Joseph DePaolo:]

The one thing for the last 30 quarters, 29 out of the last 30 quarters our provision exceeded our charge-offs. We are about $5 million to $6 million most of the times each quarter that we are surpassing our charge-offs with the provision. So we are building it, we are not trying to take it back. It’s just that the loan growth is there and the loan growth does not believe it or not support that much more growth in the provision or the allowance because we are - the credit metrics are so good and we are in safe categories of assets such as multi-family.

[Joseph Fenech:]

Okay. And then on capital, Joe, you touched on this earlier, but in terms of specific numbers, I know you guys sound like you are still in this process of figuring this out, but can you remind us what the lower threshold was in terms of the lower leverage ratio, how you think about that? And then to confirm are you saying that the lower threshold could be lowered further now based on how you are thinking about capital and can you maybe just give us a sense of what that new range could be?

[Joseph DePaolo:]

It could be lower. I mean right now we’re let’s say, we’re in the - I mean we look at two things, tangible common equity and the leverage ratio. And they’re both above 9%. And there were times that we were comfortable with the tangible common equity going as low as 8%.

[Joseph Fenech:]

Okay. And last one from me. As you guys grow outside the state now, with the Connecticut openings, growth expectations would you say any different from historically would have been your core markets, just maybe given the less density, do you have the same expectations going forward as you grow outside the state as you’ve had in the past in the core markets?

[Joseph DePaolo:]

I mean I know we said in the script that is our first out of state. But it’s closer - the Granite office is closer to Midtown than all offices out on the Island. So even though it’s out of state we kind of look at it as being the New York metropolitan area. So we don’t have any different expectations. We have the same aggressive expectations we would have for any of our teams. The one thing that everybody on the call could help us with is we have one team in Granite and we’re looking for a second team. So if anybody has a lead just give Eric or myself a call.

[Joseph Fenech:]

Right. Good, thanks guys.

[Joseph DePaolo:]

Okay, thanks.

[Operator:]

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

[David Long:]

Good morning, guys.

[Joseph DePaolo:]

Hey, Dave.

[David Long:]

So I know as you guys continue to bring in new teams and your pipeline is still robust, at what point do the larger banks that the teams are coming from start to take notice and try to more - they try to defend their bankers?

[Joseph DePaolo:]

They’ve tried, but you have to have a completely different mindset and you have to be able to recognize that when you hire people they are pretty valuable, and I think the big institutions there’s a middle management group that thinks that they are more valuable than those that are actually bringing in the business. So we’re pretty comfortable that behavior will not change of the bigger institutions unless we will have more opportunity to hire.

[David Long:]

Got it. Okay. And then Eric shifting gears to Eric, you mentioned higher regulatory cost in the quarter. As you grow how have the regulatory costs been increasing, is it simply based on the size of the bank or what else should we be looking at there?

[Eric Howell:]

I mean it’s clearly accelerated the last couple of years with the stress testing and the regulatory environment that we are in so. And we expect that we will continue to spend at a pretty healthy pace for the next several years, Dave.

[David Long:]

Okay. And at what point do you get to a size where you may get more scrutiny assuming that the low end of safety cap is at $50 billion?

[Joseph DePaolo:]

Well, let’s see. We are clearly approaching $30 billion. I still think we are far enough away I don’t think there is any more scrutiny at $30 million or $40 million I think what the regulators have told us or what the regulators have made a point is that when you average $50 billion over four quarters you will be under new guidelines, new regulation. So prior to that we don’t believe that they will and that they said that now that could change, but you have to be prepared well in advance of $50 million as you approach $50 million, we are thinking about it now. As we hire and continue to spend on multiple consultants to help us we always senior management group here always says let’s think as if we are going to be a $50 billion Bank and whatever you help us with today has to be a building block towards the $50 billion.

[David Long:]

Got it. Thanks for the color, guys.

[Operator:]

Your next question comes from the line of David Darst, CFA of Guggenheim Securities.

[David Darst:]

Good morning. I think I’m glad but Eric maybe would you comment on some of the other specialty businesses and how they’re progressing and maybe what they can contribute this year I think like Marine and a few others?

[Eric Howell:]

Well let’s talk about Franchise first they funded about $23 million in the first quarter, so it’s nice first quarter. And we’ve got another $10 million or so that we anticipate in the pipeline for the second quarter and maybe $25 million in total backlog there. So we’ve got some nice loans yet to fund in the franchise space. Commercial Marine we did a few million in the first quarter and we’ve got about $15 million that we’re looking bring onboard in the second quarter. So it’s really starting to kick in now. And Joe talked about the municipal line really we’ll be building out that business in the second quarter and we anticipate starting to close loans there in the third quarter.

[David Darst:]

Okay got it. And the $2 billion is kind of what the book is and yes were not the 4.5?

[Eric Howell:]

The $2 billion correct, the overall book was $4.5 billion at all points capital, which is North Fork/Capital One of that $4.5 billion, $2 billion was municipal.

[David Darst:]

Okay, great. Okay thanks.

[Eric Howell:]

Thanks, David.

[Operator:]

Your final question comes from the line of Bob Ramsey of FBR.

[Unidentified Analyst:]

Hi just a quick follow-up. Deposits fees as a percent of deposits were down this quarter do you have any detail of what’s driving that?

[Joseph DePaolo:]

Could you repeat the question I’m sorry.

[Unidentified Analyst:]

So deposit fees were down as a percent of total deposits and I was wondering if there is a specific event that’s driving that?

[Eric Howell:]

Yeah it’s really typically it’s the pickup in demand deposits our clients earnings credits off demand deposits and that goes to pay for fees. So that’s probably the primary driver for that.

[Unidentified Analyst:]

Got it, thank you. And then finally given to your strong loan growth in Q1 and your guidance are you more comparable in the top range of the guidance now?

[Joseph DePaolo:]

We like to say 3 to 5 we’ll keep a tag. Although I guess say if we had to pick one I would say on the top range.

[Unidentified Analyst:]

Top range. Got it, thank you very much.

[Joseph DePaolo:]

Thank you.

[Operator:]

Thank you. There appear to be no further questions. I now return the call to Joe DePaolo for any addition or closing remarks.

[Joseph DePaolo:]

Thank you for joining us today. We certainly appreciate your interest in Signature Bank and as always we look forward to keeping you prized of our developments. Lorry I’ll turn it back to you.

[Operator:]

This does conclude today’s teleconference. If you would like to listen to our replay of today’s conference please dial 800-585-8367 and refer the conference ID number 22573423. 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.