Signature Bank (SBNY) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to Signature Bank's 2006 fourth-quarter and year-end results conference call. During today's presentations all parties will be on a listen-only mode. (OPERATOR INSTRUCTIONS). This conference is being recorded today, January 25, 2007. I would now like to turn the conference over to Joseph J. DePaolo, President and CEO, and Eric R. Howell, CFO of Signature Bank. Mr. DePaolo, please go ahead.

Thank you, Mary. Good morning and thank you for joining us today for the Signature Bank 2006 fourth-quarter and year-end results conference call. Before I begin my formal remarks Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

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. Forward-looking statements include information concerning our future results, interest rates, loan and deposit growth, operations, new private client team hires, new office openings and business strategy.

These statements often include words such as may, believe, expect, anticipate, intend, plan, estimate or other similar expressions. 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, but are not limited to -- one, prevailing economic conditions; two, changes in interest rates, loan demand, real estate values and competition which can materially affect origination levels and gain on sale results in our business as well as other aspects of our financial performance; three, the level defaults, offers and prepayments on loans made by us whether held in portfolio or sold in the whole loan secondary markets which can materially affect charge-off levels and required credit loss reserve levels; and four, competition for qualified personnel and desirable office locations.

Additional risks are described in our quarterly and annual reports filed with the FDIC. 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. New risks and uncertainties come up from time to time and we cannot predict these events or how they may affect the Bank. Signature Bank has no duty to and does not intend to update or revise the forward-looking statements after the date on which they are made. In light of these risks and uncertainties you should keep in mind that any forward-looking statement made in this conference call or elsewhere may not reflect actual results. Now I'd like to turn the call back to Joe.

Thank you, Susan. I will provide some overview and then Eric Howell, our Chief Financial Officer, will review the Bank's financial results. We will address all your questions at the end of our remarks. We finished 2006 on a strong note. At year-end Signature Bank reached $5.4 billion in assets, $4.2 billion in deposits and $393 million in equity capital. We also realized significant loan growth with the portfolio reaching nearly $1.6 billion.

Let me begin by highlighting the deposit growth for the quarter and year. Deposits in the fourth quarter rose $668 million. Included in this amount is $118 million in core deposit growth as well as $550 million in various short-term escrow deposits. During 2006 deposits were up $723 million or 21%. Excluding various short-term escrow deposits of $294 million at the end of 2005 and $550 million at the end of 2006, deposits increased $467 million or almost 15% for the entire year. We are pleased with this growth in deposits, especially given the headwind the industry is facing.

Non-interest-bearing deposits were almost $1.6 billion and represented 38% of total deposits. This growth was spurred by our ability to garner short-term escrows from various core clients that institutions our size simply do not attract. This speaks to our stellar capabilities and the suburb level of service we provide. The in and outflow of short-term escrows has and will continue to occur since it is an integral part of our ongoing business.

In the last several quarters we also talked about receiving large off-balance sheet short-term escrow deposits. Well, this quarter was no different. Our off-balance sheet deposits increased over $1.6 billion for this quarter and increased nearly $2 billion for the year. These increases are predominantly made up of short-term escrows that we expect will flow out over the course of the first quarter. Additionally, at year-end we saw total assets grow by $1.01 billion or 23% from last year reaching $5.4 billion.

Now let's take a look at the exceptional loan growth we reported. At the end of the year loans were at $1.58 billion, an increase of $177 million or about 13% since September 30, 2006. Since December 31, 2005 loans increased $572 million or 57%, and average loans for the fourth quarter of 2006 increased $527 million over the fourth quarter of 2005. Included in the increase of loans during the fourth quarter are about $70 million of short-term loans which are expected to be paid off in the first quarter of 2007.

For 2006 we reached our loan growth target, which was set at $500 million. The growth in loans is demonstrative of the initiatives we carefully put in place over the past several years to strengthen our portfolio. Clearly this has been proving beneficial for us and looking at 2007 our loan pipeline remains strong.

Now I'd like to discuss earnings. Net income for the fourth quarter was $8.9 million or $0.30 diluted earnings per share. This compares with net income of $7.4 million or $0.25 diluted earnings per share for the 2005 fourth quarter. Net income for the year reached $33.4 million or $1.12 diluted earnings per share versus $15.9 million or $0.53 diluted earnings per share last year.

Just to remind you again, reflected in the Bank's statement of operations during the second quarter of 2005 were the effects of a special one time bonus of $12 million paid by our former parent. Excluding this one time bonus, net income in 2005 was $25.4 million or $0.86 diluted earnings per share. Therefore operating income for the year increased nearly $8 million or over 31%. This growth in net income for the quarter and year is due to a rise both in net interest income as well as increases in non-interest income.

I want to take a moment now to talk about recruitment for 2006. As you know, our business model is based on the successful recruitment of new private client banking teams. We recruited more teams in 2006 than in any of the years since we opened our doors back in May of 2001.

To summarize our 2006 recruiting efforts, we ended the year with a total of 47 teams headed by 59 group directors. This is an increase of nine teams and 12 group directors. Additionally, some established teams added professionals throughout the year. The team we added in the fourth quarter joined us from Independence Bank, now Sovereign Bank, marking the first to join us from that institution. This all equates to a greater than 25% increase in our banking network. We are confident that the efforts of these new teams will pay off in 2007 and beyond.

As we look to 2007 the pipeline for recruiting remains strong. We are diligently working to identify and seize hiring opportunities, particularly in light of the changing marketplace and the industry landscape. We are one of the few remaining mid size commercial banks based here in New York and are prepared to continue taking advantage of this position and the different model we offer and benefits we bring to bankers and clients alike.

Now I will turn the call over to Eric Howell, the Bank's CFO, so he can provide some further insight into our financial results.

Thank you, Joe. Good morning, everyone. Just to reiterate, net income for the quarter grew 20% to $8.9 million or $0.30 diluted earnings per share when compared with net income for the 2005 fourth quarter of $7.4 million or $0.25 diluted earnings per share. For the fourth quarter net interest income was $32.7 million, an increase of nearly 13% or $3.7 million over the 2005 fourth quarter, and an increase of approximately $2.1 million or 6.7% from the 2006 third quarter. Net interest income for the year was $122 million, up $22.9 million or 23% from last year. The linked quarter net interest income growth was primarily driven by the increase in deposits including the short-term escrow deposits that Joe discussed earlier.

Now some comments on net interest margin. On a linked quarter basis net interest margin was up 2 basis points. When compared with the fourth quarter of last year net interest margin decreased 9 basis points to 2.80%. If you look back at the fourth quarter of 2005, we had approximately $294 million in short-term escrows that were with us for most of that quarter. Those escrows added approximately 8 basis points to that quarter's margin.

When we look at the fourth quarter of 2006 the escrows of about $550 million came in right at the end of the quarter. Literally $250 million of it came in on the last day of the month. So it only added approximately 2 basis points to the quarter's margins. Therefore taking those movements into account, margins would have been relatively flat year-over-year and on a linked quarter basis.

Our average interest earning asset yields increased 93 basis points in the quarter to 5.71% versus last year's fourth quarter. On a linked quarter basis average interest earning asset yields increased 8 basis points. The increase in asset yields is the result of continued improvement in the loan to asset mix coupled with the benefits of our short duration investment and loan portfolios in the current market environment.

Yields on securities grew 4 basis points during the quarter to 4.8%. The increase is really the result of the runoff of lower yielding securities replaced with accretive yielding investments. The average duration of the investment portfolio increased slightly to 1.97 years as we stabilize the structure of the portfolio by modestly extending the duration to protect current market yields.

Looking at the loan portfolio, yields on average commercial loans and commercial mortgages decreased 5 basis points during the quarter to 7.59%. This decrease was a due to $70 million in short-term loans, which due to the strength of the borrowers and the secured nature of these credits, carried lower interest rates.

Now let's focus on the liability side of the balance sheet. Average cost of deposits increased 89 basis points for the quarter when compared with the fourth quarter of last year. The total cost of funds in the quarter increased 104 basis points to 3%. The current deposit market remains competitive; however, our relationship based approach allows us to mitigate these pressures. On a linked quarter basis cost of deposits increased 17 basis points and total cost of funds increased 6 basis points. During the quarter we were able to utilize the inflows of core deposits and short-term escrow deposits to reduce higher cost borrowings. As a result the cost of borrowings was 13 basis points less than the prior quarter.

Now I'd like to provide some details on non-interest income and expense. For the 2006 fourth quarter non-interest income was $6.3 million versus $4.9 million for the same period last year. This increase was mostly the result of a $1.5 million rise in commissions primarily associated with an increase in off-balance sheet short-term escrow deposits. The increase was partially offset by a decrease of $108,000 in net gains on sales of securities and loans which is predominantly made up of SBA loan and pool sales.

Non-interest income for the year was $21.3 million compared with $18.7 million last year. The $2.7 million increase is mainly the result of the previously mentioned commissions as well as fees and service charges which, again, were offset in part by a decrease in net gains on sales of securities and loans. Noninterest expense for the 2006 fourth quarter was $21.9 million versus $19.8 million for the comparable quarter a year ago. This increase is predominantly from a rise in salaries and benefits of $1.3 million driven by the addition of new private client teams.

Even with the significant increase that we had in our private client group network our efficiency ratio improved this quarter to 56.2% compared with 58.4% for the fourth quarter of 2005 and 57.5% for the third quarter of 2006. This improvement reflects growth in interest income and non-interest income as well as our focus on various cost containment measures.

I'd like to review the Bank's significant loan growth for a moment. As Joe alluded to as well, this quarter proved to be yet another outstanding one in terms of loan growth for the Bank. Loans, excluding loans held for sale, increased about 13% or $177 million reaching $1.58 billion at quarter and year end. For the year the loan to asset ratio improved 630 basis points to 29.2% from 22.9% at the end of 2005. For the quarter our loan to asset ratio pulled back slightly due to the significant increase in deposits this quarter. As we've said in previous quarters, advances in the loan to asset ratio can be significantly affected by large increases in deposits as they were here.

At December 31, 2006 nonperforming loans decreased to $8.8 million when compared with $8.9 million reported in the third quarter of 2006, representing 0.56% of total loans. The nonperforming loan balance was still mostly comprised of two loans, one of which paid off in January of 2007. This payoff will reduce nonperforming loans by $3.7 million in the first quarter of 2007. Now I'd like to turn the call back to Joe. Thank you.

Thanks, Eric. There are a few additional points unrelated to our core business that I'd like to touch upon before we close and take questions. First, I want to mention that prospectively all banks are being faced with increased FDIC assessment charges as of this year. The increased charges will equate to approximately $400,000 per quarter on a pre-tax basis for us.

The bank recently established a real estate investment trust, more commonly referred to as a REIT. While we have not yet finalized the positive impact of the REIT, we anticipate that it should more than offset the increase in the FDIC assessment charges. We will have more to say about the REIT in our first-quarter results conference call in April.

I also want to update you with respect to our former parent, Bank Hapoalim's position in Signature Bank's stock. As of year end 2005 they owned approximately 5% of our stock since selling their principal ownership in us in March of 2005. But as of year end 2006 we were informed they no longer own any SBNY shares.

In closing we want to reiterate that we are pleased with the strong financial performance we delivered again in 2006, our fifth full year of operations. A few highlights for the year. First, we completed both the non IT and IT related transition from Bank Hapoalim to either in house or other third parties. Both of these occurred without any interruption to our client base. This platform is now more scalable and capable of supporting our anticipated growth. Second, we opened three new locations bringing our office total network to 18. And third, we increased our private client banking groups by 25%.

And lastly, we delivered another year of solid and consistent loan and deposit growth. It shows the extraordinary efforts put forth by our growing network of teams resulting in a balance sheet surpassing $5 billion for the first time. We entered 2007 with strong momentum and look forward to what we consider an opportunity rich environment. We expect that the nine teams added in 2006 combined with the efforts of our already established teams will help generate further deposit and loan growth this year and beyond.

Now we will be happy to do answer any questions you might have. Mary, I'll turn it back to you.

(OPERATOR INSTRUCTIONS). Gary Townsend, Friedman Billings Ramsey.

Good morning, gentlemen. A couple things. Are you going to provide any guidance with regard to the number of teams that are likely to be added in 2007?

Yes, 10.

Okay, thank you. And could you talk about the productivity of the teams that you have on and just what you're seeing there? There were some concerns earlier in 2006. And then finally, I'm intrigued by the news of the REIT. Could you just provide some additional details there?

Probably not much changed than what I've said in the past. With the teams we're bringing on now, since they're coming from these large institutions and they're not coming from where we started out earlier -- which was Republic National Bank -- the teams we hired today, because they come from institutions that segment the businesses, those businesses have many tentacles into the client. So it takes a little bit longer for the teams that are there coming from these mega banks to bring over the clients simply because there are other factors in play trying to keep the clients in place while we're trying to bring them over.

So we're not seeing that clients are not coming, we're just seeing that it's taking a little bit longer than it did when we first started out in 2001 because you have to understand when we started out in 2001 we had the opportunity to bring over people from Republic national bank or now HSBC and because they function in a very similar fashion to the way we function here at Signature it was a little bit easier to bring the clients over sooner because there were less tentacles in the organization.

As it relates to the REIT, it's something that we are forming here. We have formed in the first quarter. It allows us to take advantage of some opportunities in the tax law as it relates to New York State and will help us reduce some tax liability and expense and although we haven't finalized everything in terms of the numbers we do know based upon what we're putting in the REIT and how we're forming it that the revenue or the reduction in the expenses that we will have in the tax line item will more than offset the increase in the FDIC assessment. That's all I'm for prepared to say. We will talk about it in more detail once we have a result in the first quarter on our April conference call about the first quarter.

So in terms of just modeling you, we should expect a reduction in the effective tax rate, is that the best way to think of it?

That's right, Gary.

And so on an ongoing basis if we were to reduce that affective tax rate by approximately -- effectively reducing that expense by $400,000 that would put us in the ballpark?

Well, you've got to look at the expense of the FDIC assessment piece or before tax. So if you tax effect that and then come in with for now what we're considering an offsetting amount or slightly more than offsetting amount. So it's not quite one for one. You're in the ballpark. We haven't actually finalized specifically what exactly asset wise we're putting into the REIT. We have a good handle on it and, as Joe said, we certainly expect it to offset the expense that's coming in from the assessment piece, but right now we don't have a final dollar amount on that.

And I would assume that it's your mortgage-backed securities that are going into that?

It's predominantly our commercial real estate -- commercial real estate mortgage loans as well as our residential mortgage loans coupled with the mortgage-backs, so that's correct.

Okay, thank you.

Avi Barak, Sandler O'Neill.

Just a follow-up on the $550 million in escrows. How much of that was off-balance sheet verses on-balance sheet?

The 550 million is all on-balance sheet. That was all in our deposit numbers. And then off balance sheet during the fourth quarter, that increased by $1.6 billion. So in terms of an increase, it's actually $550 million on balance sheet and $1.6 billion off balance sheet. So if you combine the two we had an increase of over $2 billion.

Okay. So the $1.6 billion off-balance sheet gave you the pop in the commissions line item and the $550 million on balance sheet gave you the two basis point improvement in the margin?

Exactly.

That's right.

That's it. Thank you, guys.

Thomas McGovern, Lehman Brothers.

I was wondering if you wouldn't mind enlightening us as to how much production you've gotten out of some of your new commercial real estate groups. I know you had said in a prior quarter that you had really not been pursuing and may not pursue the idea of acquiring a captive commercial real estate originator, but are you continuing focusing your recruiting on bringing on people that have relationships to bring on commercial real estate assets?

We're not particularly recruiting teams that have a commercial real estate flavor, but what's happened is we have 47 teams and we're out there recruiting an additional 10. If there's enough of those teams that have clients that are in the commercial real estate world to give us an opportunity to grow our loan portfolio. The way we function is we hired in June of '05 our first senior commercial real estate lender and he has since added on a second person in 2005 and a third person in 2006.

So that group actually supports all the teams that refers the business in. That has given us an additional leg of business generation on the loan side. But we haven't gone out and particularly looked at a team that has commercial real estate clients. But what it does do, it actually opens up the door for us that if they do have those clients they can now do business whereas prior to June 30, '05 we were not doing investor commercial real estate.

Okay, great. Thanks a lot.

Chris Nolan, Oppenheimer & Co.

A follow-up on that previous question on the commercial real estate. Are your loan customers primarily sourced from your deposit base or are you going outside the deposit growth for loan customers now?

I would say we certainly have teams that lead with the deposit generation and we also have teams that lead with the loan generation. However, if we're out there doing commercial real estate lending we want the corresponding deposit relationship certainly to be operating accounts. And if you get the operating accounts, that allows you on the asset side to be a little bit more competitive because they are funding their own loans and for a large part you get non-interest-bearing deposits so it is both.

Got you. And Eric, on the operating expense front, these teams that you hired in 2006 generally have some upfront costs associated with them that sort of trail off in following quarters. Should we see some decrease in the expense line item the second quarter or so.

I wouldn't expect to see a decrease because we're going to continue to hire those teams, Chris, so it's really just a rolling cycle for us.

So we should look at around 21 to 22 as an ongoing run rate for expenses?

For all of expenses we grew year-over-year 16%. So I'd expect us to be in the 16 to 20% range.

Okay. And finally back to the REIT for one second. The basic impact on EPS is only going to be slightly offsetting the increase in the FDIC assessment, correct?

That's correct.

And it's FDIC, it's not SBA -- I think Joe mentioned it was an SBA related assessment, but it's FDIC, correct?

No, it's an FDIC assessment.

Got it. Okay, thank you.

Peyton Green, FTN Midwest Securities.

Great. I was just wondering if you could comment a little bit on the competitive conditions, Joe. Do you think that it's getting more competitive to higher personnel? And also how you view the competitive conditions on the loan and deposit side going into '07?

I would say that it's mixed. It's getting -- we have a team pipeline that is pretty good right now and it compares very well to the team pipeline that we had in 2006. There's a window here that we have to take advantage of because Norfolk, having been acquired and the deal closing on December 1 -- 2007 and 2008 are our opportunities to take advantage of that.

So the out look for us in 2007 is we now have an opportunity to go after -- no longer Norfolk, I guess you'd call them Capital One -- employees that really did not happen in the past. So from that aspect it makes it certainly richer of an opportunity for us because it was very difficult prior to Cap One announcing the deal with Norfolk to hire people from there because they're a very strong competitor. So I would say that that makes it somewhat more richer.

However, we see that some of the other institutions -- the bigger institutions are trying to put some things in place to keep some of their people because they see an outflow of some very good talent. And so offsetting the rich environment of teams it presents some challenges to us when some of these mega institutions start putting into place some things to keep people. But I would say when you combine the two there's certainly an opportunity for us to duplicate in the number of teams in 2006 for 2007.

As it relates to deposits and loans, what we've seen on the deposit side is a little bit of an easing, but not so great. There are still some institutions out there really needing deposits and paying up and that's where we'll back off because unless we're going to get operating accounts we will back off on any price sensitive deposits which there is still a little bit of that out there, particularly in the municipal area.

On the loan side, I think there's competition out there and what certainly hurts is the inverted yield curve when you're out there competing for five-, seven- and ten-year loans, because if you're locking in today it's pretty attractive for the client. And so I would say on the loan side the competition is more the inverted yield curve than it is our competitive banks.

Okay, great. Thank you very much.

Lana Chan, BMO Capital Markets.

Good morning. I just had a follow-up question on the off balance sheet escrow deposits, just so I understand this correctly. You had $1.6 billion of inflows in the fourth quarter. How much do you have in total of these types of off-balance sheet escrows?

Approximately $2.5 billion in the quarter.

And are the expectations that the $1.6 billion that inflowed in the fourth quarter, are they expected to leave in the first quarter as well?

A vast majority of that is expected to leave, and that could be offset by some additional ones coming in. But net, net we expect a decrease in the off-balance sheet money markets when you compare the end of 2006 to the first quarter of 2007 because we had such a significant increase during the quarter.

Okay, thank you.

Alper Sungur, Sidoti & Co.

Joe, Eric, do you have a timetable for potential entering into Connecticut or New Jersey markets? And if yes, when will that happen?

We don't have a timetable. If I had to give you a timetable I would say -- well, we don't have any plans in 2007 and haven't yet thought about what our expansion plans would be for 2008. But certainly for us it would be more likely that we would want to expand in those two states than if we beeped over to somewhere in the Midwest at the moment. So somewhere down the road you would think that we would, but no, we don't have a timetable.

Okay. And Signature is very becoming, it's coming much under the radar screen recently in the New York market. Advertising, do you expect advertising to boost business demand? And if yes, when will that take place?

No. We have not -- I'll tell you how much we've budgeted for advertising in 2007 and it's actually zero.

Okay.

We think that the environment that we've created, the platform that we've created in the institution by hiring the teams, having the teams be supported by senior commercial lenders, by cash management support, by all the operations that allow the teams to go out and source the business, you kind of put the pressure on the teams to go out and develop the business because the clients that we target would not come to an institution to advertise, so we have no expectation to do that.

Okay, thank you very much.

Justin Maurer, Lord Abbett.

Just as it relates to the deposit -- the escrows in the fourth quarter and whether it was the on-balance sheet or off-balance sheet, were those the same customers generally that you saw from last year or a different mix of folks?

Some of them were the same, but we have actually picked up some new clients. Let me say this, it usually comes from five different areas. There's some commercial real estate transactions, there's 1031 exchanges, there's private placements, there's the title company escrows and then there's the class-action lawsuits. And then within those five areas we have multiple sources and we've actually picked up some multiple -- we picked up some new sources within those multiple sources in the latter part of 2006 and we actually expect to pick up some more in 2007. So the good news is that it was a combination of some existing clients and some new.

So just kind of rough numbers, was it five customers that made that up last year and now it's 10 or something, kind of just order of magnitude?

You know, it's really hard to say.

Okay.

There's quite a few escrows.

Okay. And then on the short-term loans -- I'm sorry if you addressed this already -- the 70 million you guys talked about, what type of loan or loans were those and why are they turning so quick?

It was -- both of these loans which were high-quality borrowers and very secure. We were able to step up for some clients that had some very short term quick special needs. And I'll even pat ourselves on the back, it's kind of a feather in our cap that we were able to respond quickly. So they were kind of out of the ordinary but very secure. Nothing typical.

And as it relates to those two issues, sorry if you talked about [NIM] kind of expectations for '07 generally, but just kind of progression. Do you think it hangs at this level or does it drop possibly in the first quarter as these flow out then build to the balance of the year, how do you think about it?

Margins for us on a quarter-to-quarter basis are very difficult to predict because of the inflows and outflows that we have and really with this extended inverted yield curve it's difficult for us right now. I'd expect us in the short term to be right around where we are. In the long term, over the course of '07 and certainly throughout '08, as we continue to grow loans as a percentage of our balance sheet and raise core deposits we absolutely expect to have margin expansion.

All right, guys. Thanks a lot.

Michael [Wiser], [Lowe] Associates.

Good morning. I was walking down Park Avenue recently and came across the branch there. Talk about your decision to open it. Will you, particularly in light of your past branch opening strategy, talk about the sort of response you've gotten to it and how it may be affecting SBNY's visibility in New York?

The office you refer to is the one on Park Avenue?

Yes.

That actually was one of our original six offices that we opened. What happened was when we first opened the doors in 2001 we felt that we needed a combination of the offices we opened in the upper floors and offices on the street just simply because we were opening up and wanted some exposure. But our plan going forward -- has been for the last several years and going forward -- is that to open up offices on the upper floors unless of course we're opening up in an area where there are no office buildings. So it was just because we were first opening the doors.

The three offices that we opened during 2006 were all opened up on upper floors, there were no offices opened up on the ground level, including an area as remote as Jackson Heights/Queens, you would not know that a bank full-service branch exists in the building that we're in because we're not looking to attract any off the street traffic. We really are sticking to the privately owned businesses, the management and the employees and that simply is not going to come from the off the street traffic. It's going to come by our teams and all the support mechanisms going out there and generating the business.

Thanks, Joe.

(OPERATOR INSTRUCTIONS). Chris Nolan.

Joe, could you give some details in terms of your expectations for deposit growth and possibly loan growth if you're giving out that information?

Yes, the information we'll give is that we expect our total loans to be at $2 billion by the end of '07. And we expect -- that's net. That's new business net of paydowns, because we do like loans to pay off at times. And on the deposit side we expect on an annual basis about (technical difficulty) deposit growth.

Great. And deposit growth, that should be sort of a proxy for how much earning assets will grow in the year as well?

That's right, we'll probably keep a certain percentage of borrowings on the books, but it's not going to be significant.

Great. And finally, Eric, do you anticipate in the coming quarters that loan yields will actually rise from the current level?

I would expect them to rise, yes.

Okay, great. Thank you.

Gary Townsend.

Thank you. There was a volume driven increase in your provision expense in the quarter, but how should we think about that as we try to model that through 2007?

I'm thinking I would not do anything different in 2007 than you had in 2006. I will say this, as Eric had mentioned, we had one of our large nonaccruals that paid off in January, so our nonaccruals in total will go down. The allowance for loan losses will also go down because we're writing off a portion of that nonaccrual loan which we're fully reserved for so there's no P&L effect.

But our allowance to loan losses as a percentage of total loans will probably go down several basis points from where it is today at 88, it could go down to about 83 or 84 just simply because of that transaction. But we have not seen, although the portfolio is maturing, we have not seen any trend that you would say there's a deterioration in the portfolio. So I wouldn't expect to go out of any sort of relative range that you had in 2006 for 2007.

Okay. And my last question would be with regard to non-interest income commissions and fees on the escrow deposits were quite strong in the fourth quarter. Again, just trying to model that and anticipate the volatility, do you have any guidance?

On average our off-balance sheet deposits -- our off-balance sheet deposits, money market deposits on average will probably be higher in 2007 on average for the year than they were in 2006. We just had a very large spite in the fourth quarter. So the commission income we're going to get from that at least earlier in 2007 would probably be higher than it was in earlier 2006. I just can't say that at the end of the year we would match what we did this year, but on average it would be higher.

That's helpful, thank you.

Dean [Unger], UBS Wealth Management.

I may be beating a dead horse here on the commissions. I just want to understand, you have an off-balance sheet escrow and it stays on the books for let's say two weeks (technical difficulty) commission. Does that mean that you have more commission or is it determined -- how does the commission process work?

Is simply works as a -- you get a certain number of basis points for the balance on a daily basis. So if it stays two weeks we earn for that two weeks, if it stays two months we earn for two months. It's certainly a small part of -- let me say it this way, if the money was on-balance sheet we would earn a lot more. So the commission that we're earning off-balance sheet relative to what we could earn on-balance sheet is very small, but we have a tendency to get some significant balances off-balance sheet.

And I think you said that's driven usually by the requirement of the escrow placer.

Right.

Just one other thing. You mentioned a 3 million projection for deposit growth. Is that excluding the escrow -- on-balance sheet escrows or --?

No, that's an exclusive of escrows. That's exclusive of the large short-term escrows. We have escrows in that growth, but those are ones that on average stay just about every day. That $600 million is exclusive of any large increases in escrows.

Okay, thank you very much.

Alper Sunger.

Joe, in light of the loan and deposit growth projections, do you have any target on profitability metrics for the end of '07 in terms of return on equity and return on assets?

No, Alper, we do not give guidance on that. We only give guidance on the deposit and loan growth and the corresponding number of teams we project to hire.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS). Management, I'm showing there are no further questions. I'll turn the conference back to you for closing comments.

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

Thank you. Ladies and gentlemen, thank you for your participation. As a reminder, a Web replay of this conference call can be accessed through Signature Bank's website at www.SignatureNY.com by clicking on the Investor Relations tab then selecting company news followed by conference calls. Thank you, you may now disconnect.