Signature Bank (SBNY) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Signature Bank's 2007 fourth-quarter results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, February 14, 2008. I would now like to turn the conference over to Mr. Joseph DePaolo, President and CEO, and Mr. Eric Howell, CFO of Signature Bank. Mr. DePaolo, please go ahead.

Good morning, and thank you for joining us today for the Signature Bank 2007 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 rate, and the interest rate environment; loan and deposit growth; loan performance; 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 of defaults, losses, and pre-payments 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 require 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 can not 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 on this conference call or elsewhere might not reflect actual results.

Now, I would 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 in greater detail. Eric and I, along with Scott Shay, our Chairman, and Peter Quinlan, our Treasurer, will address your questions at the end of our remarks.

We appreciate your patience and understanding with regard to our delayed fourth-quarter earnings release. Right up front, let's discuss the reason for the delay.

We have a limited number of securities, 12 in particular, which are detailed in a separate schedule to our earnings release, That are being affected by the current illiquid market conditions and the uncertainty of a near-term recovery in value. We conducted an exhaustive process to validate the marks we utilized on our securities. The level of our market prices brought into questions other than temporary impairment on these securities, which I am sure you're all aware is the hot topic of the day.

Giving consideration to the current (technical difficulty) illiquid conditions, and due to the uncertainties of a near-term recovery in value, as required by generally accepted accounting principles, the securities were written down to their market value at December 31.

The impairment charge totaled $21.4 million for 12 securities, with an approximate book value of $63 million or 2% of our investment portfolio, broken down into two categories -- one, approximately $40 million of AA-rated CDOs issued primarily in 2004; and two, approximately $23 million of predominately AA-rated asset-backed securities issued primarily in 2004 and 2005.

We want to make it clear -- all principal and interest payments have been made to date in accordance with the terms of each security. And except for a small $400,000 asset-backed security, none of the securities have been downgraded. Substantially all of the securities based on dollar values are rated AA. We performed credit stress test and cash flow models for each security, and feel comfortable that the collateral continues to perform, and that the credit structure remain supportive.

Although the securities have performed well and maintain their ratings, we concluded that the securities were other then temporarily impaired within the meaning of generally accepted accounting principles. Therefore, this situation centers on marked-to-market issues in this dislocated mortgage security market to determine a fair value for less liquid securities like CDOs and the uncertainty of a near-term recovery in value.

Now moving on, let's discuss the core business, which remains fundamentally strong. We are pleased to report another year of positive results and strong steady growth, where core deposits increased over $700 million; where loans increased $450 million, reaching our goal of $2 billion. Where excluding the impairment writedown on investment securities, non-interest income increased over 40%. Where, again, excluding the impairment write down on investment securities, net income increased 18% from last year; and where we had a 19% increase in group directors, our primary business developers.

First, let's review our deposit result. Deposits increased $122 million for the fourth quarter, totaling $4.51 billion at year end. This includes core deposit growth of $165 million, coupled with an expected decrease of $42 million in short-term escrow deposits, which were released during the quarter.

Deposits for all of 2007 rose $301 million. Excluding the short-term escrow deposits of $550 million at the end of 2006 and $145 million at the end of 2007, core deposits increased $706 million or 19% in 2007, which surpassed our core deposit growth in 2006 by almost $240 million.

Average total deposits rose over $730 million or 22%. Remember, this is a deposit metric we focus on because of fluctuations in short-term escrow deposits. Non-interest-bearing deposits were at $1.3 billion, representing 29% of total deposits, which increased $144 million from last quarter. Off-balance-sheet money market deposits rose again in the fourth quarter to $1.79 billion, an increase of $22 million versus the last quarter.

As I just mentioned, short-term escrow deposits were $145 million at year-end. In seven of the past eight quarters, we have had sizable escrow deposits. Our increase in deposits led to total asset growth for the year of $446 million or 8.3% to $5.85 million. Average asset growth for the year rose $812 million or 18%.

Turning to loans, loans were up $123 million or 6.5% in the quarter. For the year, loans grew $448 million or 28%, surpassing our $2 billion target. Average loans for the fourth quarter were up approximately $139 million or 7.5% to the $2 billion mark, compared with the third quarter of 2007, and $542 million or 37% from the fourth quarter of last year. Loans as a percentage of total assets reached 35% at year end.

Let's discuss the non-performing loans, which increased to $18.6 million and contributed to the increased provision and charge-offs for the quarter. We essentially had two loans go non-accrual this quarter that make up a great majority of the increase. One loan is for approximately $9 million. This is a traditional C&I loan where several unexpected events impaired the client's operations. We are secured with all assets of the Company, including receivable, inventory, machinery and equipment, and property, as well as the personal guarantee of the owner.

The other loan of approximately $6 million is also a traditional C&I loan where a legal matter impacted the Company's business. This loan is collateralized by commercial property, and negotiations are ongoing for its sale. We are currently working through both credits, and we have specifically reserved for them.

With our portfolio growing over $1 billion in the past two years to $2 billion now, along with its continuing maturity, we remain alert that the current overall economic environment could further impact our marketplace. These loans, however, were not indicative of that. In fact, our delinquencies show a positive trend.

I want to emphasize here that these two businesses were impacted by specific events, rather than by the current state of the economy.

Now I will address earnings. The net loss for the quarter was $3 million, or $0.10 diluted loss per share. Excluding the effect of the $21.4 million impairment writedown of investment securities, net income for the quarter was $8.9 million or $0.30 diluted earnings per share, flat when compared with 2006 fourth-quarter earnings.

In addition to the other-than-temporary writedown, earnings were clearly impacted by the increased provision for loan loss and charge-offs. However, we saw solid increases in net interest income, commission income, fees and service charges, along with the expense containment. For the year, excluding the impairment write-down on investment securities, net income climbed over $39 million or $1.39 diluted earnings per share, an increase of 18% from last year.

Let's turn to recruitment and team growth. Seven teams were added in 2007, ending the year with 52. In the third and fourth quarters, we added two large teams from North Fork Bank which, combined, adds six group directors and five associate group directors. Also this year, we opened two new offices on 19th and 20th in Great Neck in Borough Park to accommodate new teams in areas where they developed their clientele. Our new office in Jericho, Long Island is slated to open in the first quarter.

Now I would like to turn the call over to Eric Howell, our CFO, to review the financial results in greater detail.

Thank you, Joe, and good morning, everyone. I'd like to begin briefly reviewing the net income results for the quarter. As Joe discussed, we had a net loss for the quarter of $3 million, driven by the $21.4 million writedown on investment securities. Excluding this charge, net income was $8.9 million or $0.30 diluted earnings per share, compared to the same amount for the fourth quarter of last year.

Net interest income in the quarter reached $38 million, a $5.4 million or 16% increase from the 2006 fourth quarter. The net interest income for the year was $147 million, up $25 million or 20% from last year.

Now looking at net interest margin, net interest margin on a tax equivalent basis declined 10 basis points from the linked quarter. 5 basis points resulted from a New York State government mandated increase in the interest rate paid on IOLA accounts, or interest on lawyers accounts. 2 basis points of the decline were due to an increase in non-performing loans for the quarter, and also reflected in this compression is the natural lag effect of deposit repricing in a declining interest rate environment.

Net interest margin on a tax equivalent basis for the year expanded 8 basis points to 2.88%, mainly due to an increase in loans as a percentage of assets.

Looking closely at asset yields and funding costs this quarter, yields on investment securities grew 15 basis points during the quarter to 5.18%. This is the result of the runoff of lower yielding securities replaced with accretive investments. Overall, the portfolio quality remains strong, with a stable average duration of 1.95 years, and continues to provide consistent cash flow for reinvestment in higher yielding loans.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages decreased 46 basis points to 7.07% for the quarter. This decrease was primarily driven by a reduction in prime and LIBOR rates during the quarter.

Now if we look at liabilities, cost of deposits for the quarter increase 9 basis points, which mainly reflects the increase in interest expense associated with the interest rate paid on IOLA accounts. Excluding the effects of the increase in IOLA, which is reflected in our NOW and interest-bearing checking accounts, there was an improvement across all other funding sources. Money market accounts declined 9 basis points to 4.10%; time deposit costs decreased 3 basis points; and borrowing costs lowered 3 basis points during the quarter.

In coming quarters, we expect to further reduce these cost rather substantially given the recent the Fed moves. As always for us, the key drivers for margin expansion are raising core deposits and increasing loans as a percentage of our balance sheet.

Looking at non-interest income and expense, non-interest income for the quarter declined $19.2 million to a loss of $13 million due to the writedown of investment securities. Excluding the writedown, non-interest income for the 2007 fourth quarter rose 34.5% or $2.2 million to $8.4 million. Non-interest income for the year declined to $8.7 million -- again, due to the write down. Excluding this writedown, non-interest income for the year totaled $30.1 million, up 41% versus the $21.3 million reported in 2006.

We had solid growth for both the quarter and the year in commissions and fees and service charges. Commissions increased $545,000 or 18% for the quarter and $4.5 million or 55% for the year, mainly due to the increase in off-balance sheet money market deposits. The increase in fees and service charges of $1.1 million or 48% for the quarter and $3 million or 32% for the year are reflective of client expansion and increased client activity.

Non-interest expense for the 2007 fourth quarter was $25.1 million versus $21.9 million in the 2006 fourth quarter. The increase of $3.2 million or 15% was mostly due to the addition of new private client banking teams and offices, as well as newly enacted FDIC assessment fees that totaled an additional $553,000.

Non-interest expense for the year was at $99.1 million, up $17.8 million versus 2006. The increase in non-interest expense in 2007 was mainly due to growth in client activity including operating expenses associated with short-term escrow deposits; an additional $2 million for FDIC deposit assessment fees enacted in 2007 and the addition of new private client banking teams and offices. Remember, we added seven private client banking teams, eleven group directors, two locations, and we expanded six existing locations during the year.

Looking at our efficiency ratio for the quarter, it was obviously impacted by the writedown in investment securities. If you exclude this writedown, we saw an improvement to 53.9% from 56.1% for the fourth quarter of 2006 and 55.9% in the third quarter of 2007. The improvement stems from the growth in interest and non-interest income coupled with prudent expense containment.

Now I will turn the call back to Joe. Thank you.

Thanks, Eric. Let me recap our progress in 2007 and give some insight into what we expect for 2008. We continue to take advantage of the changing market, with the successful recruitment of new teams. 2008 looks equally promising and we plan and adding another five high-quality teams this year. In fact, today, we added our 53rd team, our sixth team from North Fork Bank.

In addition to opening two new offices, we expanded six of our existing offices in 2007, allowing us to accommodate additional teams for these locations. In all four quarters, we demonstrated our ability to garner significant short-term escrow deposits. We grew core deposits more than $700 million. And in 2008, we expect to exceed this growth.

We grew loans by $450 million in 2007 and $550 million in 2006. We expect to exceed $550 million in loan growth in 2008.

We established a REIT early in 2007 which helped reduce our effective tax rate. And excluding the write down for other than temporary impairments, we increase non-interest income by more than 40% and earnings by 18%. Now we will be happy to answer any questions you might have. Josh, I will turn the call back to you.

Company speakers' audio quality is severely compromised at several points throughout the Q&A.

(OPERATOR INSTRUCTIONS). Dave Rochester, FBR Capital Markets.

Just real quick, a couple of maintenance questions and credits. Could you tell us how much of the provision was linked to the two NPAs?

It was approximately $3.5 million.

And the remainder of the increase in the NPAs -- or roughly a little over $800,000 -- could you give us some additional color on that?

It's smaller granular credits.

Primarily commercial?

Primarily commercial, yes. (multiple speakers) Small-business revolving lines.

And the extra charge-offs during the quarter outside of the $2 million for the larger C&I loan -- were those primarily smaller business?

Smaller business, again.

Okay. For the large two NPAs, how long have those been credits or relationships with the bank?

Both of them have been for several years.

And finally, just on the credit side, would you happen to have the 90-day delinquencies? You mentioned delinquency trends had improved. That is definitely good news. What are you seeing there in terms of the 90-day delinquencies? And if you have the 30-to-89-day bucket, that would be great too.

Sure, our 30-through-89-day bucket went from approximately $14.7 million down to just a little short of $6 million. And our 90-plus bucket went from $27 million, almost $28 million down to $4 million.

Great. And in terms of the watchlist, what were you seeing their in terms of the change in the quarter?

Well, we're still seeing a growth in our watchlist, but as a percentage of our overall outstanding, I wouldn't say it's out of line with what we have seen. But we're up a (technical difficulty) last two years so it is reasonable to think that that's going to (technical difficulty)

Overall, (technical difficulty) if you include the fact that these two credits migrated there.

Okay. And if you can just comment on what you're seeing generally in small-business, amongst your small-business credits -- are you seeing any meaningful or systemic migration to lower [pass grades]; any signs of stress due to the slowing economic conditions? I know the larger two NPAs didn't have anything to do with that, but --

No. Surprisingly, we looked at the portfolio. And other than the growth of it and the maturity of it, we haven't really seen anything related to the current economic conditions. I would say we have less than a handful -- (technical difficulty) I can think of one or two in particular that were -- I'll say small title companies that were affected by what is going on in the mortgage environment. But then they were very granular, small credits.

And I know this is pretty much impossible to predict, but just trying to get your sense for where you see provision expense going from here as that commercial portfolio seasons in 2008, and just keeping in mind your loan growth expectations, which are still fairly robust, which is nice to see?

We certainly don't expect to provide as much as we did this quarter. I think it would be more in line with the third quarter -- or really, between the third quarter and the fourth quarter.

Great. And any new details on the 5013? It's good to hear that you have signed a new team there. Any color on the size of the book and any other details you could provide?

I will just a way we'll have a press release on them probably within a week or so. But we're happy to say that [there] are our [sixth team] from North Fork where we continue to find a wealth of talent.

Thomas McGovern, Lehman Brothers.

I think it had been stated in the past in some of your filings that the securities portfolio is predominantly AAA and agency. Do you perhaps have any color on what the remaining amount of non-agency and non-AAA securities are?

Right now a AAA is 90%. So there's another 4% that are AA, 5% that's A, and less than half a percent that's BBB. So it is all investment grade. Peter, I don't know if you want to give any color as to what is --

Well, and of that, in the A and -- we have a small (technical difficulty) [family] that is corporate, corporate credits for some of the banks, high grade banks. The majority of AA is in an asset-backed type of structure that we feel confident that the credit is strong enough.

Is there any color on what the agency portion is?

Agency in total represents 63% of outstanding at the year end. So that the [various] -- the AAA, prime (technical difficulty) structures -- and those are predominantly 2004 (technical difficulty) 2005.

Avi Barak, Sandler O'Neill.

Just a follow-up on the increase in non-performers. Those two specific loans that you outlined in the press release and on the call -- were they originated by the same team, or were those two different teams?

Two different teams.

Separately, on the margin, you mentioned the increase on lawyer accounts. Is that something is going to happen now every year, every six months? Or is that sort of a one-time thing until the government decides they have to raise those rates again?

As far as we know, it's a one time thing. But we can't really predict what the New York State government is going to do.

(multiple speakers) We had to select -- there were four ways of calculating the interest. And you had to select one of the four. And our interest rate on that went up 235 basis points -- when we had in October.

And I know you have mentioned in the past that it is tough to predict the margin on a quarter-to-quarter basis just with what happens and the escrow balances, etc., but just in general, how should we be thinking about that with the recent Fed movement and what looks like could be another in March and the remainder of the first half of this year?

You know, in the fourth quarter, we really had to feel out the competition, and see what was going on what the first couple Fed moves that happened. There's usually a natural lag effect on our deposit costs as we discuss lowering deposits for our [client] base. That's much more of a negotiated process than it is on the asset side, where [your] prime-based loans just immediately reset.

But with the latter Fed moves that happened, everyone has been pretty aggressive in cutting rates across the Board. And we certainly were very aggressive on our front. So we feel pretty good about our margin prospects going lower.

Again, though, quarter to quarter, as you said, it is difficult to predict. Clearly, as we raise core deposits and grow loans as a percentage of the balance sheet, we expect to have margin expansion.

Mike Shafir, Sterne Agee.

I was wondering with that REIT in place, what do you think the tax rate is going to be -- the effective tax rate going forward in 2008?

In line with the fourth quarter.

Christopher Nolan, Oppenheimer & Co.

A quick question on the operating expenses. Should we anticipate a slow down in incremental growth and operating expense?

I wouldn't think so. We have had year over year typically around 20% growth. I would expect we'd stay around that number, operating expense-wise. We are clearly looking to continue to hire talent, and that is going to be the main driver of that.

And back to the tax question just for one second, Eric, is the 41% tax rate do you think good for 2008, or a little bit lower?

I think we would be right around the 40% arena.

Finally, is the balance sheet, would you say -- I know; I'm back to the margin question for a second. Is the balance sheet somewhat liability sensitive slightly, or is it still fairly neutral? How would you characterize it?

It is pretty neutral, I think.

The problem we have though is -- it's a good problem. We have a significant amount of EDA and NOW accounts that as the Fed continues to go to the magnitude it has, it does kind of put some pressure on how far we can lower deposits. The offset to that, which is really more of an expansion, is our ability to move the asset mix over to loans.

And you will see that our floating rate loans, which is really our C&I category, is smaller than our money markets accounts, but we have more pricing power to offset that. So we have been able to pass through more of the Fed moves into our money market accounts more recently.

Great. And just back to get the provisioning question earlier, I know you said it would be between the third-quarter and the fourth-quarter levels. In the past, Eric, management has sort of indicated that they're restricted in terms of being able to raise provision, given what regulators impose on them. Is that restriction still in place right here, or are you guys getting pretty much a free hand as to how you can provision?

Well, you don't really have a free hand. It's not so much the regulators. It's the general accepted accounting principle and the managing earnings question that you get into the other side of overprovisioning.

And it is a balance. But certainly given the economic and the environmental trends that we're seeing, we should -- and we are cognizant about those trends -- that should allow for us to provide more.

David Long, William Blair.

My question is related to that $9.2 million credit. Can you just provide a little bit more color on the type of business that they're in and what actually occurred in their business that caused the chargeoff and the building in of the provision?

The Company is involved in the consumer staple industry. And they had a series of events happen to them which were not related to the economic environment. In one case one of the raw ingredients for their products were held up by an intergovernmental dispute. Our -- the United States connection with the country that the important the goods from, whereby they were not allowed to import their product for a while. That was a severe disruption, and had a very significant impact on them.

They had as well another supply issue -- again, not particularly related to the economy, that also caused them a disruption. Both of those had ripple effects on the rest of their business. And really, a significant impact on their EBITDA, reducing their EBITDA quite dramatically. So that's basically it.

Lana Chan, BMO Capital Markets.

I've got a couple of questions, one on the margin. Could you talk about -- with the yields coming down in the overall treasury markets, and what the type of reinvestments you are seeing in terms of the cash flow that is coming off of the portfolio?

Well, we haven't not been putting a lot back into securities. And so really, we're trying to -- our pipeline was strong for loans. And what we have done as an [alcove] committee is really start pricing swaps -- the swap curve rather than the treasuries, because there is quite a dislocation there. And we are setting floors on how low we will go to pricing and commercial loans. So we are probably only reinvesting 20% to 30% of the cash flow coming back this quarter, and transferring the cash flow into the loan portfolio.

So your securities that are running losses -- it's still in the mid-4% range in --?

Yes, I would say that. Because what we [said] in -- we took in late '06 and '07 when the yield curve was higher, we looked for more protective, locked out or more stable structures to reinvest. And so they're still on the portfolio, the majority of the rest is still coming off in the 4 to 4 50. And [unfortunately], that is now the reinvestment rate for agency [high quality]. But that is why we are transferring it up to hopefully closer to 6% in the (technical difficulty) [loan] book.

Okay. And did you say that on the loans in your portfolio on the commercial side, commercial real estate side -- are there floors on some of those loans put in place?

Some, yes.

And when I look at the securities description of the CDOs that you took the impairment charge on -- when I look at the credit support for some of the CDOs, it does not seem overly high to me. So do you feel like there is a risk there with the credit downgrades?

No. I think I'd look at it from two ways. We ran our cash flow models and stressed the credits of the underlying issues in the CDOs. And we feel confident that the structure is intact, there was going to be no diversion of cash flow. And the overall credit support remains very much supportive.

When you look at that, high-grade CDOs are essentially -- that is where they come out at -- about 3.5%. That does not include an additional enhancement, which is excess spread. And for high grades, that is usually significant, and adds about 1% to 2%. But based on [intext], you don't include that.

Now for the mezzanine, the priority class has been paying down each month. So our credit support is going to grow each month as long as the credit as we stressed remains supportive. So that we model out. In one case, it goes to 25% at the end of the year. That provides us some stability. So we feel good about the rating stability, but that is more of a wildcard in this market.

And then my last question regards to the North Fork hire, somewhat related to that -- Joe, do you have any comment on the pending start up of Heritage Bank, or with one of your ex-bankers in one of the ex-North Fork senior managements?

Inconsequential -- no concern.

You don't think that is going to be a competitive issue for you guys?

None whatsoever.

Justin Maurer, Lord Abbett.

By the way, your phone is kind of cracking about. It is hard to hear some of this stuff -- so it might be somewhat redundant, my questions.

Just to be clear, Joe, you said on the deposit growth for '08, are you expecting -- I think you guys had a $600 million bogey, ex escrow, last year. Are you saying that -- of a similar growth level?

No. We were saying, the actual growth in 2007 in core deposits was $700 million, and that we expect to exceed the $700 million in 2008.

And now that the escrow level at the end of the year has come down to a fairly modest level, there shouldn't be any kind of period end to period end noise from that -- is that fair?

Well, I will tell you. We had a significant -- although off balance sheet, we had a significant increase in short term escrows in the first quarter -- significant -- Off balance sheet money market. So there's still a lot of good noise happening there.

Sure. But didn't you guys have a similar thing last year happen too? Or that was on an on balance sheet piece of that.

You are right, it was both on balance sheet and off balance sheet at the end of '06. We had some significant flows. So far in this quarter, we have had some significant flows as well. But they have been off balance sheet. That helps our commission income. That helps the non-interest income.

And then secondly on the NIM -- Eric, again, I apologize if it is redundant. But just with the 125 bip hit in a short period of time, how do you guys feel about that, maybe in the first half of the year? I got the comment about the money markets balances exceeding the variable-rate loans, that that should be able to come down ratably. But linked quarter, would you still expect some pressure as you adjust to that reality?

I think on a linked quarter basis we feel good about the NIM.

And that is of course taking into account the five on the lawyer loans and the two on the NPAs, too, right?

Right, well, effectively, they are taken out now -- so starting from that base.

And then just lastly on the NPAs, beat the dead horse here -- ex the two loans that you guys have discussed, I think that you said the increase was $3.8 million outside of that, or was there one loan that was $3.8 million and then some other granular loans?

We were saying it was about $3.5 million on those two loans that we had got.

Okay, of incremental NPA?

Yes, right.

So if NPAs went from $2.6 million to 18-ish --

No, no; of the growth in the NPAs almost all of that was due to the two non-performing loan. Of the $15 million, it was predominantly all --

So the balance then was the $3.5 million.

Peyton Green, FTN Midwest Securities.

A couple of questions. One, on the NPLs, what would you expect from a timeline perspective in working out of the credits? Is this something that it may take a year to two years, or do you think it is sooner than that?

We're probably talking one to two quarters.

So they should be resolved somewhat quickly as workouts go?

I think with respect to one, hopefully, we will have resolution within one to two quarters. I think with respect to the second loan, I think we will certainly know where we are with one to two quarters, particularly with the business either stabilizing or not or us taking various actions are not. So I would say that certainly, the picture will be very clear within that timeframe with respect to the second [month].

And then -- this is probably a question for Peter, but it would seem like you all have significant opportunity to reinvest cash flow from the securities [with] wider spreads certainly this year compared to years past. Are you all seeing opportunities to do that? Or is the preference -- because it sounds like your guidance, you are still going to have cash flow to invest in securities. I wonder if you can handicap the opportunity.

And then also, it would seem like you would have a pretty decent gain in the bulk of your securities book, since the Fed has cut over the course of January anyway -- any comment that you might have there.

Yes, on the gain side, things are looking more attractive there, especially our season '04 issues are really some sizable gains. I don't know if we are going to really realize those -- we want to carry those coupons for as long as possible.

What we're seeing in the market is pretty interesting. The yield opportunities really look to be in the '06 and '07 vintage issues, which we're not ready to really enter that market right now given just the concerns in the housing market. We think that what we stuck within the '04 and '05 type of vintages has been very helpful for us over this time.

Now we are looking for opportunities in that category. The spread is less, although it has picked up. But still, given the movements in the treasury curve and the swap curve down, loans are much more attractive. So we will look for selective reinvestment opportunities. But we definitely want to start transferring some funds into the loans.

And then, just in terms of the deposit growth, this time a year ago, you would have been maybe a little bit more cautious about the overall ability to grow deposits. And certainly, you had a very fine year in '07. But it sounds like you're more excited about the opportunity to grow the overall deposit base. Where is that coming from, Joe?

I think it is a combination of two things. One, it is -- we have seen our existing teams that have been around for a long time continue to grow. In 2007, they were a large part of that growth. And then you couple that excitement with the new teams that we have added on.

And one of the things I have talked about is that we found that the new teams that we have added on, particularly from North Fork, they have really structured their business very much the way we have here. And so, we find that because we are very much alike in the team structure, it allows those teams to really bring their clients over. And the clients get to feel that they really haven't moved, because they were there because of those teams.

So we are excited because of that combination of existing teams and new teams. And we are equally as excited in terms of the potential for the loan growth for 2008.

Al Savastano, Fox-Pitt.

Three questions here for you. First, the loan and deposit growth guidance, does that includes the expected hires, or is that just the existing number of teams?

It includes the expected hires.

Good, and then the second question -- has the writedowns on the securities this quarter changed the way or impacted the future securities purchases?

The truth of the matter is, we had, frankly -- we had a view that given the amount of liquidity and that we naturally have enjoyed, frankly, due to deposit flows -- at the margin, we had purchased some securities such as these that had somewhat lower liquidity with the notion being that they were strong in terms of credit rating and they would enhance yield.

About a year ago we actually pruned our securities portfolio for anything that we thought had any significant credit exposure, and were left with these securities which actually have not yet been impacted. So we reduced our exposure, if anything, about a year ago to less liquid securities, and have a very small portion of that.

Naturally, in terms of economically naturally, it would make sense for us to be purchasing somewhat less liquid securities because of our, again, heavy and pretty regular inflows. But having said that, we obviously do have to look at the evolved and evolving accounting literature. And so despite what might make economic sense, on a going forward basis, clearly we have to put more focus on securities which regularly trade and which don't have -- or at least have less likelihood -- in this market, it is impossible to say; no security has no likelihood, but it has far less likelihood of it being caught up in a situation in which there are no market prices or are no market transactions, and therefore despite the quality of the security, the marked-to-market could be whatever -- at whatever is [tendered] by the lack of liquidity.

Last question -- were there any accrual reversals in the fourth quarter in expenses?

Yes, there was one. Usually, it occurs annually in the fourth quarter when we are finding out what the bonus accrual is going to be. So you will see a dip in the expenses, the personnel expenses related to a reversal of that. So when you look at a trend for that expense, you should really be looking at the growth from the first to the second to the third quarters.

Mike Shafir, Sterne Agee.

I just have a quick follow-up question. I was wondering if maybe you could just reiterate those deposit and commercial loan growth goals.

We said for 2008 we would exceed $700 million on the deposit side and $550 million on the loan side.

Okay, now that is $700 million in total deposit growth, outside of escrow deposits?

Yes, that is core. Core deposit growth.

So core just meaning outside of escrow?

Correct.

Correct.

And then on the loan growth, that was total loan growth as well?

That is net, right; net growth in the outstanding. So that means we will be doing more in growth because there are going to be paydowns -- it's a net number.

And then also, just to come back to the margin for a minute, just to clarify, you said you guys are comfortable -- on a sequential basis going into the first quarter from this 2 81 level.

Right.

Right, so it is not like outside of the AOLI or any of that, right?

That is right.

Alper Sungur, Sidoti & Co.

My question relates to the sixth team soon to be hired from North Fork Bank. What do you expect the breakeven time to be?

Normally, the breakeven time has been in the 15-month area. I wouldn't talk about any one particular team. So I'm giving you the thought of what it would be for any team that we have been hiring more recently -- around the 15-month arena.

(OPERATOR INSTRUCTIONS). At this time, we do not have any further questions. I will turn the conference back to management for any concluding remarks.

Thank you. And thank you, everyone, for joining us today. We appreciate your interest in Signature Bank. And as always, we look forward to keeping you apprised of our developments. Thank you. And Josh, I will turn back to you.

Ladies and gentlemen, this does conclude Signature Bank's 2007 fourth-quarter and year-end results conference call. 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 and selecting Company News followed by conference call. ACT would like to thank you for your participation. Have a pleasant day. You may now disconnect.