Signature Bank (SBNY) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Signature Bank's 2008 second-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) As a reminder, this conference is being recorded today, Thursday, July 31, 2008.

I would now like to turn the conference over to Mr. Joseph J. DePaolo, President and CEO, and Mr. Eric R. Howell, CFO of Signature Bank. Mr. DePaolo, please go ahead.

Good morning. Thank you for joining us today for the Signature Bank 2008 second-quarter 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 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, low 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 in pre-payments on loans made by us whether held in portfolio or sold in the whole loan secondary market, which can materially affect charge off levels and require credit loss reserve levels. 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 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 will address your questions at the end of our remarks.

Our combined decades of banking experience, in particular, the many years spent at Republic National Bank, known for having one of the most sound balance sheets in the nation, taught us to prudently and successfully manage and maintain a deposited focused balance sheet, one that can weather financial storms. This experience is now helping us to not only navigate this current tumultuous environment, but also to take advantage of the opportunities presented. Bottom line, we are prudent, yet opportunistic.

All of this is evidenced by this quarter's notable performance where we once again reported increases across the board. Core deposits rose $170 million. Loans reached record levels growing $488 million, or 22%, while nonperforming loans decreased 27%. Net interest margin expanded 10 basis points and this is after a 24 basis point increase in the first quarter.

Earnings were up 6%, despite a 230% increase in the provision. Our private client banking network was expanded with the appointment of two leading deposit-generating teams ending the quarter with 55 teams in place.

Let's take a look at deposit performance first. Total deposits were up $278 million reaching $4.87 billion at the end of the second quarter. This includes core deposit growth of $170 million, coupled with an increase of $108 million in short-term escrow deposits. Excluding short-term escrow deposits of $145 million at December 31, 2007, and $205 million at June 30, 2008, core deposits increased $295 million in the first half of this year.

Average total deposits increased $684 million over the past year to $4.73 billion for the quarter. This is a deposit metric we focus on particularly because of fluctuations in short-term escrow deposits. Non-interest-bearing deposits were $1.43 billion, representing 29% of total deposits. Additionally, off-balance sheet money market deposits were $1.75 billion. Total assets reached $6.37 billion versus $5.71 billion in the 2007 second quarter.

Now on to loans. Loans in the second quarter were up a record $488 million, or 22%, reaching $2.71 billion. Loans as a percentage of total assets reached 42% at the end of the second quarter. This quarter's growth stemmed from commercial real estate loans led mostly by the seasoned team of banking and real estate professionals that joined during the fourth quarter of 2007. I should point out that more than half of the growth is attributable to loans made on multi-family properties in our marketplace.

Current market conditions present solid balance sheet lenders with experienced real estate professionals, like Signature Bank, notable opportunities to add quality commercial real estate loans. We saw an improvement in non-performing loans in the quarter, decreasing $10.9 million, or 27%, to $29.1 million comprising 1.1% of total loans or just 0.5% of total assets. Right now, we have three loans totaling $26.1 million that comprise the bulk of our non-accrual number.

In line with what we said last quarter, the decrease was driven by the positive resolution of two loans. If you recall, last quarter we reported a traditional C&I loan for a media-related company in the amount of $16.5 million that went non-accrual. The company filed bankruptcy at the end of the first quarter of 2008 and emerged from bankruptcy at the end of the second quarter.

The bank received a considerable pay down of $12.3 million, a fully-secured note for $3.7 million, and incurred a charge-off of approximately $500,000. Through its bankruptcy restructuring the client was able to shed itself of significant sub debt, raise additional equity, improve its financial standing, and return to its historically strong core business.

Another loan for approximately $5.9 million was restructured and the bank obtained additional real estate collateral to fully support this credit. The client's business was affected by particular events that have now been resolved and business operations have successively resumed.

One credit of $11.9 million was added to non-accrual loans this quarter. This alone is a condominium development project in Manhattan, which is complete. Unfortunately, for many reasons, sales have slowed. We decided to put this one on non-accrual and we have established a provision for this loan. We remain cognizant of the current overall economic environment and the potential for further impact in our marketplace. Therefore, we have significantly increased our provision.

Now let's review earnings. Net income for the quarter reached $10.9 million, or $0.36 diluted earnings per share, up 6% when compared with the second quarter last year. The net income increase was the result of several factors, including an increase in loans as a percentage of assets, deposit growth, solid net interest margin expansion, and increased non-interest income which grew 32%.

On to teams. Team expansion continued in the quarter. We appointed two top deposit-generating teams for one of our midtown Manhattan offices. These teams, both of whom joined from North Fork, are among the leading producers there. With the addition of these teams, we now have added eight from North Fork Bank.

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

Thank you, Joe, and good morning, everyone. I will start by reviewing net interest income and margin. Net interest income in the second quarter rose to $45.1 million, an increase of $8.3 million, or 22.6%, over the second quarter of last year driven by the growth in assets and margin expansion.

Net interest margin on a tax equivalent basis grew 19 basis points to 3.14% versus last year. This is predominantly due to the continued repricing of our deposit base following the significant decrease in fed funds in the first quarter, as well as the increase in loans as a percent percentage of assets.

Yields on investment securities remained stable at 4.82%. Overall, the portfolio quality remains strong with a continued average duration of 2.18 years and continues to provide consistent cash flow for reinvestment and higher-yielding loans. Looking at our loan portfolio, yields on average commercial loans and commercial mortgages decreased 72 basis points to 5.68% for the quarter. This decrease was primarily driven by a reduction in prime and LIBOR rates.

Cost of deposits for the quarter decreased 51 basis points to 1.73%. As previously mentioned, there is a natural lag effect with deposit repricing in a declining interest rate environment. Therefore, during the second quarter, we continued to lower our deposit costs. The key drivers for margin expansion remain raising core deposits and increasing loans as a percentage of our balance sheet. Yet again, we achieved both this quarter and expect to continue this trend.

Looking at non-interest income and expense, non-interest income for the second quarter increased 32% to $9.8 million versus $7.4 million reported in the second quarter of 2007. The majority of the increase is in commission income, which grew $2 million during the quarter. The increase in commissions was mainly due to the increase in off-balance sheet money market deposits, driven by short-term escrows, as well as an increase in our brokerage-related activities.

Also included in non-interest income is $1.8 million in net gains on sales of securities and loans. Approximately $400,000 of these gains are from our regular SBA activities, and $1.4 million is from gains on sales of available-for-sale securities. We also had one additional write down of $937,000 for the other-than-temporary impairment of an investment grade ABS security. It's important to note to-date we continue to receive all principal and interest payments in accordance with the terms of each security that we have written down during the last three quarters.

I also want to point out that the bank has pooled trust preferred securities that are A- rated and higher with a total book value of approximately $37 million and an unrealized loss of $7.8 million. We continue to closely monitor these securities, as we do with our entire investment portfolio. Although we believe the recent declines in market value are temporary, we cannot guarantee that future impairment charges will not be taken as required by Generally Accepted Accounting Principles and the ever-changing accounting interpretations thereof.

Now let's look at non-interest expense. Non-interest expense for the second quarter of 2008 was $30.7 million versus $25.1 million for the second quarter of last year. The $5.6 million increase for 22% was primarily the result of the addition of seven private client banking teams, including two very large teams.

Our efficiency ratio for the quarter saw an improvement to 56% from 56.8% for the comparable period a year ago driven by revenue growth. Looking at capitol, our tier one leverage ratio and total risk-based capital ratios of 77.64% and 13.39%, respectively, remain well above those of our peers and supportive to near-term growth.

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

Thanks, Eric. Signature Bank has yet again proven its ability to successfully execute on its business plan, even while the current capital and credit markets experience such turmoil. Our financial results continue to demonstrate the bank's dedication to its core banking model and reveal the successes we have achieved. This quarter's performance was outstanding across several key areas including growth in deposits, loans, net interest margin, earnings, and teams.

We separate ourselves from our peers by demonstrating an ongoing ability to generate deposits and attract quality loans, while providing the clients a single point of contact and service necessary for them to succeed in their businesses. This is certainly a gratuitous time for a balance sheet lender like Signature Bank to capture additional market share. As such, we are acquiring New York's top banking professionals, expanding our private client banking network, growing our client base, and executing on our business model.

And now, we will be happy to answer any questions you might have. Barray, I will turn it over to you.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Dave Rochester, FBR Capital Markets.

Hey, good morning, guys. Congrats on a great quarter here. Could you give us an update on the other large credits, the three that you mentioned, when you are expecting resolution on those?

Well, with those three credits, there is one of the three in particular that we are working through rapidly and should have a resolution sometime in the next week or so. We have reserved for that credit. We do expect a charge off related to that credit but it's been fully reserved for.

With the other two, one of them we will probably take several quarters. The third one, which we added on this last quarter, will come down as we have sales of the apartments, of which we are getting 100% of the proceeds if it gets the outstanding debt before any profit is taken by the owner.

Okay, great. That's great color there. Thank you. Could you give us some additional color on delinquencies during the quarter? The 90-plus category or the watchlist? Any trends you can talk about there?

Yes, sure. The watchlist credits for the quarter came down pretty nicely, actually. We don't get into too many specifics, usually, on that front, Dave. Delinquencies that are 90 days past due, but still accruing, is $4.1 million, which is really in line, if not better, than previous quarters. So we feel pretty good about the trends on our watchlist and our delinquencies.

Great. In terms of small-business credit, are you seeing any slight weakness there outside the mortgage and title area?

I would say slight level of increase there. We are certainly seen some more, smaller granular credits pop up, but they are smaller and more granular. I think we will be able to absorb those without much of a problem, but we are seeing some slight deterioration there.

Okay, and in terms of line utilization on the C&I portfolio, does that remained fairly stable?

It's been fairly stable from quarter-to-quarter.

Great, and just on the loan side, it's pretty phenomenal loan growth there. Could you provide some stats on LTVs that serve as coverage -- average size, that kind of thing?

Sure, on the commercial real estate, typically 75% loan-to-value. Debt service ratio, 1.2. We have -- of the average -- on the commercial real estate, the average size loan is about $4.74 million.

In terms of the number of loans over $25 million?

Four, and they average about $30 million.

Okay, and one last one here, and I won't take up too much time. In terms of the variable rate portion of the loan portfolio, could you update us on what that percentage is?

It's about 50% now, these variable rate loans.

5-0 or 6-0?

5-0.

50%. Okay, great. All right, thank you very much, guys. Again, great quarter.

John Pancari, JPMorgan.

Good morning. Just -- I know you indicated that in your CDO book, all of your issues are performing well. I know you have indicated in the past that you have more recent vintages, different vintages than what we have seen written down or sold at steep discounts at some larger banks. But in light of the steep discount sale that we saw earlier from Merrill, what is the likelihood that your discussion with the auditors and everything could lead in the direction of being conservative on that front and potentially leading you to take a much more sizable charge on your exposure there in terms of other-than-temporary impairment?

Well, I can only give you -- our opinion is that the accounting profession and the regulators constantly seem to be in a flux. Because I believe that you should view your investment portfolio as to is it paying back interests? Is it paying its principal? What are the credit enhancements to it? What is the collateral relating to it?

And it's very hard to use the old mantra of the market price is what somebody will buy and somebody will sell it at. Because no one is buying out there unless there is a fire sale, and those that are selling, right, are being forced to do things that they wouldn't do in a regular economic environment.

So, that is going to be a question where banks are saying, I have a portfolio that is paying and why would I be forced to write something down when in fact it's investment-grade? Then somebody will point out, to Merrill's transaction of selling $0.20 on the dollar, but that is not real. So John, it's kind of hard to predict right now, particularly in light of what we don't know what the FDIC, our regulator, and what the SEC is going to view the more recent transactions.

Yes, and I understand that. My reasoning is just, and the question is just, that it may not be real. It's apparently at a -- it certainly was a certain situation with Merrill that they had to do that, but it is a comps. It is a secondary market comp and I am just -- my concern is around how the auditors are reviewing that in your discussions with them? If a comp like that does exist, are the auditors just generally leaning in that direction to reflect that?

You know, I don't know. What has happened is, and again I'm not talking about our auditors in particular, I'm talking about the accounting profession in general and the regulators in general, it seems that on a daily, if not weekly basis, there is a different interpretation or a different viewpoint. And that creates a lot of havoc for institutions that have to concentrate on something like this, as opposed to concentrating on what the real business is at hand.

I will just continue to make the argument that if the credit is there, if payments are being made, we are getting our money back, I am not so sure that a transaction out there is indicative of what the price is. And I'm not so much worried about what the price is, it's whether or not you have to take an OTTI. Because I look at that and say, if I am getting my money back shortly then why do I have to take an OTTI?

There is inconsistencies, because we are looking at the earnings reports of banks. We are looking at analyst reports, and there is no consistency between what one bank is doing versus another bank. Even if they have the same orders, there is no consistency. Some are saying that they are moving it from available-for-sale to held-to-maturity and they are saying if I put it in held-to-maturity and I have an intend to hold and have the ability to hold until I get my full value, then unless there is something that is below investment grade, I am not want to take you right down.

We have actually seen some very strong statements by management out there. They must be having discussions with their firms. Then we see some weaker statements where those banks that are having the weak statements have been using the same accounting firms as those that are making the strong statements. So it's kind of up in the air right now, but we will monitor it.

I'm sorry, I really can't give you a straightforward answer. The only thing I can say is that what Eric said earlier is that we are getting our interests, we are getting our principle, we expect to even get some more principal back in the latter part of this year, the beginning of 2009. We are going to have to start accreting that back into income.

Okay, all right. I appreciate the color on that then. Just one other question, can you just give us some color on your thought process behind your reserve methodology for the new multi-family credits you are putting on your balance sheet? Just given the rapid clip that they are hitting your balance sheet here, if you can discuss your outlook in terms of how you are going to be reserving for these. And if your reserve approach for these credits are different than the other types of commercial real estate you are putting on your books at this point?

We are putting -- I can't give you percentages -- but we are putting a reserve up, as we do with every loan. We are putting a reserve up for the multi-family. The number of institutions that do multi-family lending put zero reserves up. We are actually putting up reserves for that.

One of the things that Eric and I have been talking about is we will probably, going forward, give more detail and breakout our multi-family portfolio, because the reserve you put up for multi-family portfolios is not as great as what you would put up for you C&I portfolio. It's probably good to break out, so that you would have an understanding of how much of our portfolio is in the multifamily world and, hence, doesn't require that much of a reserve, whereas other lending, including C&I, will require a greater reserve.

So the methodology right now is that we are putting up the reserves for each of them. We do, we have a rating system from one to 10. They are higher rated -- when I say higher rated, the better rating credits and don't require as much of a reserve.

Okay, all right. Appreciate the color. Thanks for taking my questions.

Gary Townsend, Hill-Townsend Capital.

Good morning, Joe and Eric. How are you? You put loans on the books at a very rapid clip. Could you talk about what, from a credit administration standpoint, you are seeing? Is it an environment, I would assume so, where you can be not only choosy about who you lend to, but you can also be quite demanding from a standpoint of what you are requiring and so on in terms of covenants and such?

Well, from a credit administration standpoint, in the fourth quarter, in addition to bringing on teams to generate the loans, we staffed up significantly to handle the growth. We looked at that very carefully. That, although we couldn't predict how much growth we would have in 2008 at the time, we knew that it would be greater than what we had in the past. So we actually put on quite a few staff people, experienced staff people, to handle. So from a credit administration standpoint, it hasn't been an issue.

Even though the conduits are out of this business at the moment, and you would think we could -- we are being certainly choosier as to what credits we want to bring on. I'm told by some of our teams for every loan we put on, we are turning away multiples of that, because we could be choosier. But surprisingly, in terms of the actual terms of what you can be choosier on, there is competition out there.

So you can't on -- particularly on multifamily, good cash flowing properties, you can't be asking for 65% loan-to-value, if you want to do this business you have to be at 75% loan-to-value. You have to get their debt service ratios of 1.2 to 1.25. You can't demand something at 1.4, otherwise you won't be able to do the business.

But what has been helpful for us as an institution, the business that we are bringing on have been from the teams that had clients at other institutions. So there is a familiarity with the business that is coming on board, maybe not 100%, but certainly a great percentage of what we are bringing on are from existing clients of the teams from other institutions.

So, that familiarity, along with the 75% loan-to-values and the cash flow requirements have allowed us to bring on --. In terms of interest rates, as to what we can charge -- and I know you follow a lot of banks, Gary -- there are, there still are people or banks doing this business. So therefore, you can't be as demanding with the interest rate spread that you want, particularly because we are doing loans on very good quality cash flow and properties. If we were getting higher interest rates then chances are there were more risk involved and we are trying to be somewhat risk-averse.

You brought on several teams from North Fork. Just looking at the availability of desirable teams, how would you assess the outlook?

We are concentrating our efforts right now on a combination of the legacy teams that have been here and the teams that we have brought on. The teams that we have brought on from North Fork are rather large, have significant books of business. So we will be concentrating our efforts on them as well as the existing teams, more so than recruitment at this point.

So in past years you have talked about a number of teams that could be brought on in a particular year? What are you saying right now?

We had projected five teams for this year. We have brought on four, so we are not going to raise our projection of more than five at the moment.

Thank you.

David Long, William Blair & Co.

Good morning, again, guys. Along those same lines with the hiring of new teams, looking at your expense this year in the second quarter, should we be looking at close to a run rate then?

Well, our run rate, we were a little north of 20%. I think 22% in expenses year-over-year. I would expect that we will still be in that range of around 20% growth year-over-year.

Okay, and then, you may have mentioned this, but off-balance-sheet escrow deposits, what were they in the quarter?

Well, we don't really get into off-balance sheet escrow deposits. The total assets under management off-balance-sheet were about $3 billion, of which $1.75 billion were off-balance-sheet money market funds.

Okay, that is what I was looking for. Okay, thanks.

Tom Alonso, FPK.

Good morning, guys. Could you just break out what the balance on your multifamily portfolio is now? Just to get a sense what percent of the overall portfolio it is.

Sure. Multifamily is approximately $500 million right now, or it's approaching 50% of our overall commercial real estate portfolio.

Okay, great. Then I assume these are the standard multifamily fixed for five years, and then they are due to reset loans. Is that --?

That is predominately what it is. We are sticking to five years or trying to the extent that we can do three-year deals.

Okay, okay. Then on the five-years, it's based off the five-year CMP. What kind of spreads were you guys getting this quarter? If you could --?

We are doing it off the SWAP.

Okay.

The spreads vary, depending upon multiple factors. I would say that, versus the beginning of the quarter to where we were at the end of the quarter, we were able to raise the rate about 3/8 from the beginning to the end. We are getting about 3/8 higher.

Okay, that's good. Thanks. You guys had some tax-free income this quarter. Is that sort of just a change in the philosophy on the investment portfolio, or was it just an opportunity there that you guys took advantage of?

I mean, we have had some municipals now for the last several quarters that is tax-free. We haven't added any too that and we are also getting some tax advantage out of the REIT that we put in place last year.

Okay, okay. Then the new loan that was added to non-performing? Would you guys be willing to give any color on the provision that's sort of associated with that?

It's not much of a provision. We really don't expect to see much of a loss out of that. It's a well-secured commercial real estate development, so we don't expect much of a loss. It's not a significant revision.

Okay, all right. That's fine. Thanks very much.

Lana Chan, BMO Capital Markets.

Hi, good morning. Two questions, one on the loan growth. It looks like the pipeline is pretty strong going into the third quarter, at least from the period end balance versus the average for the second quarter. Can you talk about expectations for the second half of the year?

Well, the loan growth for the year, I would say approaching $1 billion for the year. We are at about $672 million growth through six months, so I would say approaching $1 billion is probably a good number to use.

Okay, thank you. The second question is on just the philosophy on the loan loss reserve, specifically the reserve to loan ratio. If you do resolve that one non-performer in the third quarter taking some charge offs, what should we expect in kind of all else being equal, no real change in PLs from there. What should we expect to see with reserve to loan ratio?

You know, it really depends on the quality and the type of loans that we are putting on. We remained flat from 104 to 103 on the allowance to total loans this quarter versus last quarter. Really because the majority of our loan growth came out of commercial real estate loans, which are very well secured, and then half of that growth was from the multifamily sector. So you are not going to put as big a provision on that.

In fact, this quarter we provided more than any other quarter in our history to the reserve for general, overall economic conditions. So we feel good that we maintained a flat allowance to total loans, while putting on the high-quality loans that we did. So we are cognizant of the overall economic environment.

We are going to continue to build provisions. We think that is the prudent thing to do. We are hopeful that we won't have to utilize those provisions, but we want to stay in front of any potential credits that pop up. So I would expect us to continue to build our provisions while putting on high-quality loans.

Okay, and then just one last question, on the multifamily side, how much of that is rent stabilized, rent-controlled properties?

You know, I don't have a percentage, but there certainly is rent stabilized, rent-controlled, and market value in there. It's across the board, I just don't have a percentage for you.

Okay, thank you, guys.

Alper Sungur, Sidoti & Company.

Good morning, Joe, Eric. How are you? I just have a quick question, just the NIM for the month of June, if it's available?

I don't have the monthly NIMs. I think it was up, but you know, we are -- it was pretty solid in June. We are expecting to be able to at least maintain our NIMs, if not have positive growth there. Certainly with our ability to generate the loan growth, the loans as a percentage of the overall balance sheet, that is going to drive our NIM upwards. We should be able to continue to drive some deposit costs down, so we feel pretty good about the NIMs moving forward.

Okay, and do you have a target multi-asset ratio for year end '08?

Well, it's certainly north of where we are today. I think our initial targets would be in the mid-40s, and that certainly is going to be achievable. I would expect we would be bumping up near that 50% number, but that is really going to be dependent on our deposit growth. We brought on some pretty high-powered teams this current quarter that have significant deposits. We will probably need a bit of time to bring those on. I would expect more so in '09 for them to get kicking, but it will be, I would say, somewhere in the high 40s or close to 50%.

Okay, that's great. Thank you very much.

Peyton Green, FTN Midwest.

Good morning. I was wondering if you could comment a little bit on the [ALCO] process point forward. You have certainly noted that you have got a couple strong, or really a handful of strong deposit teams that have really hit the streets more recently. I was just wondering how your management of the securities book or the borrowings side will change given the increase -- I guess fixed rate loans that you are adding to the balance sheet also?

Well, you know, it's really -- we have stayed neutral on our asset liability management, so that we can be selective and opportunistic on where we go with borrowings, how we bring in our core deposits, what we do with our securities portfolio. I think we are going to probably go out a little bit further on the securities portfolio and be a little bit more protective there, but not out significantly. But the borrowing is more so, we will take out a bit more to match up against those fixed term loans.

So not much of a change in our asset liability management, but we will probably have to go a little bit further on the borrowings to match up against the loans.

Okay, and then of the drop-in loan yield, which I guess dropped about 70 basis points linked-quarter, how much of that was a result of the lag factor in previous cuts by the Fed and how much would you attribute to the multifamily book?

Most of it was due to the cuts by the Fed.

Okay, great. Then, currently, some capital ratios had been coming down. How do you view it in the context of, from a changing earning asset mix?

Well, Peyton, as you know, those capital ratios are very important to us because we are a deposit-driven institution. And being $6.3 billion, although that is a large institution, not necessarily in the New York area where we have the megabanks that are trillion dollar institutions, so keeping the capital ratios high is very important to us.

So we will monitor that very closely, because if our growth takes us to a point where we don't have a comfort level, although capital will still be high, but not necessarily where we would want it to be, to continue to attract large depositors and their significant deposits, we would have no hesitation to go out and raise capital. Because it will be for growth and not because of the any problems that the other institutions have been showing and, therefore, have had to raise capital. We will not be shy about it.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS) Andy Stapp, B. Riley.

Good morning and great quarter. In your last call, you talked about the $60.5 million credit to the media company, and you thought they were going to get some financing that would take them out. Did they -- were they unable to get the financing that they hoped to get?

No, no, it was resolved. They did get the financing, they did get the additional equity, and we received a considerable pay down. We received $12.3 million, we received a fully-secured note of $3.7 million, and we wrote off $500,000. So they were able to shed a significant amount of sub --

Okay, but I thought it was going to go off your books all the way?

Well, $3.7 million is on the books of the $16.5 billion.

All right.

So we were very happy. You got to look at it this way, they declared bankruptcy on a last day of the first quarter and came out of it on the last day of the second quarter.

Right.

I'm not sure that is some record, but it was pretty fast.

Okay, and you said NPAs went down due to the pay down we just discussed plus the restructuring of that loan and another loan. Do you exclude restructured loans from your definition of non-performing loans?

It really depends on how they are restructured and what our thoughts are about their ability to pay going forward. Fees are restructured in a very positive way to traditionally, strong performing businesses that were affected by events they were able to shed themselves of the issues and the events that caused concern and return to their traditionally strong performing or businesses. So we feel very comfortable with these credits moving forward and, therefore, we put them back on accrual status.

Okay, all right. Could you provide the amount of construction and development loans, both in total and both -- as well as residential related?

We have approximately $120 million in construction loans, so it's less than 5% of our (inaudible) portfolio.

Okay.

Of that, about 3% is residential condo.

Okay, all right, great. Thanks.

Gary Townsend.

Thanks for taking a follow-up. When you think about your capital sufficiency, obviously you are generating quite a bit of capital through your earnings. But when you look into the future, given your growth and its substantial aspects, would you foresee having to raise capital in the next year or go back to the market?

That is a possibility, a strong possibility. I think, Gary, it depends upon whether or not we have quarters like we just had in the second quarter or we have something lesser in terms of the growth. We don't expect that we will be growing the balance sheet like we did in the second quarter each and every quarter for the next several quarters.

Our earnings, particularly since we don't have dividends, clearly should help us sustain some sort of level of growth. But what we are looking closely at is the fact that we want to keep our capital levels at a much higher level than our competitive megabanks, because we use the strength of our capital as a point to bring on clients that have large deposits.

When they look at a megabank, they will talk about the $2 trillion institutions that is too big to fail versus the $6.3 billion institution that we are. We need to keep capital levels higher and, therefore, it certainly has an affect on our return on equity. But it is a selling point for growing an institution. So those two aspects are what are going to be on our minds as we judge whether or not we want to raise capital. So as I said earlier, we will not be shy about it.

It is not a bad problem to have.

No, not at all.

Okay, thank you.

Tom Alonso.

Actually, Gary pretty much just asked my question, so I am okay. Thanks.

Andy Stapp.

If you did raise capital, would you be looking to the equities market or sub debt or what is your thought in that regard?

Equity, the equity markets.

Okay, thanks.

(OPERATOR INSTRUCTIONS) At this time we have no further questions. I would like to turn the conference back to Mr. DePaolo for any closing remarks.

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

Thank you, sir. Ladies and gentlemen, this concludes the Signature Bank's 2008 second-quarter 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. Once again, the address is www.signatureny.com and by clicking on the Investor Relations tab and select in Company News followed by Conference Calls.

ACT would like to thank you for your participation. You may now disconnect. Have a pleasant day.