Signature Bank (SBNY) 2008 Q3 法說會逐字稿

Welcome to the Signature Bank's 2008 third-quarter results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

This conference is being recorded today Thursday October 30, 2008. 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 (inaudible). Good morning and thank you for joining us today for the Signature Bank 2008 third-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, operation, new private client team hires, new offices openings and business strategies. 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 assumption 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 levels of defaults, losses 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 on the date 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 statements 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 Howle, 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.

Despite the turmoil in the financial services industry, Signature Bank reported another solid quarter across our key metrics. We grew deposits, loans, and margins and we would have announced record core earnings if not for the write-down of one Lehman Brothers senior debenture during the third quarter.

Maintaining a strong balance sheet for our depositors has always been at the center of the bank's financial health and well being and has allowed us to sustain our financially sound position in spite of economic downturns. Of importance of this quarter was the September completion of our public offering that raised $148 million, exceeding our goals and expectations. This further strengthened our already strong capital position and will facilitate our continued growth.

Now, let's look at the key aspects of our business and how well they fared during the third quarter. We had steady deposit growth with core deposits increasing $141 million. Another quarter of exceptional loan growth, $377 million driven by high-quality commercial real estate and multi-family lending.

This year we have increased loans over $1 billion already surpassing our goal for 2008. Strong expansion in net interest margin with a 12 basis point increase reaching an all-time high of 3.26%.

Solid core earnings excluding the Lehman Brothers senior debenture write-down with $13.6 million or $0.44 per diluted earnings per share up nearly 26% over the 2008 second quarter. And our credit quality remains stable despite the current difficult environment.

Let's look at the results in each of these areas. Total deposits increased $99 million reaching $4.97 billion at the end of the third quarter. This includes core deposit growth of $141 million and a decrease in short-term escrow deposits of $42 million.

Excluding short-term escrow deposits of $145 million at December 31, 2007 and $163 million at September 30, 2008 core deposits increased $436 million in the first nine months of this year. Average total deposits increased $471 million over the past year to $4.79 billion for the quarter.

Again as a reminder, this is really the deposit metric we consider most significant based on the fluctuations in short-term escrow deposits. Non-interest-bearing deposits were $1.39 billion, representing 28% of total deposits.

Additionally off-balance sheet money market deposits grew to $1.79 billion. Total assets reached $6.7 billion up $1.1 billion when compared with the $5.61 billion reported in the third quarter of last year.

Here I have to point out that we really had expected to grow deposits at a faster pace given the strength of our balance sheet and our strong capital position. However with the tumultuous environment and the recent government intervention and actions, some depositors considered the mega institutions with whom we compete too big to fail. Now onto loans.

Loans in the 2008 third quarter grew $377 million or 14% crossing $3 billion. Loans as a percentage of total assets reached 46% at the end of the third quarter. This quarter's growth stems from commercial real estate and multi-family loans led mostly by the seasoned stream of banking and real estate professionals that joined during the fourth quarter of 2007.

This market with less competition continues to present us with many good lending opportunities at better yields with even tighter underwriting standards. The weighted average risk rating of our portfolio has actually been declining during the past several quarters primarily due to the high-quality nature of the multi-family and commercial real estate loans we are originating.

Nonperforming loans increased slightly to $30.8 million from $29.1 million last quarter but decreased as a percentage of total loans to 1% from 1.1%. The majority of the nonperforming loans is still comprised of three credits totaling $24 million.

We charged off $2 million on one of these three loans during the third quarter. Subsequent to quarter end in October the remainder of this loan was satisfied with a cash payment of $2 million and a note from a new borrower for the remaining $1 million which yesterday we already received an $850,000 paydown. This $3 million reduction will be reflected in our fourth quarter 2008 non-accrual number.

We're certainly aware that the current economic landscape continues to impact our marketplace and the potential for more turmoil is prevalent. Therefore once again for this quarter, our provision for loan losses remains high and we expect it will continue to remain high. Now let's review earnings.

Net income for the quarter was $9.2 million or $0.29 diluted earnings per share versus net income of $10.7 million or $0.36 diluted earnings per share for the third quarter of last year. Excluding the after-tax effect of the impairment write-down, net income for the quarter was $13.6 million or $0.44 diluted earnings per share up 27% over last year.

The growth in net income is due to an increase in loans as a percentage of assets, growth in deposits, net interest margin expansion and an increase in non-interest income. Also some net income growth was offset by a $3.6 million increase in the provision for loan losses.

Just to touch upon teams for a moment, so far in 2008 we added four teams. We anticipate the addition of two more teams and the opening of our 22nd office during the fourth quarter. 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'll start by reviewing net interest income and margin.

Net interest income in the third quarter was up 31% to $50.1 million, an increase of $11.9 million over third-quarter of last year, an increase of 11% or $5 million over the 2008 second quarter. These increases were attributable to the growth in earning assets and margin expansion.

Net interest margin on a tax equivalent basis rose another 12 basis points this quarter to 3.26% versus the 2008 second quarter. This is predominantly due to the increase in loans as a percentage of assets where in the last year we have seen loans grow to 46% of the balance sheet from 34% a year ago.

Yields on investment securities increased eight basis points to 4.90% this quarter versus last quarter. Overall the portfolio quality remains strong with a contained average duration of 2.18 years and continues to provide consistent cash flow for reinvestment in higher yielding loans.

Turning to the loan portfolio, yields on average commercial loans and commercial mortgages also increased eight basis points to 5.78% this quarter from last quarter. This increase was primarily driven by wider credit spreads.

The cost of deposits for the third quarter decreased another two basis points to 1.71%. As we previously mentioned, there is a natural lag effect of deposit repricing in a declining interest rate environment. Therefore during the third 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 third quarter was $3.7 million, a decrease of $3.8 million when compared with the $7.5 billion for the comparable period last year.

The decrease is due to the $8 million other than temporary impairment of one Lehman Brothers senior debenture. The cost basis for the bond was $10 million and was written down to $0.20 on the dollar. The decrease was partially offset by an increase in commissions of $1.6 million or 49% associated with off-balance sheet escrow deposits and increased brokerage activities.

Additionally, net gains on sales of securities and loans increased $2.2 million predominantly due to gains on sales of investment securities. Excluding the effect of the other than temporary impairment write-down, non-interest income for 2008 third quarter was $11.7 million, an increase of 56% from the third quarter of last year.

Taking a look at non-interest expense, non-interest expense for the 2008 third quarter was $32.8 million compared with $25.5 million for the same quarter last year. The increase of $7.2 million or 28% was mainly due to the addition of new private client banking teams and office openings.

The bank's efficiency ratio excluding the OTTI for the Lehman Brothers bond for the third quarter improved to 53% from 55.9% when compared with the same period a year ago. Looking at capital, our already strong capital ratios were enhanced this quarter due to the public offering of $148 million we completed in September.

Our Tier 1 leverage ratio and total risk-based capital ratios of 9.64% and 16.13% respectively remained well above those of our peers and supportive to near-term growth. Now I'll turn the call back to Joe. Thank you.

Thanks Eric. Despite what is happening with our nation's economy and in particular the financial services sector, we delivered another solid quarter of results. It is a tumultuous time for banks in the economy at large. But Signature Bank is strong and continues to deliver strong performance.

The $148 million in capital raised this quarter further strengthened our market position and surpassed our initial goal by nearly 35%, affording us some of the best capital ratios in the industry. We thank our shareholders and the investment community for their confidence in this bank's ability to execute and deliver.

Our service-oriented model is more relevant than ever. The megabanks we compete with everyday have now become super megabanks and if they were were distracted, inconsistent and compromised service before all this, you can only imagine what it will be like now.

However as I said earlier, we really had expected to grow deposits at a faster pace given the strength of our balance sheet and our strong capital position. Again with the tumultuous environment and the recent government intervention and actions, some depositors consider the super megabanks with whom we compete too big to fail.

We also want to let you know that we have submitted our application for the TARP capital purchase program and upon receiving preliminary approval, we will make you aware of the amount to be awarded. As we continue to reiterate to you, we built this bank to weather the ups and downs by creating and maintaining a strong balance sheet that has been prudently managed and we successfully continue to prove this quarter after quarter.

Now we will be happy to answer any questions you might have. (inaudible) I'll turn it over to you.

(Operator Instructions) Dave Rochester, Friedman, Billings, Ramsey.

Hey, great quarter guys on many different fronts.

Thank you Dave.

Hey, on the new teams you mentioned, can you comment on where those teams are coming from and quantify their books of business?

They are coming from an institution that we really hadn't -- I won't reveal exactly where they are coming from, but they're coming from an institution that we hadn't really hired anybody from before. The two teams are coming from the same institution and it's going to be in a geographic area that we actually are not in yet. But that office should be opening within the next several weeks. And we will come out with a press release on the two teams, where they're from and the new office.

Okay and is that I would guess going to be generally in the New York area?

It will be in the five boroughs of New York.

Thank you for that. On the credit side, it looks like things still look well contained there. Can you talk about any more recent chatter you have heard from business customers on their outlook on the economy and how business has been impacted at this point in the cycle?

Yes, I would say at this point it's just noise and we're not seeing anything flow through the hard numbers. But we're certainly hearing from our small business clients that their receivables are starting to slow. So we absolutely expect there to be further impact in our marketplace. We are clearly not headed into good times and that's why we cut that provisioning off.

That make sense, thanks. Just a couple of quick ones on the loan growth. Strong loan growth once again, guys. Is this roughly a 50-50 split between multi-family and commercial real estate or is it skewed one way or the other?

I think it's a little more towards a third was in multi-family and the rest in Incremental.

And on the granularity there, can you talk about the volume of loans maybe above $20 million in size?

It's less than a one handful.

Less than a handful, so maybe 50 to $100 million of that?

In terms of dollars?

Yes, the total growth for the quarter.

I don't have that information broken out in terms of what we have done this quarter. We have four loans in total in our portfolio that's over $25 million, just slightly over $25 million. They average just under $30 million, those core loans. That's in our entire portfolio.

And that includes the growth from this quarter?

I believe only one of them was this quarter.

Okay, great. And the credit terms, you had mentioned that terms are getting better. I guess you're still looking at LTVs at 75% or better at this point?

What we have done just to react to what's been happening in the economic environment on the commercial real estate side, we have tightened up some of the underwriting criteria. So we have lowered our LTVs, we have increased our cap rates. We have in our calculations put in higher vacancy rates in terms of calculating the cash flow. So although we thought we had tight underwriting standards, we thought it was prudent to in many instances bring them even tighter just because we're not sure of what's going to happen in the environment.

And you guys always did current rents anyway or current cash flow, right -- in your underwriting (multiple speakers) So the LTVs, are they even lower than 75 now or you're looking at like a 70 or 65 handle on some of these?

Sort of 65%.

Okay, great. All right. That's it. I will just step back. Thank you.

John Pancari, JPMorgan.

Can you talk a little bit more about the actual credit trends, the recent credit trends that you're seeing and the multi-family book particularly, I guess specifically talking about delinquencies and any other early indications on the credit front for that portfolio exactly?

We have not seen any, any trends that cause us any issues on the multi-family at all. You know just because you've got to understand, most of our multi-family is done in areas where it's more blue-collar. That's a combination of market value rents, rent stabilized, rent controlled.

We do everything based on our current cash flow. So if -- we've seen anecdotally in the newspapers some large complexes that are having some -- the investors are having problems because they based the loans on future cash flows that they were going to convert rent stabilized tenants and rent control tenants into market value. That is not something we do. Everything we do is based on current cash flows.

I know you've indicated in the past that you have been increasing your unallocated reserve. Can give us an idea about the auditors' comfort with that and do you think you have more capacity on that front?

Yes, I mean I don't think the auditors in this environment are all that concerned with how much we increase the unallocated provisions. So I think they're very comfortable with what -- the level that we have. I don't see any pushback on increasing that going forward.

Fair enough. And then one other question on the credit front. Can you talk a little bit about your total watch list trends for the rest of your portfolio?

Yes, the watch list actually as a percentage of loans went down slightly to 2.1% from 2.2%. It went up a little bit.

Okay.

Overall the trends are pretty good. Our loans past due greater than 90 days came down slightly. Our past due bucket between 30 and 89 days is at a level that's below what it was in 2006 and 2007.

So overall I would say our credit has remained fairly stable. And as Joe talked about, we will see the $3 million (inaudible - background noise) loan that we took a charge-off on this quarter. We will see that come out next quarter in our nonperforming loans.

I would say we remain fairly stable. That being said, we are hearing chatter from our clients. We're certainly seeing the smaller more granular RELOCs pop up and we expect it to get worse before it gets better and therefore we keep on providing at a pretty high level. And once again we put quite a bit in our unallocated reserves this quarter as compared to prior years where we had none.

And the link quarter trends in these delinquencies, you indicated the 90 days, they were down link quarter?

That's right.

And the 30 to 89 day link quarter change, what was that?

It was up from $7.5 million to $12.7 million but that $12.7 million number is below what it had been back in 2006 and 2007. That's not an unusual level for us. That tends to be -- that 30 to 89 bucket tends to be more housekeeping.

Any specific loan type that drove the increase?

No, not at all.

Gary Townsend, Hill Townsend Capital.

Could you discuss more recent post quarter-end LIBOR trends and their effects on your net interest margin outlook?

Really what we're seeing is on the loan side, you know we have some loans tied to LIBOR so that's going to help us to offset the move in the prime based loans that are going reset down. So it's been positive from that perspective. We have very few depositors that are really tied into LIBOR at this point. So it should help out positively but we do have 35 to 40% of our loans that will move down based on the recent prime move. So that will help to offset that.

Andy Stapp, B. Riley.

Your loan loss provision declined late quarter despite a rise in net charge-offs. Was this because the $2 million charge-off you mentioned was previously reserved?

That's correct.

And I may have missed this, but could you provide what the unallocated reserve was as a percentage of your total reserve?

I don't have it on a percentage basis. It's about -- looking at it -- approximately 15% or so.

What was the dollar amount of securities gains in the quarter?

Gains on sales of our SBA business were approximately between 400,00 and $500,000. Gains on sales in our AFS securities portfolio were $2.4 million.

Okay. And could you just give us some color on anything else in your securities portfolio that's (inaudible) for impairment charge?

I would say what we're keeping an eye on right now are still the trust preferred securities that we have. There's one or two in particular that we're looking at.

We haven't broken any interest payments on those yet but they're starting to get tight. So that's where we're keeping an eye on -- nothing really at a level that we wouldn't be able to absorb through current earnings. We're not looking at any sizable OTTI going forward but there are a couple of securities that we're keeping an eye on.

With the economy slowing, can you give us some type of feel what type of loan growth you can achieve next year?

We usually hold off until our fourth quarter conference call in January to comment on what we think we will be projecting for 2009. So I would rather wait the next three months to get a better feel for the economy.

I will say this. We still believe there will be opportunities out there in the multi-family area because there are less competitors. So we will factor that in. But in the terms of what is happening in the economy and what effect that may have on our C&I portfolio, I think we would wait until January when we do our fourth quarter results to give you an idea of both loans and deposits.

Okay and last question. Are you involved in any national shared credits?

We have -- just a few, like a handful (multiple speakers) very little.

Lana Chan, BMO Capital Markets.

Two questions related to the margin. One was the 100 basis point cuts in the Fed funds in October. What kind of impact do you think it's going to have on the margin near term? Two, with the competition on the deposit side and the sort of flight to too-big-to-fail banks, are you going to be more aggressive with deposit pricing and what are you seeing in the marketplace today?

I'll answer the second part first and then I'll have Eric answer the first part. Surprisingly before the rate cut, we were seeing some interest rates on the deposit side higher than we thought that they would be. And surprisingly, we're seeing them from not only smaller banks but you're seeing them from the too-big-to-fail banks you would think would not need the deposits.

So we're going to wait and see. Since the rate cut was yesterday, we had a discussion that before we do anything with our deposit rates, we want to see what the competition is doing. You would expect that there would be a decrease as a result of what happened yesterday but with this market, I'm not so sure common sense and rationale are dictating.

So we're going to take a step back and see what our competitors are doing. We'd hope that the fact that we have substantial capital ratios and a strong balance sheet that there would be a flight to us. But because of the creation of these too-big-to-fail banks as you stated, it's a little bit more difficult.

So we're going to wait and see over the next week. Just yesterday there were interest rates that were -- we have seen advertised in the 4% range that were surprising to us.

And that really leads into the answer to the first part of your question in that we would've expected to see I think some fairly nice margin expansion this quarter. But given the deposit pressures that we're seeing, it's rather difficult for us at this point to cut our deposit costs much below the 171 that we're at today.

So we will see all of our prime based loans reset. Thankfully on that front, more of our loans are in five-year fixed-rate loans with the amount of commercial real estate and multi-family we have been putting on over the course of this year. That will help us.

Whereas in prior years we would've seen probably 70, 75% of our loans reset down. So we expect to see -- to have at least stable margins if not upwards in margin movements. But I think that has been slowed a bit by these rate cuts.

Avi Barak, Sandler O'Neill.

Just wondering if you could give us any color on any peculiar deposit activity you've seen from customers over the past several weeks in light of what Wachovia, WaMu, Sovereign et cetera. And then does the removal of those players benefit you because there's just less competition or has it been kind of a hurt because there's fear from customers about this too-big-to-fail concept?

Well the Wachovias and the Washington Mutuals of the world we really didn't compete with so much for deposits. But I'll give you two stories that give you an idea about the too-big-to-fail.

Just several weeks ago, right before quarter-end we had an opportunity to participate in a $360 million deposit of which we were going to be one of three banks and would have received $120 million in deposits. And because of the chatter and what had happened with Washington Mutual and with Wachovia albeit many people that are in the know understood that those banks were in trouble, most people thought that they were not in trouble, most clients. And therefore having seen that, they decided not to give us the $120 million and put each of the three parts, in total $160 million, in three of the big banks that are supposedly too big to fail.

A second deposit activity was that we would have received a $90 million deposit from a law firm on a class-action. It was going into the bank and was going to stay between nine and 12 months. And as a result of what had recently gone on, we were told we could not have the $90 million deposit.

One of our clients stepped in and convinced this other law firm that we were the place to be at and so they put the $90 million off balance sheet in a treasury fund of which we received some commission income albeit if we had it on balance sheet, our revenues would be fivefold on what we received off balance sheet. Now, these are not clients that we've lost. These are just deals that they're putting elsewhere for the time being.

But our philosophy is that this too shall pass and that all the extra time that we're spending talking about how strong we are will -- it's quality time with clients and that eventually the deposits will come back when the press stops telling people to put it into their mattresses.

And you would say that there's been some alleviation in that pressure since the regulators have stepped in, the FDIC basically guaranteeing everything now etc.?

Not totally because our belief is that they didn't go far enough in protecting the depositors. They should have gone a little bit further than they had. Certainly the clients that keep the deposits in non-interest-bearing feel comfortable but you know there's billions in the interest-bearing we're competing with on a daily basis.

Justin Maurer, Lord Abbett.

Philosophically about TARP, clearly it's the thing to do it seems for everybody. So don't blame me at all particularly in light of the capital raise. Do you think the old six becomes the new eight, maybe becomes the new 10 just in terms of the threshold since it seems everybody is participating in varying degrees? And does it really -- as a result does it really help anybody differentiate themselves from the others?

We felt that -- and you hit it right on the head. We felt that our capital ratios which are extremely high before the TARP, actually with the TARP are going to go very high. So for instance, to give you an example.

Our Tier 1 is at 9.64. On a pro forma basis as of 9/30 assuming $120 million of additional capital, that goes to 11.49 or rounded off to 11.5%. So we felt that we needed that. We felt that you're right that the new -- the six becomes the new eight and the eight becomes the new 10. We're at the 11.5 range.

And so we will utilize that over time but we felt the need as you said to really differentiate ourselves. And we believe that that coupled with the fact that we can talk about the strength of our balance sheet will differentiate us.

Yes and how do you think about -- I haven't kind of scratched this out -- but the capital that you raised which ironically isn't too far off I guess from that amount, what is the return on investment of the capital you did in September versus -- this capital I guess on paper seems like it's fairly low-cost capital. But of course it's different contingencies with it whether it's warrants or other strings attached so to speak. But how do you guys think about those two buckets differently or similarly?

Well the warrants that you're issuing are such a small amount of dilution that we don't really see it affecting our overall return all that much. At the end of the day you're take 5% of the government's money. We will certainly put that to good use and be able to make a significant return on that to our shareholders.

By us not paying a dividend, all that is going back into our book value and pumping up our book value. You know, we really just look at it as this is an environment we can grow in. We certainly will utilize the capital and put it to good use and make a solid return off of that investment.

Just lastly on the margin, as it relates to the multi-family stuff coming on and, Eric, you mentioned that the deposit cost, hard to see it much below 1.7. Is there still because of the low-cost deposits coming without or no-cost deposits to a certain extent, does that still have favorable implications to margin or as that gap narrows if you will between the spread on the multi-family asset to the deposit, does it make it a little bit tougher?

The low-cost and no-cost deposits that come along with it certainly widens for us the margins. However -- I will put a however there. What our expectations were on the deposit growth going with or coming with that loan generation is less today than it was because these deposits are fairly large and the clients are being a little hesitant of putting all their money in one institution albeit us and being a strong institution and we will be there (inaudible) we're stronger than anyone.

But we're still close to a $7 billion institution that has to compete against a multi-trillion dollar institution that has a too-big-to-fail sign on its door that the government has put on. So the deposits will come but they're coming slower.

And even though you guys tried to address that in September through the capital raise to try to convince folks that you're plenty well capitalized, that the environment deteriorated so far in October, that just psychologically it probably even offset a lot of that benefit you guys were trying to gain at least (multiple speakers) short-term?

It helps certainly calm any fears that people had because of what is going in the environment. So I do believe if we did not do the capital raise, it would have been a much harder sell. That's why with the TARP I think it will -- it certainly will help and won't hurt.

Peyton Green, FTN Midwest Securities.

Okay good morning and just a couple questions. The monetary base -- and this is more from 30,000 foot view perspective -- but we never seen an increase in the monetary base like we have seen recently and I would expect that commercial customers would see more benefit from that. When do you think their might be more deposit flow from your existing customers just because of the amount of liquidity that the government has pumped in to the underlying economy?

I think our clients actually even before the money being pumped in had a lot of liquidity. And we were somewhat the beneficiary of that. We're less the beneficiary today. I think when you have -- when the talk is no longer banks failing and the market going in all different directions -- and I don't know when that will be -- clients will feel comfortable.

We're seeing clients opening up accounts to buy treasuries and willing to accept 20 bips as opposed to getting 300 basis points on a money market account. They will tell you they'll love you but they just are unsure about what's going on because all they're reading and hearing is about the turmoil of the market.

So I don't think the fact that there's more cash flow being put in by the government is affecting our clients. I think they already had the cash flow. It's a matter of where they going to put it.

Okay and then secondly I mean you all are clearly open for business and willing to pursue new business. How have you seen your competitors particularly the money center and super regional banks act over the past quarter? Are they still shedding good customers that can pay them back or what kind of action have you seen there?

What we have seen is if there are marginal credits, every bank is trying to shed their marginal credits. So you'll see more credits coming across the desk that you understand you don't want to do because you don't want to be the bank when the music stops and you don't have a chair to sit on. So there's more of that.

But we do see people open for business. We have seen some deals. Just yesterday we had a deal that a bank was willing to give credit, probably $8 million more than we were willing to give and they priced it pretty tight.

So I think there are people open for business. I'm always confused and I think it's because they talk about it nationally as opposed to in the New York area. When they say people are not making -- when they say banks are not making loans, clearly they're making less but they are making loans here in the New York area.

You mentioned the deposit difficultly but are you seeing from your referral sources better loan growth activity because of your capacity?

I don't think it's capacity. I think it's truly the teams that we've hired and their client base that they've had over decades. That's really where we're getting the business.

Now certainly we have heard that there is the [signature is open for business] and so we're getting more deals across our desk. But on the commercial real estate side, I believe for every deal we're doing, we're turning away four or five. So the fact that we're open for business doesn't mean we're just taking anyone.

Okay, great. You just answered my next question. Thank you.

Alper Sungur, Sidoti & Co.

Joe, I'm looking at the number nonperforming loan ratio, 100 basis points during the third quarter. Great loan growth although the majority of the loans were generated I believe in the past three years. And when we look at the nonperforming loans during the quarter at $31 million versus the loans outstanding a year ago, we're looking at a nonperforming loan ratio of 162 basis points. So my question is what percentage of your loan portfolio do you think has matured so far?

I will tell you that the majority of the loans that we're doing in the commercial real estate and multi-family area are refinances of loans that are maturing from other institutions. So all of those loans that we're putting on we believe are matured loans.

They're not new businesses. They're not startups. They're mature and the fact that we're doing them on a current cash flow basis makes us feel very comfortable. The allowance that we're putting on the multi-family loans is probably one-third to one-fourth of what we would put on a C&I loan. And since we are -- right now the majority of our growth is in the commercial real estate area, you're not going to have as much of an allowance because you have a cash flowing property that actually has a building there.

So we're fairly comfortable with that. But I will say this. We are -- and Eric has mentioned this a couple of times. We are building an unallocated portion of our reserve which we never did before. I'll think we really were allowed to do it before because of our history.

But because of the current environment, we're being allowed to do so. That is taking into account the uncertainty of what may occur in the markets. So we're trying to at least offset the good quality loans that we're putting on with the uncertainty by building an unallocated reserve.

Tom Alonso, Fox-Pitt Kelton.

Just real quick just going back to circle back on something, you said one-third of the growth was multi-family, two-thirds was CRE. How much of that, that CRE is store on the first floor and then a couple of apartments above it that just gets classified as commercial? Do you have a breakdown for that or --?

You know what -- I don't have a breakdown on the growth as to how much is mixed-use. So it's probably -- it's traditionally been about 10%. So I would imagine it's still in that range.

(Operator Instructions) Justin Maurer, Lord Abbett.

Another philosophical question Joe. I guess I'm into that today.

Back to the deposit challenge, if you want to call it that. Not that it really matters to you, but do you think it's more acute in this market because the too-big-to-fail guys by and large have big operations here therefore it's more in the face of the consumer if you will or the customer than it would be if you were in other markets? And even though there are certainly plenty of branches of the big guys elsewhere, it's just an easier effort on behalf of your customer here than it might be for others smaller or even midcap banks elsewhere to have to deal with the same issue?

You hit it right on the head. Not only are they in your face, but that's where we're getting our business from. Those are our competitors. I will say to you if we were in another state somewhere in the Midwest and the balance sheet that we have and the strength of our capital, deposits would absolutely be flowing to us.

When we're hearing some of the banks that are smaller than us that are in other areas of the country that they are building up their deposit base because people are flowing there, that's because the too-big-to-fail banks are not there. But you hit it right on the head. They are right in our face and because we are taking the business away from them, that's what makes it more of a challenge for us than somewhere else -- some other bank geographically.

But I guess it kind of cuts both ways because since they're typically pretty big and lumbering, that's what has allowed you guys to flourish because you have hired teams and taken business (multiple speakers)

Right that's why we feel like this too shall pass and at some point they can't help themselves. They are going to screw up and when the economy changes, we will have the opportunity to get the business.

Gentlemen, at this time I'm showing no further questions in the queue. I would like to turn the call back over to you.

Thank you for joining us today. We appreciate your interest in Signature Bank and as always we look forward to keeping you apprised of our developments. (inaudible) I'll turn it back to you.

Thank you. Ladies and gentlemen this concludes Signature Bank's 2008 third-quarter results conference call. Thank you for participating. As a reminder a Web replay of this conference can be accessed through Signature Bank's Web site at www.signatureny.com by clicking on the investor relations tab then selecting company news followed by conference calls. You may now disconnect.