Signature Bank (SBNY) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Signature Bank's 2011 first-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, Tuesday, April 26, 2011.

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

Good morning, and thank you for joining us today for the Signature Bank 2011 first-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; competition; capitalization; new private client team hires; new office openings; the regulatory environment; 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 and regulatory 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 clients, loans, deposits, 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 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 into the quarterly results, and then Eric Howell, our Chief Financial Officer, will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

2011 is off to a strong start. The Bank had record results in both net income and deposit growth, as well as strong loan growth and net interest margin expansion. Let me begin by reviewing the first quarter's earnings.

Net income for the 2011 first quarter reached a record $34.6 million or $0.82 diluted earnings per share, up $12.5 million or 57% when compared with $22.1 million or $0.54 diluted earnings per share for the first quarter of 2010. Net income includes a $5.3 million pretax gain on the sale of an SBA interest-only strip security. Excluding this gain, net income was $31.6 million or $0.75 diluted earnings per share.

The significant improvement in net income versus the first quarter of last year is mostly due to an increase in net interest income, fueled by significant core deposit growth and strong loan growth. These factors were partially offset by increases in the provision for loan losses and non-interest expense.

Now, on to deposits. Deposits rose a record $748 million to $10.2 billion. In the past 12 months, since March 31, 2010, deposits have risen $2.3 billion or 29%. Average deposits in the first quarter were $9.8 billion, up $2.2 billion or 28% compared with $7.6 billion for the 2010 first quarter. Non-interest-bearing deposits of $2.56 billion represented 25% of total deposits.

With our considerable deposit growth, total assets reached $12.4 billion, an increase of $2.6 billion or 27% versus last year's first quarter.

Reviewing loans now. Loans during the 2011 first quarter reached $5.6 billion, up $395 million or 7.5%, representing 45.6% of total assets at quarter-end. The increase in loans was mostly due to growth in commercial real estate and multifamily loans with continued conservative underwriting standards.

Nonaccrual loans remained stable at $39.0 million or 0.69% of total loans in the quarter compared with $34.1 million or 0.65% for the 2010 fourth quarter and $44.4 million or 0.99% for the 2010 first quarter.

The allowance for loan losses was 1.30% of loans versus 1.29% of loans in the 2010 fourth quarter and 1.33% for the 2010 first quarter. Additionally, the coverage ratio, or the ratio of allowance for loan losses to nonaccrual loans, remained strong at 188%.

The provision for loan losses for the 2011 first quarter was $12.3 million compared with $13.6 million for the 2010 fourth quarter and $11.2 million for the 2010 first quarter. Net charge-offs for the first quarter of 2011 were $6.5 million, or an annualized 49 basis points, versus $14.6 million or 1.16% for the 2010 fourth quarter and $6.4 million or 59 basis points for the 2010 first quarter.

Now looking at past-due loans and the watchlist. During the 2011 first quarter, we saw an increase in our 30-to-89-day past-due loans of $11.3 million to $68.3 million, and a decrease of $5.1 million in the 90-day-plus past-due category to $12.4 million. Watchlist credits increased this quarter by $17 million to $175.1 million or 3.1% of total loans. This percentage of watchlist credits is in line with our historical averages going all the way back to year-end 2007.

Although our credit metrics remain strong and we see credit as manageable, given the continued uncertainty in the economic environment, we feel it is appropriate to conservatively reserve as necessary.

Turning to team growth now, we hit the ground running during the first quarter with the appointment of three teams. Additionally, two have been added thus far during the second quarter for a total of five teams year to date. This morning's earnings release only noted that one new team joined in the second quarter. That is because we just added a new team this morning. We continue to benefit from the tremendous opportunities in the marketplace by attracting new, veteran banking professionals to join our franchise.

At this point, I will turn the call over to Eric, and he will review the quarter's 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 for the 2007 first quarter reached $103.7 million, an increase of $24.9 million, or nearly 32% versus the 2010 first quarter, and an increase of 8%, or $7.8 million, from the 2010 fourth quarter.

Net interest margin was up 8 basis points in the quarter compared with the first quarter of last year and is up 9 basis points on a linked-quarter basis to 3.59%. The linked-quarter increase is mostly due to a further decrease in our deposit costs, continued loan growth and an increase of $1.9 million in loan prepayment penalty income. Excluding prepayment penalty income in both quarters, the linked-quarter margin would have increased 3 basis points from 3.48% to 3.51%.

Let's move on to asset yields and funding costs. Overall interest-earning asset yields increased 4 basis points this quarter, or 4.6%. We were pleased with the stability of our asset yields, where we benefited from an improved earning asset mix despite the volatile marketplace.

In keeping with our conservative investment philosophy, we are selectively deploying cash while maintaining our high-quality, stable-duration investment portfolio. As a result, yields on investment securities decreased 2 basis points to 3.83% this quarter when compared with the fourth quarter of 2010.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 1 basis point to 5.59% versus the 2010 fourth quarter, benefiting from increased prepayment penalty income.

Now looking at liabilities, cost of deposits for the quarter further declined 3 basis points to 91 basis points, as we again decreased deposit costs given the low interest rate environment.

Let's review noninterest income and expense. Noninterest income for the 2011 first quarter was $15.1 million, an increase of $3.9 million versus the 2010 first quarter. This increase was driven by the $5.3 million gain on sales in SBA interest-only strip security, with a principal balance of approximately $45 million.

Noninterest expense for the 2011 first quarter was $44.7 million versus $39.7 million for the same period a year ago. The $4.9 million or 12.4% increase was principally due to the addition of new private client banking teams and increased client-related expenses.

The Bank's efficiency ratio further improved to 37.6% during the first quarter of this year compared with 44.2% reported for the comparable period last year. Excluding the gain on sale of the SBA interest-only strip security, the efficiency ratio was 39.4%. The improvement was primarily due to growth in net interest income and increased noninterest income, coupled with expense containment.

Now on to capital, the Bank's capital levels remained strong, with a tangible common equity ratio of 8.02%, Tier 1 risk base of 13.87%, total risk-based ratio of 14.91% and leveraged capital ratio of 8.29% as of the first quarter-end. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet.

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

Thanks, Eric. Signature Bank had another successful quarter. We continue to manage the Bank for the long-term view and strive to deliver steady quarterly improvements in our results, one satisfied client at a time.

As we approach our 10th anniversary in just a few days, I would like to note some achievements realized during the decade since our inception. Signature Bank grew from an initial $43 million investment to over $12 billion in assets. We gathered more than $10 billion in deposits, organically, in less than 10 years. We established a loan portfolio that now totals in excess of $5.6 billion, and attracted more than 100 group directors. They are among the best business-driven, client-relationship-centric bankers in New York that continue to flourish in our single-point-of-contact model.

We now look ahead, confident in knowing that our vision and results for the past 10 years have positioned us well for the future. We will continue to place the positive safety first and foremost.

Now, we are happy to answer any questions you might have. Douglas, I will turn it over to you.

(Operator Instructions) Bob Ramsey, FBR.

Eric, I know you mentioned that part of the -- that prepayment penalties were a factor in the increase in the loan yield. Could you just talk about maybe how much of a factor that was this quarter and what your outlook for margin generally from here is?

The prepayment penalties added approximately 8 basis points to the margin this quarter, Bob, so we would have come in at around 351. If you back out prepayment penalty income from the fourth quarter of 2010, we would have been at 348. So we had about 3 basis points of core improvement in the margin. We are really happy to operate in that 348 to 351 arena, especially given the low risk profile of our balance sheet. So we are going to try to maintain margins in that area.

Right now, we haven't had much prepayment activity in the month of April. It is a little difficult to predict the next couple of months, but I don't expect us to have prepayments at the same levels that we saw in the first quarter. So we will be happy to be around that 350 margin.

Okay. And then if you could just talk maybe a little bit about the loan pipeline entering the second quarter. And the loan growth was tremendous this quarter. Just how you guys are thinking about the outlook today.

This loan growth in the first quarter was our largest loan growth of the last nine quarters, taking into account 2009 and 2010. The pipeline [being] strong. I'm not sure it will be at that level of 395 growth, but the pipeline is strong.

Is it up or down directionally from entering the first quarter?

Probably about the same.

Okay. And just last question. Sort of where are you all putting new CRE and multi-family loans on in terms of loan to values?

Probably anywhere between 65% and 75%. We are trying to -- on the multi-family, the loan to values would be higher than they would be on the multi-tenanted office buildings and on any retail that we would do. So the retail would be at the lower end, towards the 65, and the multi-family would be toward the higher end at the 70 or 75.

Okay. Thank you, guys.

Steven Alexopoulos, JPMorgan.

The first question, New York Community Bank talked about multi-family pricing in the 250 to 275 range over five-year treasuries. I know your deals are generally smaller than theirs, but could you talk about the yield where you are bringing in new production here in the first quarter and how that compares to the portfolio yield for multi?

For five-year fixed, for quality multi-family, we are at about 4 7/8.

Joe, how would that compare to the portfolio yield for multi?

Well, it is down, because three years ago, we were doing those deals at 590. So for instance, one of the prepays that we had this quarter actually was a loan that was at 590, and it went down to -- we refinanced it at 475. It was a very high-quality multi-family loan. So you are going to see 4.75%, 4 7/8, maybe 5%. On the multi-tenanted commercial properties, office buildings, you will see mid-5s.

Eric, are we thinking for the margins stable that you are essentially offsetting loan yield pressure with a decline in funding costs?

Yes, I would say that's safe to say. A lot of the margins going forward are going to depend on how much deposit growth we have and how much cash we have to put to use. But we have seen the investment portfolio hold up very well. The reinvestment there is basically at the same level as what is rolling off. So it is really going to be our ability to generate loans.

And, as Joe said, we have a pretty strong loan pipeline, as well as our ability to decrease the deposit costs, which we can decrease some more, but probably not at the same rate as we have been able to the last couple quarters.

Okay. On the expenses, with five teams now hired, how should we be thinking about expense growth for the full year '11?

We saw a good growth number in 12.4% this quarter. But you are right in pointing out those five teams being hired, that should pick up our growth rate a bit. I'm expecting it to be somewhere in the 15% to 18% range going forward this year.

Okay. And Joe, given you reached your goal of $10 billion of deposits in the first 10 years, any chance you will share an aspirational goal looking forward here?

Great question. Thanks for putting me on the spot, Steve. No, not really. We really try to look at things one year at a time. And clearly, we are on our way to $11 billion. I can't make any predictions about how quickly we will get to the $11 billion mark on deposits. We are looking at them $1 billion at a time now.

But I mean given the guidance, you talked about $1 billion of deposit growth for the full year '11. You're now 75% of the way there here in the first quarter. It sounds like the run rate is running maybe at least 2X, right, that $1 billion a year goal that you've had?

Steve, you are a lot better at forecasting (technical difficulty) executing, so I will leave it up to you. Just don't take this quarter's growth and multiply it by 4.

Got you. Okay. Thanks for all the color.

Matthew Clark, KBW.

Just to clarify on the expense growth rate for the year, is that the comp line that you're talking about, the 15% to 18%?

I think overall -- comp line plus overall expense growth.

Okay. And then on the borrowing front, it looks like you took up your borrowings a little bit here, despite all the deposit growth and the securities book grew a little bit more. Just curious as to your strategy there with the borrowings, whether or not you are just locking in some funding here or not.

We locked in a little bit of funding to match up better with our five-year fixed loans that we are putting on. But a lot of the borrowings has to do with deposit inflows and outflows and just bridging that gap. So we had to take on some borrowings to do that at the end of the quarter.

Okay. And then given that a lot of the growth that you have put on really came after the crisis began back in 2007, 2008, and I think can be considered to be good growth. But now that we are over three years into the current crisis -- which hopefully is improving, obviously -- curious whether or not you've seen anything on your watchlist that relates to originations that you may have put on since the crisis began, and whether or not you are honing in on a couple of credits in terms of -- that might -- just to make sure that it is not obviously systemic.

Interestingly enough, I would say that any of the issues that we've had that have come on since the beginning of '08, we've actually been able to resolve. Particularly on the commercial real estate side, they've been resolved amicably and in a favorable fashion. So nothing that is noteworthy or that you would see in our results.

Okay, that's helpful. Thank you.

Casey Haire, Jefferies.

Just a question on the -- could you give us an update on capital plans? With another quarter of this balance sheet growth, you probably will be below your 8% Tier 1 leverage threshold. Can you just give us some updated thoughts on the capital front?

We are very mindful of the substantial growth. And we always think about putting the depositor safety first and foremost. But there is something different between today and let's say where we were several years ago.

We are a much larger financial institution, including capital, which is -- tangible capital is approaching $1 billion. And we have now been crisis-tested, where three years ago or four years ago, Signature Bank wasn't crisis-tested. And we looked at some statistics where our tangible common equity was actually in the 6.7% range when we were half the size that we are today. So we feel very comfortable where we are, with being a $12 billion bank approaching $1 billion in capital, tangible capital, and having our tangible common equity be at 8.02.

One of the things we talked about in the past was the leverage ratio, where we always wanted to be above 8% there; and we are at 8.29%. And again, we talked about that before the crisis and the size that we were at.

So what I could say is this. We are certainly looking at our capital levels. We believe that our earnings will support growth close to $400 million per quarter. And if we have growth like that, then there would not be a need for a capital raise. If we have another quarter or two of this well beyond substantial growth, then we wouldn't be shy about doing a raise. But we feel pretty comfortable where we are today.

Okay, great. Thanks for the color. And then on the teams, is there any expectation of hiring some more teams this year? How does that pipeline look?

The pipeline was actually very good a quarter or so ago, and we've now hired five teams. So I don't want to say it is completed, but it probably has in there a couple of teams in the early stages. So in all likelihood, we could add to the five that we have, but there is no team nearly close right now in the pipeline.

Got you. And the teams that were added, are they more deposit gatherers, or loan generators?

Probably more -- you would consider those deposit gatherers.

Okay, great. Thanks very much, guys.

Jason O'Donnell, Boenning & Scattergood.

Good morning. Nice quarter. If I recall correctly, C&I utilization had improved slightly at the end of the year to around 47% or so. I'm just wondering -- is that continuing to migrate higher, or is that just not a factor at all at this point?

It did migrate slightly higher during the quarter. It was 48% in January and February, and it came down slightly into the mid-47% range in March. So it is getting back to -- I mean, peaks were closer to 52%, so we've got a little ways to go before we get back to our peak.

Okay, great. And then it looks like the securities yield stabilized this quarter. Can you just give us an update on what you've been buying recently and the types of yields you're getting?

We are mostly getting yields in the high 3%s, low 4% range. We've been buying agency securities along the curve from anywhere from 340 to 385. We've been purchasing CMBS, which has been yielding in the high 3s, the low 4s. We continue to like Re-REMICs in the mid to upper 3s. And we've been buying some corporates that have been yielding in the mid-4s.

Great. Thank you.

Christopher Nolan, CRT Capital.

Can you give us a little color in terms of the competitive environment for the multi-families? Because we are hearing other banks which are entering this market. Are you being forced to give up on rate or go longer term? Are you seeing competing more on IO deals? A little color on how you are able to secure such good growth.

Well, I think the growth is because of the outstanding people that we have in the institution that are able to close deals very efficiently within 45 days. That has helped.

There is more competition, but where the competition is coming in, there are banks that have -- and we've talked about this before the last several quarters -- banks have entered this because there is not much going on in the C&I world at the moment. It is -- in terms of risk, it is low on the level of risk. So some banks are coming in.

But I think our competitors that are here for the long-term have an advantage, like us, because clients realize that dealing with banks that are in and then shortly will be out once the market changes is not comfortable for them. So the competition, it has heated up a little bit in the last several quarters because new banks coming in. But again, we don't think that they will be in for the long haul.

But then you have the Fannies of the world that are -- on rate -- we just don't compete with that. Because you can't compete with someone that is government controlled and is 75 to 100 basis points less. So we don't worry about that.

We think we have the advantage, like I started off by saying, that we can get maybe up to 25 basis points more in rate because of our ability to close. What we are hearing in the market is that some businesses come our way because the clients or the prospects could not get their loans closed at other institutions in a timely fashion. And we can close in 45 days. So that is helping us get business.

Great. Thanks, Joe.

Terry McEvoy, Oppenheimer.

I was wondering if you would just comment on the deposit inflows in recent quarters. Has that mix stayed pretty constant between new client inflows versus clients just giving Signature more of their business? And did a change in mix contribute to the real strong first quarter that we just saw today?

It's a very good question. I think it is across the board. We were looking at some statistics of teams that have come on recent -- in the last year, two years, three years, and so on, all the way on down to teams that started 10 years ago. And we are seeing growth across the board. So we've had -- we've seen some instances.

Clearly, there is a mix of new clients coming on board because of the new teams we bring on. So that is clear. But interestingly enough, we are getting some excess deposits, and that is -- I've talked about this for some quarters, that we think that there is some deposit growth in the institution, not only here but across the industry, where there are extra deposits. Not that they are not core; they are core deposits.

But in normal times, some of those deposit dollars would have been used for other investments, albeit real estate, albeit Treasuries or some fixed income. And because of such a low yield in the Treasury and in some instances the fixed income market, we are getting some of those extra deposits.

Now what can happen is if interest rates start moving and the economy improves, you could see some of those deposits go into other investments. What will happen here is we may have less deposit growth, but we expect that our loan growth will pick up because they will start investing in their businesses and start using some of those deposits to invest, and they will have to borrow. So that, in essence, could help margins because deposit growth will slow a little bit as rates increase, but we will start getting the loan growth.

So I don't know, Terry, it is kind of across the board, that is what we are seeing.

Just one other question. If I look back over the last couple years, the companies you've been able to hire, teams from those banks have been healing. Their stocks have gone up. And maybe the stigma that has been attached to those large banks that have -- bankers have decided to join Signature.

Has it become harder for you to entice those teams over because it is easier for them to do their job at those alternative banks? Have the economics changed behind these new teams? And are you having to maybe offer a bigger carrot to entice these new groups to come over?

It's kind of interesting. It is just the opposite. We're finding that teams have to entice us. And it's interesting, because we are finding we are getting more opportunities.

But we are very picky or choosy on who we bring over. The fact that they are on the surface improving their business, they haven't changed their stripes as to how they are treating clients and how they are treating the teams. So things may be getting better for some of those bigger institutions, but it hasn't changed the way they run their business that allows us to bring teams over.

So in terms of a bigger carrot, that is not necessary. I think we have -- I give a lot of credit to the teams that joined 10 years ago, because there was nothing here. And it's easier for someone to join today because we've been around nearly 10 years and $12 billion in deposits. So it is actually just the opposite.

That's good to hear. Thanks, Joe.

Peyton Green, Sterne, Agee.

Congratulations on a strong quarter. It was wondering, Joe, you mentioned that the capital outlook was somewhat evolving, given the maturity of the Company. And I was wondering if there are increased lending opportunities because of that evolution. I mean, is there any opportunity to go to a larger lending limit or maybe a little bit larger on the C&I end or on the real estate end than you've done in the last two or three years, in the recession?

Great question. Just as you said on the capital evolving, we are having discussions, and the lending side is evolving as well. Because there is -- there continues to be an opportunity in the space that we are in.

I will turn to C&I for a moment. We are in the lower end of the middle market. And there continues to be tremendous opportunity. But what we also see is that in the middle of the middle market, banks are underserving that group as well. And those are the loans that are, let's say, larger than $25 million.

So that is evolving for us as we get larger. Having discussions to see if we would go into that market. Because that will certainly -- when we talk about growth, we think there is growth in the market that we are concentrating on, and we also think there is significant growth in the market just above us.

So I am not ready to make any bold statements today. Let's just say, as you said, capital is evolving. The discussion about increasing our lending appetite in terms of size of deals, that is evolving as well.

Okay, great. And then a couple questions for Eric. Eric, what was the OREO, and then also the 90-day past-dues?

The 90-day past-dues were just a little over $12 million, $12.4 million. So it came down from $17.5 million. And the OREO remained flat at $1.7 million.

Okay, and TDRs?

TDRs were $2.5 million.

Okay, great. Thank you.

Tom Alonso, Macquarie.

Most of my questions have actually been answered. Just kind of on the loan growth, I guess similar to one of the prior questions -- how much of that is new teams bringing loans over? And how much is guys sort of upping their appetite and taking more out when they come to you to refi?

I would say it is less from the new teams, more from the existing teams. And it is really -- on the commercial real estate side, it is refis. And it is not a matter of taking more money out. It is just that they -- the loans are coming up for maturity. They happen to be at other institutions where their bankers used to be. And now their bankers have been here for several years, and they are refi-ing here.

And we see a mix of some money being taken out. We certainly don't allow a lot of money to be taken out, and -- unless the loan to value is very low. And it's just simply -- I call it a zero sum game. We're not seeing a lot of purchasing and selling of property. More than 85%, if not nearly close to 90%, it is refinancing of existing properties that have been around for a long time, with well-experienced operators who have maturities coming up and don't want to deal with their former banks and want to deal with their bankers that are currently here.

Okay. Fair enough. Thanks, guys.

Gary Townsend, Hill-Townsend Capital.

It has been several years, as I recall, since you last reported a large gain on the sale of an SBA strip. Could you just walk through how that develops and just what our understanding is of that aspect of your operations?

Sure, Gary. You know, we have this group down in Houston that purchases the 100% government-guaranteed portion of SBA loans. They will then package those into lifetime pools and sell them to accredited investors. And part of the pooling process will strip a portion of the interest off and retain that interest-only strip.

We've seen over the last several years that prepayments on those strips have been very, very low, given the interest rate environment. They're floating rate loans, so there hasn't been a much of a need for the borrowers to prepay and refi those. So that has allowed us to really build up the value in those strip securities.

This quarter, we sold approximately $45 million worth of the strip securities for a gain of a $5 million. We really -- when you look at that type of asset, when interest rates rise, we could see the value of that go down as prepayment activity picks up. And it is a Level 3 asset. So we felt it prudent to really capture that gain and recognize it through earnings now, and take some of that volatility off of our balance sheet.

So we have about another $50 million that we are actively marketing, and we will see where that goes over the next couple quarters.

Makes sense. In a sense, though, this is -- it comes out of your operations and we are not counting it as operating earnings. But in a sense it probably is, isn't it?

We've argued for a number of years on this, Gary. It is certainly part of our core strategy. We've had this group now for 10 years with us. We have consistent fee income off the sale of the pools that everyone really counts in our core earnings. And this is just, as you said, another part of our process of our core process.

So I think it is pretty core to what we do. And at the end of the day, it does come out of our yield. Since this is a high-yielding asset, we will see the decline in yields and, of course, credit will be taken away on that side. So I would like to see credit be given to us for the gains as well.

That doesn't always happen. You also had a large write-off -- I think it was last quarter. And any update on that?

It is still early on. We are working it through the courts, because it is not only -- it involves not only here in the United States, but the courts in Canada. So because it is in both places, justice moves very slow. The remaining piece that we had has a 50% reserve on it, and it will take some time to work it through.

(technical difficulty)

(technical difficulty) -- in the upcoming quarter, whether or not you're going to have any relief there.

We hope to, Matthew. We are still trying to get clarification out of the FDIC as to what they define a levered loan as being. Once we find that out, we will have a better idea. Worst-case scenario is we could see a slight increase, but I would expect that we will see a decrease in those fees. And we will be able to speak to it better next quarter after we get some clarification.

We actually have a specific question in to them to clarify things.

We are not the only bank. There have been several banks that have had this question, and they are working through it on their side.

Understood. Thanks, guys.

Andy Stapp, B. Riley & Company.

Nice quarter. I just have one remaining question. That is, other non-interest expenses seemed high. Is the Q1 -- is Q1 a good run rate?

I think Q1 is a good run [rate]. We've had -- I think it has been pretty low, actually, the last couple quarters. So (multiple speakers) just go on increasing client activity this quarter, and a little jump-up in expenses there. But I would go off of this expense base.

Okay, thanks.

Jeff Bernstein, AH Lisanti.

Great quarter. I'm going to have to start setting my watch by you guys.

So just a question. You alluded to it in one of your earlier answers. But can you talk a little bit about the velocity of commercial real estate transactions in the city right now, and kind of what is the outlook there? It sounds like the dam has not broken yet. Is there going to be a dam breaking at some point?

You would think that at some point the activity would pick up between buyers and sellers. If you think about it, we are hearing that in 2012, 2013, probably be bigger deals because there are some CMBS situations where those loans are going to have some issues. And that is probably beyond our appetite in terms of dollars for loans.

We are seeing some activity where our clients have an opportunity to buy something at a discount, and we could finance that. But you would expect -- I'm just going by expectations -- you would expect at some point the buy and sell activity would pick up. We're seeing a little bit of it, but we are not seeing any dam-breaking activity.

On the LTVs, if I remember correctly, your range doesn't really change all that much over time. But sort of underneath that, in terms of valuations on these buildings, are these better loans today than they were a couple years ago in terms of vacancy and collection loss assumptions or other maintenance expense assumptions that you bake in? Or is there sort of more upside to these loans today on the equity side than there was previously? Can you talk a little bit about that?

We think they are better today. The cash flows have been there. You've got to understand, we do -- the loans that we do are based on current cash flows. We don't lend based upon the landlord's ability to increase the cash flow. What I mean by that is, let's say there is a rent-stabilized or rent-controlled building. And the landlord has the experience to change that to a market rate situation. We will lend based upon the current cash flows, and then tell the client that if they do an outstanding job of increasing the cash flow, we will then refinance that and work out something on the prepayment penalty, because they'll keep the loan with us. So we do it based upon current cash flow.

So we have seen amortization on those loans. We have seen occupancy levels, for the most part, stay very high. You've got to understand, the rents are usually $800 to $1200. These are blue-collar buildings. These are 50-apartment, five-story walk-up buildings. These are not Park Avenue, where rents could be $12,000 a month, and you would see discounts having to be given on those rents in order to keep the tenants in.

So for us, we have seen improvements because of the space that we stay in. Even on the multi-tenanted office buildings, we're usually lending within the blocks. They are not on the avenues. They are B level. They are rents between $20 and $50 a square foot. They are not $200 a square foot, where you have to discount because tenants can no longer take $200 a square foot.

So for us, the LTVs, as you said, we're always within a certain range. The type of properties we do are within that same range. So for us, it has been improving.

That's great. Thanks.

There are no further questions in queue at this time. I would like to turn the call back over to Mr. DePaolo for closing remarks.

Great. I want to thank 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. Douglas, I will turn it back to you to close it out.

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325 and enter the access code 4432114. Also, an archive of this call can be found on the Company's website at www.signatureny.com.

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