Signature Bank (SBNY) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Signature Bank's 2012 First Quarter Results Conference Call (Operator Instructions). Our host for today will be Joseph H. DePaolo,President and Chief Executive Officer, and Eric R. Howell, Chief Financial Officer. I would now like to turn the conference over to Joseph DePaolo, please go ahead, sir.

Good morning and thank you for joining us today for the Signature Bank 2012 first quarter result's 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 statement include information concerning our future results, interest rates, 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 , and other similar expressions. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to one, prevailing economic conditions; two, changes in interest rates, loan demand, real estate values and competition, any of which can materially affect origination levels and gain-on-sale results in our business as well as other aspects of our financial performance including earnings on interest bearing assets. Three, the level of default, losses, and prepayments on loans made by us, whether held in portfolio or sold in the hold-loan secondary market which can materially affect charge-off levels and require credit-loss reserve levels; and four, changes in the banking and other financial services regulatory environment; and five, competition for qualified personal and desirable office location.

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 of 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 intent 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'd 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. We started 2012 on a solid note with record deposit growth, record loan growth, and our tenth consecutive quarter of record net income. While maintaining our strong credit quality position. More over we are excited to have launched Signature Financial, which will diversify our revenue stream and broaden our assets deployment.

Let's discuss earnings. Net income for 2012 first quarter reached a record $42.4 million or $0.90 diluted earnings per share an increase of $7.8 million or 22.5% compared with $34.6 million or $0.82 diluted earnings per share reported in the same period last year. The considerable improvement in net interest income is mainly a result of net interest income driven by continued core deposits and loan growth. These factors were partially offset by a decrease in non interest income from the 2011 first quarter gain on sale of an SBA interest-only strip security and an increase in non interest expense.

Looking at deposits. Deposits increased a record $750 million to $12.5 billion this quarter . In the past 12 months since March 31, 2011, deposits have increased $2.3 billion or 23%. Average deposits in the first quarter were $12.3 billion up 2.4 billion or 25% compared with $9.8 billion for the 2011 first quarter. Non interest bearing deposits of $3.33 billion represented 27% of total deposit. With our considerable deposit growth total assets reach $15.3 billion an increase of $2.9 billion or 23% versus last year's first quarter.

Now let's take a look at loans. Loans during the 2012, first quarter reached $7.4 billion up a record $512 million or (Inaudible) representing 48% of total assets at quarter end. In the past 12 months loans have increased $1.7 billion or 31%. The increase in loans was mostly due to growth in commercial real estate and multi family loans with continued conservative underwriting standards. Non accrual loans decline to $35.5 million or 0.40% of total loans in the quarter compared with $42.2 million or 0.62% for the 2011 fourth quarter and $39 million or 0.69% for the 2011 first quarter.

Allowance for loan losses was 1.25% of loans versus 1.62% in the 2011 fourth quarter and 1.30% 2011 first quarter. Additionally the coverage ratio or the ratio of allowance for loan losses to non accrual loans further improved 259%. The provision of loan losses for the 2012 first quarter was $10.7 million compared with $14.6 million for the 2011 fourth quarter and $12.3 million for the 2011 first quarter. Net charge offs for the first quarter of 2012 were $5 million or an annualized 29 basis points versus $11.9 million or 71 basis points for the 2011 fourth quarter and $6.5 million or 49 basis points for the 2011, first quarter.

Now turning to past due loans and the watch list. During the 2012 first quarter our 30 to 90 day past due loans remained stable at $57.1 million. The 90 day plus past due category increases $24.5 million to $34.8 million,due to one client experiencing issues that owns five properties totaling $23.5 million. We are well secured in these loans, and we expect the loans to be satisfied in the next several weeks. Watch list credits decreased this quarter by $5.8 million to $215.4 million or 2.92%of total loans. While we are pleased with our non accrual and watch list loans decreased this quarter and our credit metrics remained strong, we are mindful of the uncertainty in the economic environment and we again conservatively reserved.

Just to review teams for a minute. Two private client banking teams with three group directors joined duringthe 2012 first quarter. We also expanded one team during the quarter. One of the two new teams will be based in the soon to open Happauge office. Similar to the hiring of our large successful commercial real estate banking team in the fourth quarter of 2007, we attracted another large group of financial professionals with primarily (Inaudible) bank roots. This group will lead our specialty finance initiatives with the launch of Signature Financial. The management group possess more than 175 years of combined experience in specialty finance and have worked together for nearly 25 years.

At this point, I will turn the call over to Eric, and he will review the quarters financial results in greater detail.

Thank you, Joe, and good morning everyone. I will start by reviewing net interest income in margin. Net interest income for the first quarter reached $126.8 million up $23.1 million or 22% when compared with the 2011 first quarter and an increase of 1% or $1.5 million from the 2011 fourth quarter. Net interest margin was down 9 basis points in the quarter versus the comparable period a year ago, and decreased 5 basis points on a linked quarter basis to 3.5%. The linked quarter decrease is mostly due to a $940,000 decrease in prepayment penalty income. When you exclude prepayment penalty income from the 2011 fourth quarter and the 2012 first quarter, core net interest margin for the linked quarter decreased 2 basis points to 3.44% compared to 3.46%. The decrease in core margins was mitigated by loan growth and a further reduction in our deposit cost.

Let's look at assets yields and funding costs for a moment. Overall interest earning assets yields declined 8 basis points this quarter 4.3%, due to the continued low interest rate environmentand a decrease of $940,000 in prepayment penalty income on loans. Given the continued low interest rate market and tighter spreads coupled with strong loan growth we were more selective in securities deployment. As a result, the yields on investment securities declined 11 basis points to 3.5% and the ratio remains stable at 3.09 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages declined 16 basis points to 5.21% compared with the fourth quarter of 2011. Excluding prepayment penalties for both quarters yields would have declined 9 basis points.

Now looking at liabilities. Money market deposits costs this quarter further declined 4 basis points to 94 basis points as be again decreased deposit costs given the low interest rates environment. This decrease coupled with an increase of $230 million or 8% in average non interest bearing deposits helped lead to a decline of 4 basis points in our overall deposit costs.

On to non interest income and expense. Non interest income for the 2012 first quarter was $9.1 million a decrease of $6 million when compared with the 2011 first quarter. The decrease was driven by $5.3 million gain on sale of an SPA interest-only strip security in the 2011 first quarter. Non interest expense for the first quarter of 2012 was $50.4 million versus $44.7 million for the same period a year ago. The $5.7 million or 13% increase was principally due to the additions of new private client banking teams.

The banks efficiency ratio improved to 37.1% for 2012 first quarter compared with 37.6% for the same quarter last year. Excluding the gain on sale of the SBA interest-only strip security in the 2011 first quarter the efficiency ratio was 39.4% the improvement was primarily due to growth in net interest income coupled with expense containment.

Turning to capital. Our capital levels remain strong with a tangible common equity ratio of 9.58%. Tier 1 risk base of 16.86%. Total risk based ratio of 17.96% And leveraged capital ratio of 9.62% as of the 2012 first quarter. 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 over to Joe. Thank you.

Thanks, Eric. Signature Bank had another successful quarter with record growth and record earnings. We continue to position the bank for future success with a long-term view as evidenced by our substantial investment in the specialty finance arena while striving to deliver steady quarterly improvements in our results. Now, we are happy to answer any questions you might have. Allisha, I will turn it over to you.

(Operator Instructions). Our first question is from the line of Bob Ramsey with FDR. Please go ahead.

Hey good morning guys.

Good morning, Bob.

I was hoping you could first maybe talk about with the new equipment finance group the loan growth expectations or goals to just get some color around what you expect in terms of loan growth once they are fully up and ramped. And when that actually happens will they be fully running in the second quarter here or is it more of a back half of the year event?

We would like to see what happens over the first several quarters before we give you guidance on the growth itself. I will tell you already in the month of April through the 20th of April so last Friday we hit the ground running, and we already have $20 million or so in loans outstanding, so the teams that came on board towards the ends of March have already started to generate business.

Okay . And is that closed loans or is that loans in the pipeline?

That is closed loans funded and outstanding.

Great. And then on the other side of that talk about the expense expectation for this new team , and how it changes expense guidance you have given in the past.

Yes, Bob. We had guided 12% to 15% year-over-year growth and expenses. We expect with the additions of these new teams that will jump up to 20% to 25% for the remainder of 2012 and then we will see that go back down to 10% to 15% range in 2013.

This follows along the lines of our beliefs that it is always better to go out and seek and lift out the best management people and their personal as opposed to going out and buying something. This is cleaner for Signature Bank , it is cleaner for our investors to look at the situation. There is no goodwill. There is no intangible assets. We look at it no different than what we have been doing for 11 years, which is really going out and finding teams. This is just a little bit more in terms of size than what we would normally do for a team, but looking back at 2009 when we hired 13 teams that was spread out throughout the year. This is concentrated in one felt swoop. So again it is not any different than what we have been doing for the past 11 years.

Okay. With the hires and the increase in expenses is that all fully going to be in the second quarter or does the timing of the hires mean you see some of it in the second and some in the third?

We expect to have people joining throughout the course of the year, but most of them have been brought onboard second quarter, the last part of the first and second quarter.

And can you remind me how many people in total you anticipate this group adds?

Probably close to 50 in total.

Okay, great. Thank you guys. I will hop out.

Thank you, Bob.

Thank you. The next question is from the line of Steven Alexopoulos with JPMorgan. Please go ahead.

Good morning guys.

Hey, Steve. Good morning. How are you doing?

All right. I wanted to start with the earning assets yields down around 30 basis points of the past year is this a good proxy of what we should expect looking forward over the next year?

Yes, if you assume the interest rates environment is going to stay where it has, which is a pretty fair assumption. I would expect to see similar trends.

Eric, when we think about core margin are there any offsets that we should be thinking about, or should we just be bracing for core margin pressure throughout the year?

Listen our ability to generate loans is certainly beneficial for us as well as our ability to continue to lower deposits costs. And certainly the recent initiatives in lending are going to be helpful to the margin. I would expect given the low interest rates environment that we will be able to maintain or see a similar couple basis point decline over the next several of quarters.

Yeah to add to that I think a couple of things one on the cost of deposits on the interest bearing money market side we continue to decrease that every quarter. In the fourth quarter it was 98 basis points, in the first quarter it is 94 basis points. If we had to characterize that , we are disappointed that we didn't get that lower to maybe 5 or 6 basis points as a opposed to a 4 basis points decrease. The expectation is that that94 basis points in the second quarter will be under 90 basis points and then in the third quarter an additional drop. So one of the offsets is clearly our ability to slowly and gradually decrease the cost of deposits. On the assets side our balance sheet is 48% in loans . With what is going on in the C&I side where we have activity and by adding on an additional team, by bringing the Signature Financial group and the continued excellent job done in the commercial real estate area that 48 is going to 49, 50, 51 , and 52. So I think that growth the transformation of the balance sheet and our ability to drop interest rates where some of our competitors are already at rock bottom where their interest rates are bodes well for us to at least if not increase margin, but certainly temper any of the compression that will continue to happen.

Got you. That is helpful. I wanted to follow-up on the teams. Eric, given the 20% to 25% expense billed this year, does that mean you will put additional team hires essentially on hold through 2012?

Well, one interesting thing is we kind of never put things on hold if an opportunity presents itself usually when it presents itself you get one chance , and you don't miss that chance because you won't get it again. What has happened in the last several years is we have actually had teams looking for us. Where in the past it was us looking for teams. We will certainly capitalize on the opportunity and if anybody is out there listening they have a great team we certainly want to bring them on board. Steve , if we didn't hire another team this year, we would be fine with all the potential we have, not only with the existing teams we have but also with the new businesses we have brought on board.

Got you. Joe, I just wanted to follow-up on that. Given how many teams you have hired over the past three years, is there anyway to separate out the number of teams that are running at full capacity versus the number that are still ramping?

That is a great question I don't have it off my fingertips , but we do look at the teams by -- this sounds funny but by vintage by year 2001 through 2011. I can tell you that most of the teams we have brought on in 2011 clearly are in a mode of just starting up, and so there is an opportunity with those 7 teams. In 2010 and prior, I would say most of those teams are running fairly easily. So I don't know I guess maybe 10 or so let's say are in the early stages.

Got you. Thanks for all the color, appreciate it.

Okay. Steve, thank you.

Thank you. The next question is from the line of Erika Penala with Bank of America Merrill Lynch. Please go ahead.

Good morning.

Good morning, Erika.

My first question is a follow-up to Bob's, and I appreciate that it is too early to give us better guidance and I also appreciate that there is a timing in magnitude issue in terms of bringing this book over, but could you give us a sense of how big the book of business was over the specialty finance team that is going to comprise Signature Financial at their old employer?

Sure. When they left their previous employer , their outstandings were slightly above $4.5 billion.

Got it. And how does the yield on the specialty finance book compare relative to the yields on your core business?

I would say that they are about 4.25 or sowith terms around 3 plus years, 3 year to 4 years. I would say on average that is what we are seeing. It could be a wide range on the taxi medallion business we will see yields at about 375 then we will see them go up to high 4s or low 5s. This is a good mix because you have commercial real estate at 5 year fixed. You have the C&I business which is primarily floating rate, and then you have this business which is fixed but with a much shorter term so there is a lot of cash flow that comes off. And the term is amortized for most of the loans the terms are amortized over that short period. So if you have a 5 year fixed in commercial real estate you are amortizing it over 25 years. If you have a 5 year or 4 year fixed in the specialty finance you are amortizing it over the 4 year or 5 year term.

Got it. I know I am probably going to butcher the name of the town, but in terms of your new office in Happauge --

Happauge.

Happauge is that a team that you reassigned that already had within the organization, or is that a new team you hired?

We hired two new teams. One in Manhattan and one for Long Island in the first quarter and team we hired in Long Island is working temporarily in our Melville office and they will be the team that heads up the office in Happauge. It is a new team. It is a fairly large middle market team that we hired from HSBC.

In terms of their book of business at their old employers could you give us a sense of the size of that as well?

That is a little bit harder, but it was fairly substantial. Let's just say it was in the hundreds of million.

Got it. Thanks so much.

Thank you, Erika .

Thank you . The next question is from the line of Dave Rochester with Deutsche Bank. Please go ahead.

Hey guys. Good morning.

Good morning.

Can you just quickly update us on the pricing terms on multiple family and CRE and just give some color on any changes you are seeing in the competitive landscape there?

Sure. On the 5 year fixed in the fourth quarter we were at 4.5%, inthe first quarter and currently on 5 year fixed we are at 4.25%, and we also have what we call a step up loan where it is fixed for 3 years and then the second term is fixed for a higher rate for the second 3 years , and then for the third 3 year at a higher rate. That initial rate is 4%, then it goes up to let's say 4 5/8%, or 4 3/4%, and then 5 1/4%, or 5 3/8%. That is a step up. The initial rate is 4%, if the client wants to get out of that, there is a prepayment penalties associated with it and then 4 1/4% on the standard five year fixed. That may sound higher than our competitors than it has been. We have heard competitors at sub 4% and even one competitor at the mid 3%. We are simply not doing those at that pricing. And our pipeline for the first quarter was fairly strong and it continues into the second quarter.

Great. And then CRE would be 50 bps wider than that 425?

Yes, approximately. 50 bps that is a good range.

You talked about money market rates dropping to potentially dropping below 90 basis points. Do you have a sense of where they are now in the April, and where the competition is? I guess Cap One has always been one of the more aggressive pricer in that arena, ad maybe talk about some of the trends you are seeing there too.

We are seeing that with the larger -- it is hard, because when you look at the larger banks, you see a cost of deposit that is far lower than ours. But yet they have a significant retail components and that retail components really drives down the rates, because the customer let's say that deposits $1000 is different from a client who deposits $3 million and commands a higher rate. So we are seeing that you ca probably bring in deposit, ad we are trying to get that down to somewhere in the 75 basis points to 85 basis points range at some point, but that is what we are seeing from the larger competitors that they are paying 75 or so basis points. You just don't see that come through in their statistics because they have so much retail world. I always argue this we don't have a retail business. That means we don't have the cost of advertising, we don't have the cost of marketing we don't have the heavy cost of retail branches. Some of the costs that we have is in the interest rates, but it brings in a higher level of client and hence our efficiency ratio is lower than most of our competitors, far lower.

It sounds like though with competitors at 75 basis points you still have a lot of the room to move those down even if you are going to price a little higher than that ,right?

Yes. That is why I believe in the next quarter we should be able to get it below 90 and then in the third quarter, so there is still room in the next several quarters to continue to bring that down.

Okay , great. Thanks guys.

Thanks Dave.

Thank you. Our next question comes from the line of Casey Haire with Jefferies & Company. Please go ahead.

Good morning guys. Just a couple of question on a loan growth ,obviously, sounds pretty constructive, but you guys are coming off of a pretty strong quarter with 7% loan growth. I was just wondering how does the pipeline stand today relative to year end, and how much of C&I was a contribution this quarter?

The C&I was flat for the first quarter, but the pipeline that we are seeing in C&I is strong. The pipeline we are seeing in CRE was similar to the first quarter. And then we have this other leg now that was zero in the first quarter which was Specialty Finance, so although we are not giving you numbers, we are giving you some guidance that there is some strong loan growth in the pipeline.

Okay. And then just switching to credit. Obviously, a much better result this quarter; provision down ,charge offs down. As we look forward the metrics look pretty pristine. How sustainable is this going forward?

Kind of hard to say that non accruals will get any lower. But I would say from the provision perspective somewhere in the $10 million range is what we are looking at on a quarterly basis, particularly if what I said a few moments ago about the pipeline of loans although they will be strong rated credit loans you will build your provision as your loan growth increases. So the projection you could use for the provision is probably somewhere where with what we had this quarter, within the first quarters. Charge offs is more harder to predict.

Okay. In the past I know you talked about charge off being driven a lot by some of the later a vintages within C&I, are you starting to see that sort of ease off? Is that why we had this pretty good quarter?

I would say that I would use your term, yes. I would say ease off is probably a great way to characterize it.

Okay , great. Thanks guys.

Thanks, Casey.

Thank you. The next question is from the line of Terry McEvoy with Oppenheimer. Please go ahead.

Thanks. Good morning.

Hey, Terry. Good morning.

If I go back to my notes from these call three to four years ago, a big theme was Bank of American and Citigroup of the world losing money, question marks over capital and Signature was really able to highlight the strength of their balance sheet quarter after quarter and grow market share. At least on paper today the big banks are making money , there are less concerns over capital. And I am just wondering how does that impact your ability to grow and really differentiate Signature from the larger banks because you are really focused maybe more on service versus strength of the balance sheet, and are you facing a situations where certain customers now are willing to leave Signature to go back to those big banks simply because they are looking at those banks differently today?

I will tell you for our benefit and the benefit of everybody that works here at Signature whether the bigger banks have a stronger balance sheet, or as you said several years ago they were in worse off position they still have an issue in service. So they haven't changed their strips so to speak. We certainly are keeping our capital levels high, so we can compete at least from a balance sheet perspective if that goes away. The fact that they are a trillion dollar institution. At $15 billion we are well capitalized totake that off the table. Our nimbleness and our ability to service the client far exceeds what they are doing, so we haven't seen a slow down in business because of that.

I think what you do is you look at the circumstances and you work with those circumstances, and the fact that we can't say that the big banks are having problems. They are still focused on some of their problems, because we still don't know what is happening with how much do they truly have in (Inaudible), how many more law suits can they endure, so there is still some of that even though they are much stronger than they were several years ago. We use a little of that to our advantage, but it has really gone from a balance sheet story to more of a servicing is story. And although the servicing has always been our niche we are playing that up a little bit more now.

Very helpful. Thanks, Joe.

Thanks, Terry.

Thank you. The next question comes from the line of Herman Chan with Wells Fargo Securities . Please go ahead.

Thanks. Eric, you mentioned that you were becoming more selective on securities. Can you give us some color on what you are adding to the balance sheet, and what yields those are providing, and what you are avoiding? Thanks.

The yields that we have been adding are in the low 3s. We have really been adding government CMOs, CMBC triple-A rated CMBS, and corporate debt.

Okay. Great. And one question on compensation expenses in the quarter, which were maybe a touch higher than expected. I am guessing some of that is related to seasonality, but were there any comp costs related to the special finance build out in Q1 ?

Yes, there were comp costs related to the new groups.

And can you articulate how much that was?

Approximately , a penny to a penny and a half in expense.

Okay, great . Thanks for taking my question.

Thanks, Herman.

Thank you. Our next question is from the line of David Darst with Guggenheim Securities. Please go ahead.

Good morning.

Hey, David. Good morning.

Should we expect to see any fee income growth related to the new lending products?

We should , David, but we will get more fee income coming down the line, a couple of years out. But there will be some fee income growth.

Okay. And then your market rates for the multi family and CRE products are 75 basis points to maybe a 100 points in some cases below where you are. The evidence you have got the diversified opportunity going forward should we some of that CRE grow slow . or are you less likely to lower your rates from where they are today?

No, we love the product. I think that what differentiates us is several things. One, we keep the loans on our books. And that is a big competitive advantage where they know we will not sell the loan. The only time we sell the loan is if there is an issue with the client, and we find somebody out there that wants the property and in all likelihood buys the loan in part. That is a big competitive advantage in that they know we won't sell. Another one is, and it plays off this, is that we close our loans in 45 days. We give you a rate and a term sheet, you sign it , that is the rate. They don't have to worry about is the rate going to change 5 days prior to closing or 5 business days prior to closing. They know that, one ,the rate stays, and ,two, that we will close in45 days , so there is an efficiency aspect to it.

The third which again plays off the first part is the fact that we keep the loan. They know that when they improve the cash flow or there is an issue they are going to be speaking to the team that actual made the loan, and if they want to refinance and they keep the loan with us they know that there is a likelihood that there will be a discount on the prepayment plan. Now, that allows us a competitive advantage. I think some of the differential let's say 75 basis points to 100 basis points is that there is a player out there, a bank out there, that has just priced themselves irrationally and we certainly don't worry about them because they are going to have their own issues when rates change.

When they have loans that are 50 or so basis points below where they should be and they are building volume. The one thing that our clients worry about is that bank going to be around because they need somebody to speak to and they don't need to have their loans purchased by someone they don't want to speak to. So I think there are there is a lot of the advantages for us, so because of that as they differential in rates because of this one particular bank has grown. Our pipeline is still as strong as it has ever been.

Okay, good . Thank you.

Thank you.

The next question is from the line of Peyton Green with Sterne Agee. Please go ahead.

Yes, good morning Joe. I think eluded to this earlier, but it would seem to me you could possibly ratchet down your cost of money market funds maybe use a little wholesale borrowing and offset all the dilution associated with the teams you hired early in 2Q. Does that become more of a potential reality given the lack of leverage on your balance sheet?

Absolutely. We don't stop the teams from growing their deposit business, but if the deposit growth slowed down a bit and the loan side continued to grow as we have had in the first quarter that would certainly bode well for the margin. Although we don't prevent our teams from bringing on new relationship, but with the new relationship they are going to be brought on at rates at least 10 basis points to 15 basis points less than where they are today. If it is a new relationship , they are not going to be getting something at the 90 basis points level, they are going to be getting something at the 75 basis points level. They don't bring it in at the 75 basis point level than we will have the short term borrowings to support the growth on the loan side.

Okay. I guess that is still a pretty solid premium versus the industry cost of deposits, which I know is not necessarily comparable for the types of business that you go after. But I was just wondering -- it just might strategically make a little more sense to lay off the deposit growth a little bit on the interest bearing side in the short run and fund it overnight and get the leverage sooner rather than later.

You don't get many chances to bring over quality clients, premium clients. The fact that they may be getting today 85 basis points or 75 basis points at another institution and you have a chance to bring over their operating accounts, remember our total cost of deposits will be below 70 basis points in the second quarter, you don't pass up that opportunity. We are building for the future, it is for our franchise. What you are saying more so , Peyton, is if we had a retail franchise and said okay let's stop marketing for the next month , let's stop advertising, don't put signs in the window (Inaudible) you can kind of turn off the spicket.

But with our teams and the quality clients and our franchise building as they do you are always going to seize an opportunity to bring on those quality clients, albeit though as I said we will bring them on at 75 basis points or so. We are not going to be paying the 90 basis points that they would be getting today on a money market and again that will be driven down, so that is the difference.

Okay. Last question. This was the strongest dollar volume growth quarter for Signature in terms of deposit and loans and just wondering if maybe you could characterize how you feel about the future? Certainly the hiring has been fairly consistent, but it justseems like it keeps getting better and better.

I don't know how you cannot be excited about the future. One we have 80 great teams. We have incredible employees that support those 80 great teams. We added another leg to our stool on the assets side of lending. We continue to be able to attract some of the best bankers out there. And the teams that joined us in 2001 and all the way through have continued to produce. And then you have the support areas and operating areas that we are very -- we just came out of a full scope safety and soundness exam and you see no difference our results for this quarter as result of that. So things bode well. It is very, very exciting to be at Signature Bank.

Great. Thank you.

Thanks, Peyton.

Thank you. The next question is from the line of Tom Alonso with Macquarie. Please go ahead.

Good morning guys. Most of my questions have already been asked and answered. I just want to get a sense for sort of the dynamics here with the new specialty finance build out. I know you guys upped the expense guidance number, but I assume there should be some revenue offset there as well. It is not going to sort of all the expenses come out and then we get a benefit sometime in 2013. There should be some associated revenue benefit as the year progresses as well, correct, from the asset growth?

You know how we are , Tom, we always talk about the most conservative view point. There is absolutely going to be revenue. We expect the break even to be 18 months in fact I eluded to earlier we already had $20 million in loans outstanding through April 20th that is certainly started to generate revenue. Yes, there will be a revenue component. Clearly Eric was giving --- we were giving the expense side of it. We didn't give you the revenue side , but it would bode well for everyone to build in some revenue. It is kind of hard for us to tell you what that should be right at the moment but we expect in a 18 month period to be at break even.

Okay . That makes sense. So then if I am thinking about it sort of across a little bit of pressure on the efficiency ratio as these teams come on , but then it should start to work its way to back down the middle of the next year; is that a fair way to think about it, being conservative?

(Inaudible).

And without all the headaches of doing an acquisition.

No goodwill. I understand. Okay. Perfect. Thank you.

Thank you. The next question is from the line of Lana Chan with BMO Capital Markets. Please go ahead.

Hi guys.

Lana, good morning

Good morning. Just one question on the comment you made, Joe, about the pipeline on the C&I side being strong going into the second quarter. Could you give more color on that? are you seeing increased confidence from your small businesses in terms of investing?

I said it because of the number of deals we have been seeing. I am using real evidence of opportunities we have gotten, not only from the new team that we brought on which has a number of turn sheets out there and deals that will be done, but from the existing teamswe have had some opportunities over the last several months so the pipeline itself is actually strong. When those deals close whether it is second or third quarter sometimes it is hard to say , we feel pretty good about what we are seeing. I am not characterizing it whether there is more confidences in the small businesses or not it is just actual deals that we are seeing going on.

And the pricing on those type of deals?

Not as much as we would like. We are trying hard on a new prime base , but there is some (Inaudible) base spreads that are somewhat reasonable particularly since we are see 3 and 4 rated credits. we understand that on the floaters in the short term the spreads are not going to be where you want them to be because of where (Inaudible) is today. But it is good for asset liability and good for us to have more loans and to have some floaters to offset some of the fixed that we have on the books.

Okay. And just one more question as you are going into some of these specialty finance businesses. I know there has been some other banks who have bought portfolio that have been up for sale. Is that something you guys would look at too if the opportunity came up?

I think we will participate in some things, but we don't necessarily look at buying portfolio. The team we brought on board is going to be to bring on their own quality loans, and we will do some participation possibly with Capital Markets, but we don't see us buying anything.

Okay. Thanks, Joe.

Thank you, Lana.

Thank you. The next question is from the line of John Pancari with Evercore Partners. Please go ahead.

Good morning.

Hey, John. Good morning.

On that specialty finance loan yield you gave at their former shop the 4.25 yield. Can give us a little bit of color are you seeing some pricing pressure there that you would expect as these loans come on. I am just trying to get an idea of what you are seeing in terms of where these yields can come in at. Clearly a lot of other banks are pushing in speck lending right now pretty aggressively, so in addition to bringing people over and bringing these relationships over, I have got to assume you are going to see some core loan pricing pressure on that new portfolio as well.

The yields I had given were yields on loans we are doing today. And we suspect that although there may be some pressure, what I had been giving is actually not what they had at their previous institution. It was based upon the $20 million or so we closed already.

Okay. All right. Do you -- you gave the balance of what it was at the former institution , but in terms of what it was yielding. Just trying to get an idea about the pricing of the impact of the these loans coming over to your books.

No, that would be hard to do. We just knew what they had outstanding based upon some of public information that was out there, and we try to shy away from getting into that was confidential from the previous employer. We really looked at the type of business they do, the type of clients they had. We actually spoke to some investment bankers out there about that we wanted to get into this business who were the best ones out there that we should be speaking to. We did our due diligence. From there we found someone that who found us as well.

Okay, great. That is helpful. And then on C&I, again, can you quantify what your line utilization was for the quarter?

Utilization actual went down a little bit during the quarter, John, to 46%, during March.

Is that a function of the denominator?

Probably not. Because we were pretty flat.

Our commitments were flat?

Right.

Okay. Thanks for taking my question.

Thanks John.

Thank you. The next question is from the line of Justin Maurer with Lord Abbett. Please go ahead.

Good morning guys.

Hey, Justin. Good morning.

Just a question on the finance business. You guys obviously in the history of the Company tended to focus on call it deposit rich verticals. What is your kind of sense that customer base? I would think it would be more generally assets driven than liability driven; is that fair?

That is a fair assessment with some of business we will do in New York particularly (Inaudible) there will be some opportunities to bring in deposits. We talked with the Signature Financial Group and said we would be active if there is an opportunity to bring in deposits on any of their client, but you have a correct assessment that it is more credit driven.

So how do you incent those folks , again, vis-à-vis traditional businesses where you guys have depended heavy on the deposit side?

Well, it is behavioral. It won't be any different than the way we have it today. Today's model are really driven by P&L, and this will be driven by a P&L which includes credit quality, because if there is a deteriorating in the credit and there is any charge off that is part of the P&L model. So fundamentally it is not very different.

Okay. And any -- I didn't see in the press release I don't think other than you guys calling out the medallion business can you give us some sense of the big buckets of types of stuff they do?

Yes, they do indirect vehicle, indirect equipment, direct equipment and then the tacting business.

Got it . Okay. Great. Thank you, gentlemen.

Okay, Justin. Thank you.

Thank you. There are no further questions at this time. I will turn it back over to Mr. DePaolo for any closing remarks.

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

Thank you. Ladies and gentlemen, this does conclude the conference call. Details on how to listen to a replay of today's discussion can be found on SignatureNY.com. Thank you for participation. You may now disconnect.