Signature Bank (SBNY) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Signature Bank 2012 fourth-quarter and year-end results conference call. With us today are Joseph J. DePaolo, President and Chief Executive Officer, and Eric R. Howell, Chief Financial Officer.

During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be opened for your questions. (Operator Instructions) Today's conference is being recorded, January 22, 2013.

I would now like to turn the conference over to Joseph J. DePaolo, President and Chief Executive Officer. Please go ahead.

Good morning and thank you for joining us today for the Signature Bank 2012 fourth-quarter and year-end results conference call. Before I begin my formal remarks Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Thank you, Joe. This conference call and oral statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous risks and uncertainties relating to our operation and business environment, all of which are difficult to predict and may be beyond our control.

Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings, and business strategy. These statements often include words such as may, expect, anticipate, intend, potential, opportunity, could, project, seek, should, will, would, 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, prevailing economic conditions 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 defaults, losses, and pre-payments on loans made by us, whether held in portfolio or sold in the whole loan secondary markets, which can materially affect charge-off levels and requires credit loss reserve levels; four, changes in monetary and fiscal policies of the US government, including policies of the US Treasury and Board of Governors or the Federal Reserve system; five, changes in the banking or other financial services regulatory environment; six, competition for qualified personnel and desirable office locations.

As you consider forward-looking statements you should understand that these statements and not guarantees of performance or results. They involve risks and assumptions that can change as a result of many possible events or factors, not all of which are known to us. Although we've been believed that these forward-looking statements are based on reasonable assumptions, beliefs, and expectations, if a change occurs in our beliefs, assumptions or expectations were incorrect, our business financial condition, liquidity, or result of operations may vary materially from those expressed in our forward-looking statement.

Additional risks are described in our quarterly and annual reports filed with the FDIC. You should keep in mind that any forward-looking statement made by Signature Bank speaks 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 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.

Signature Bank had another exceptional year of record growth and performance, leading to our fifth consecutive year of record earnings. And, for the fourth quarter, we again achieved strong core deposit growth and record loan growth, expanded top-line revenues and maintained solid credit quality, all leading to our 13th consecutive quarter of record net income.

I will start by reviewing quarterly earnings. Net income for the 2012 fourth quarter reached a record $50.1 million, or $1.05 diluted earnings per share, an increase of $10.1 million, or 25%, compared with $40 million, or $0.85 diluted earnings per share, reported in the same period last year. The considerable improvement in net income is mainly the result of an increase in net interest income driven by continued core deposit and record loan growth. These factors were partially offset by an increase in non-interest expense.

Looking at deposits, deposits increased $459 million to $14.1 billion this quarter. For the year, total deposits grew a record $2.33 billion, core deposits grew a record $2.17 billion, and average deposits grew nearly $14 billion -- all increasing 20%. Non-interest-bearing deposits of $4.4 billion represented 32% of total deposits and grew $1.3 billion, or 41%, for the year.

With this substantial deposit and loan growth, as well as earnings retention, total assets reached $17.46 billion, an increase of $2.79 billion, or 19%, since the fourth quarter of last year.

The ongoing strong core deposit growth is attributable to the unparalleled level of service provided by all of our private client banking teams who continue to act as a single point of contact to their clients.

Now let's take a look at loans. Loans during the 2012 fourth quarter increased a record $1.02 billion, or 12%. For the year, loans increased a record $2.9 billion and now represent 56% of total assets compared with 46.7% one year ago. This transformation is significant considering the $2.79 billion growth in assets this year.

All of our major lending areas, including commercial and industrial, commercial real estate and multifamily loans, and specialty finance, contributed to the record loan growth. Additionally, for the fourth quarter, due to the expected increase in capital gains taxes in 2013, approximately $184 million in loans closed that would have closed in the 2013 first quarter.

Non-accrual loans decreased to $27.2 million, or 28 basis points of total loans, this quarter compared with $28 million, or 32 basis points, for the 2012 third quarter. Non-accrual loans at year-end 2011 were $42.2 million, or 62 basis points.

The allowance for loan losses was 1.10% of loans versus 1.18% of loans in the 2012 third quarter and 1.26% for the 2011 fourth quarter. Additionally, the coverage ratio, or the ratio of allowance for loan losses to non-accrual loans, further improved to 395% compared with 367% for the 2012 third quarter and 204% for the 2011 fourth quarter.

The provision for loan losses for the 2012 fourth quarter was $10.4 million compared with $10.1 million for the 2012 third quarter and $14.6 million in the 2011 fourth quarter. This quarter's provision includes reserves for the anticipated effects of Superstorm Sandy, which cost approximately $0.02 in earnings.

Net charge-offs for the 2012 fourth quarter were $5.9 million when annualized 25 basis points compared with $4.6 million, or 22 basis points, for the 2012 third quarter and $11.9 million, or 71 basis points, for the 2011 fourth quarter.

Now turning to the watch list of past due loans, watch list credits again decreased this quarter by $34.3 million to $152.9 million, or 1.6% of total loans. During the 2012 fourth quarter we saw an increase in our 30- to 89-day past due loans of $18.4 million to $48.7 million, which is well in line with our historical performance. We also saw a decrease of $2.2 million in the 90-day-plus past due category to $28.8 million.

While we are pleased that both non-accrual and watch list credits decreased this quarter and our credit metrics remain strong, we are mindful of the uncertainty in the economic environment as well as the potential effect on our clients from Superstorm Sandy and we again conservatively reserve.

Just to review teams for a moment, 2012 was a busy year. In addition to hiring four traditional private client banking teams and opening the Hauppauge office we also welcomed more than 50 new colleagues to begin our specialty finance subsidiary, Signature Financial. This subsidiary is led by a remarkably experienced management team.

Looking at 2013, our pipeline remains relatively active and we look forward to opportunities for attracting talented banking professionals to our network.

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. Start by reviewing net interest income and margin.

Net interest income for the fourth quarter reached $147.1 million, up $21.9 million, or 17.5%, when compared with the 2011 fourth quarter and an increase of 3.9%, or $5.5 million, from the 2012 third quarter. Net interest margin was down 2 basis points in the quarter versus the comparable period a year ago and decreased 3 basis points on a linked-quarter basis to 3.53%. The linked-quarter decrease was mostly due to the continued effect of the prolonged low interest rate environment on asset yields.

The decrease, however, was partially offset by an increase in prepayment penalty income, a further decrease in our deposit costs, and continued loan growth. When you exclude prepayment penalty income from the 2012 third and fourth quarters, core net interest margin for the linked quarter declined 9 basis points to 3.32%.

Now let's look at asset yields and funding costs for a moment. Overall interest-earning asset yields declined 9 basis points this quarter to 4.16% as we continue to feel the effect of the low interest rate environment and increased premium amortization on the securities portfolio. Asset yields were assisted, however, by an improving earning asset mix and an increase of $2.7 million in loan prepayment penalty income to somewhat offset the continued low interest rate environment.

Given the strong loan growth and low interest rate environment, we were able to be very selective in securities purchases. As a result, the average balance of the securities portfolio declined $104 million and yields declined 14 basis points to 3.19%. But the ratio remained stable at 2.75 years.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 14 basis points to 5.1% compared with the third quarter of 2012. Excluding prepayment penalties from both quarters, yields would have declined 23 basis points.

Now looking at liabilities, money market deposit costs this quarter further declined 4 basis points to 78 basis points as we again decreased deposit costs given the low interest rate environment. This decrease, coupled with an increase of $479 million, or 13%, in average non-interest-bearing deposits helped lead to a decline of 4 basis points to 58 basis points in our overall deposit costs.

And on to non-interest income expense.

Non-interest income for the 2012 fourth quarter was $8.9 million, an increase of $1 million when compared with the 2011 fourth quarter. This was driven by an increase of $1.8 million in gains on sales of SBA loans.

Non-interest expense for the 2012 fourth quarter was $58.1 million versus $47.1 million for the same period a year ago. The $11 million, or 23%, increase was principally due to the addition of new private client banking teams and the Signature Financial hirings. Also, we incurred expense from Superstorm Sandy that cost an additional $0.01 of earnings.

The Bank's efficiency ratio remains stable at 37.2% for the 2012 fourth quarter compared with 36.6% for the 2012 third quarter.

Turning to capital. Our capital levels remain strong with a tangible common equity ratio of 9.45%, Tier 1 risk base of 15.32%, total risk-based ratio of 16.35%, and leveraged capital ratio of 9.51% as of year-end 2012. 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. The fourth quarter capped another exceptional year of achievement for Signature Bank. In 2012 we grew deposits a record $2.33 billion, or 20%; grew loans a record $2.9 billion, or 43%. Loans now account for 56% of total assets.

Maintained exceptional credit quality with non-accrual loans total to assets of only 16 basis points. Increased net interest income by $90 million, or 20%. That is top-line revenue growth.

Added four private client banking teams, as well as more than 50 colleagues to launch our special specialty finance subsidiary, Signature Financial. Maintained a solid capital position through earnings retention, even given the significant growth of the balance sheet, further solidifying our commitment to depositor safety. And, lastly, delivered a 24% increase in net income to a record $185.5 million on top of delivering a 50% increase in 2011.

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

(Operator Instructions) Dave Rochester, Deutsche Bank.

Good morning, guys. Nice loan growth this quarter. On the expense side, just to understand the Sandy impact, did you say that was a $0.01 a share in higher expenses?

That is correct.

Okay. And would most of that be in that other line or is there some in comp as well?

No, it is in other G&A.

Okay. Just switching gears, I know in the past you guys have talked about general expectations for loan and deposit growth for the year, as well as expense growth. I am just wondering what you guys are looking at at this point for the budget this year.

I will preface my comments, Dave, as we have talked in the past, that we are much better at execution than we are at projecting. For example, in the last several years we have given our budgeted numbers and in 2012 -- I am sorry, 2011 looking at 2012 we had budgeted $1 billion in loans and $1.4 billion in deposits. So clearly we blew that away.

So for this year, and this is somewhat ratably throughout the quarters, we are budgeting approximately $2.2 billion in loans and about $1.4 billion in deposits. Now that is directly from our budget process where, like I said, we have been able to over the last several years blow those numbers away. But it doesn't make sense for us to project things that are very difficult to really project. We would rather just be able to execute.

Totally understand. Just one more quick one here, sorry if you mentioned this, but the securities yield was down a bit. I know that you weren't really building the securities book and I would imagine that is premium amortization. How much of that impacted the margin this quarter and the yield?

There was another $1.3 million in premium amortization this quarter over the prior quarter.

Great. Just a general comment on the margin going into next quarter, do you expect to see less pressure in 1Q versus 4Q?

Maybe just a little bit less pressure. We think first quarter will still see a decent amount of pressure given a fairly wide range of us being down another 3 to 7 basis points.

The pickup in the 10 year so far this quarter should be beneficial to the securities portfolio, but we need to see that stay there for a while. So as long as it stays elevated it should be beneficial, but we are certainly getting pressures from the current rates that we are on-boarding loans and securities at.

Okay. Thanks, guys. Appreciate it.

Erika Penala, Bank of America-Merrill Lynch.

Good morning. My question is on your loan to deposit ratio; it is clear and impressive what your deposit growth has been in 2012 and it clearly speaks to your ability to hire teams and onboard teams.

I guess I am wondering as we sort of look out, and I know you are cautious on the economy, but if we are a little bit more optimistic on the trajectory, is there a normal level of loan to deposit ratio at Signature?

Or are we really can't think of it that way because you are continuing to ramp up teams and therefore, despite either higher rates or a better economic trajectory, you will always grow deposits significantly?

Well, I think what you said about it is hard to do because the trajectory is there because of the continued hiring of teams. Although I have to say the existing teams contribute significantly to the growth on the deposit and the loan side by double digits.

But are plan for the near future 2013 and 2014 is to continue to add on teams and take advantage of the opportunities that are presented to us. The opportunities being the large too big to fail institutions, what we jokingly call the government-sponsored institutions.

We find that there are some real opportunities there and that is evidenced by a number of banks that were not in New York City that have moved into New York City to try to take advantage of that. We have been able to do that and we continue to see ourselves being able to do that.

So it is very difficult to come up with a normal trajectory when we are going to continue to add teams on in the foreseeable future.

Got it. You mentioned the expense related to Sandy, but is there a way to size any potential opportunity in terms of financing, rebuilding projects?

We haven't come across any and usually construction is not our forte. It is better to do the commercial real estate the way we have been doing it and cash flowing, with some exceptions here and there, when we have opportunities. So, no, we won't be able to take advantage of that.

Thanks. Just a quick follow-up to Dave's question. You have been able to dial down your money market rate and it is still clearly above peers. Could you share with us -- can you sense a sense of what the sensitivity in terms of what the floor rate can be in terms of how much you could draw this down relative to peers, either a spread relative to the New York City average or an absolute floor?

It is hard to say. I will tell you why, because all of our competitors have a retail component. And so the large institutions in particular can give clients 20 to 25 basis points.

You know that old adage 20% of the clients give 80% of the profits, those are the types of clients that we target at each of those institutions. They command and require a higher rate, so when we see them coming from the Citibanks, from the Chases, from the HSBCs, they are not getting 25 basis points. They are getting 75 basis points or somewhere near that.

So we bring the clients over and we try not to do cliff diving with their rates. We try to take them down slowly, like we did this quarter from 82 to 78 basis points. We started off December with 77 basis points and we started to drop rates actually last week, this week and toward the beginning of February. So we are going to be able to continue to drop that slowly, although there is no real floor.

In fact, we have been seeing some advertisements from some competitors on the personal money market side anywhere between 80 and 85. Again, that is what they are advertising and we have to be cognizant of that.

But I think there is a big difference here. Everyone looks at that rate. I think the best thing to do is to look at the efficiency ratio, because we don't have the expense of the retail. We don't have the retail locations which have a significantly higher cost in leasing, in rental costs. We don't have the advertising and marketing costs.

So we get the better clients and pay them a little bit more and that affects our NIM. But, clearly, when you look at our efficiency ratio that bodes well for us because we don't have all those extra costs.

So it is very difficult to come down to what a floor is, but were are still going -- as Eric likes to use the term runway, we still have a lot of runway there to drop our deposit costs.

Got it. Thank you so much for the color.

Jason O'Donnell, Merion Capital Group.

Good morning. Just following up on the operating expense discussion. Eric, can you just maybe give us the impact of Hurricane Sandy in pre-tax dollar terms?

It is roughly $500,000 to $700,000 in dollar terms.

Okay, that is helpful. Then with respect to your expectations for year-over-year growth in operating expenses, I think you were talking previously about maybe a 20% trajectory, roughly, in the first quarter and then a slowdown throughout the remainder of the year. How are you looking at it at this point?

Yes, that is correct. I would expect that we would see about 20% in the first quarter because remember we brought on the Signature Financial team right at the end of the first quarter of 2012. So that had very little impact on that quarter's earnings. So I think we will see 20% and then we should go down for quarters two through four down to a 10% growth number.

Okay, 10%. Okay, great. Then I guess final question is can you just maybe give us a little bit more detail around the contribution of Signature Financial this quarter? And then I am wondering, I guess I am curious as to how much of the growth incrementally is attributable to seasonal factors as opposed to sort of the core engine of growth at that unit?

Yes, they did a little over $300 million this quarter, which compares to a little over $200 million the previous two quarters. I would really say that most of that growth, if not all of it, was due to seasonal factors. Their fourth quarter typically is their strongest quarter and it certainly panned out to be that way this year. It might have been slowed a little bit with fiscal cliff concerns, but it was still a very strong quarter for them.

Perfect, thanks a lot.

Bob Ramsey, FBR.

Good morning, guys. Just to follow up on Signature Financial. Now that you guys have got three quarters under your belt I am kind of curious how you all think about the potential loan growth out of that business over 2013 and how much of the $2.2 billion in your loan growth budget comes from Signature Financial.

When we put the budget together we try not to get that granular. I think a good way to look at it is the fact that they averaged a little over $200 million in the second and third quarters and had a little over $300 million in Q4. And so I think a better way of looking at it is saying -- taking that as a precursor to 2013 and looking at it that way.

Okay. Is the first quarter seasonally like the second and third? Is that a good proxy or is there seasonality in the first quarter that we should be mindful of?

Well, you know, it is difficult to say because we are not sure how many clients held back doing business in Q4 because of the fiscal cliff. There may have been some of that and we may be the beneficiary of that in Q1. We are not quite sure.

So we would like to have a little bit more under our belt, another quarter or two, before we start breaking out projections for them.

Okay, that is helpful. And the margin guidance that you gave, I assume that is based on the core margin and then the prepayments will add something on top of that. Is that the right way to think about it?

That is right, Bob.

And as you sort of look forward through the rest of 2013, you gave great guidance around the first quarter, would the expectation be that the pressure eases a bit as we work on through the year, assuming rates stay where they are now?

Assuming if they stay where they are now, yes, you would expect it to ease. They have been lowering for quite some time now. We have had a decent amount of pre-pay activity happen over 2012 and 2011, so if they stay where they are we should see it ease a bit. But that is a big assumption.

Okay, great. Then last question and I will hop out. Did you all give a new team goal for 2013? If you did, I missed it.

No, we did not. We have projected four new teams.

Thank you, guys.

Steven Alexopoulos, JPMorgan.

Good morning, everyone. I just wanted to clarify, what was the balance of loans at Signature Financial year-end?

A little over $750 million, Steven.

Okay, that is helpful. Eric, on the securities yields, could you give us an idea of where you think yields should bottom based on where you are reinvesting new cash?

That is so hard to predict. It really depends on how long we are in this low interest rate environment, Steve.

We are reinvesting now in the high 2%s. If we had to reinvest in a big way -- if we didn't have the loan growth, we would be reinvesting in the mid-2%s. So if we are in this for another few years I think that is where I would see it settling out, mid-2%s. But it really depends on how long we are in this environment.

Right. But I guess near term we should expect pressure to stay similar to what you saw this past quarter?

I would think. We saw a decent amount of premium amortization this quarter that I would like to think if the 10-year stays elevated for a good amount of time that that could ease a bit. But we still expect it to come down, no doubt.

Okay. Just as a final question, with TAG expiring any signs of either outflows out of your checking account balances or, alternatively, inflows into your money market product, perhaps coming from other banks?

It has actually been very quiet, almost like in 1999 when we had Y2K. It seems that we have not seen much activity one way or the other yet. I think it is still being absorbed by the market.

I know there is some information out there about outflows of DDA, but one of the things that we have to be cognizant of at Signature Bank most of our DDA -- in fact, 87% of the growth in DDA during 2012 was business DDA. We are seeing a lot of statistics that talk about DDA and personal accounts that would be leaving and going into interest bearing. Only 13% was the growth in personal. So it has been somewhat quiet on that front.

Joe, does the expiration of TAG give you, perhaps, an opportunity to lower the money market rates a bit more now that you are not competing against that?

Possibly. I mean I mentioned we are -- we actually started last week and we are going through this weekend, through February 1, lowering the interest rates on our business money market accounts which should help us with our cost of deposits for the first quarter. I am not sure how much runway we have but we certainly believe that we can drop that from 78 basis points.

Okay. Thanks for all the color.

Casey Haire, Jefferies.

Good morning, guys. Just a question on the loan growth composition. Stripping out the $300 million from Signature Financial, can you give us a breakdown of the remaining $700 million between the Hauppauge team and CRE multifamily?

It was mostly CRE multifamily that taking the remainder of that. About $360 million in multifamily and then a couple hundred million more in commercial property. And then I wouldn't just say it was the Hauppauge team, it was C&I across the board with the difference.

Okay. And relative to the third-quarter guide in terms of the asset yields, any deterioration in yields across the products that you are seeing?

Not seeing deteriorate -- on the commercial real estate side we have seen some stiffer competition in rates but the team out in Melville has been able to still get a 1/4 to 3/8 more. So we are looking at multifamily at 3.5% to 3.75% and that hasn't changed.

Signature Financial, on our business there, what we were doing in the low 4%s we are probably doing at high 3%s right now, so we are seeing a little pressure there. And C&I we were seeing pressure all along. So the low rates, particularly on the floaters, has continued to be low.

Got you, okay. Just switching to credit quality, loan-loss reserve ratio, the coverage ratio down to close to 1%. I appreciate that the Signature Financial credits are pretty safe, but is there a minimum that you wouldn't want to invade where we would see that ratio stabilize?

It is hard to say, but I will bring this out in terms of color. On the commercial real estate side most of our competitors that are in that space are usually reserving at 50 basis points so somewhere thereabouts. And so you have to take into account the fact that we still have a significant growth in commercial real estate side.

We have had some very good experience over the last five-plus years with that portfolio. When you compare it to others, we would have an allowance for loan-loss ratios below 1. But that is not what we are advocating; we are just giving you that as an example in terms of color when you compare us.

Because if you take some of the savings banks, all they do is commercial real estate so they don't have a mixture like we have of C&I and now that we have a specialty finance. So there is not a minimum that we don't want to go below. There is no bright line; there is no line in the sand. We will just talk about it on a quarter-to-quarter basis.

Got you, okay. Just last one for me, just a big picture question on the growth strategy. Obviously Signature Financial has worked out very well for you guys.

I was just curious as to what kind of other opportunities similar to that there might be out there. Are you guys looking? Is it a target rich environment? Just any color there.

If you were the only one on the call we still wouldn't tell you. We couldn't tell you if there was a target out there.

I will say this. We have constant conversations and that enables us to identify a great team that we brought on for Signature Financial, and five or six years earlier those conversations led to a great team that we brought on in commercial real estate. So we are hopeful that we continue to have conversations and get an opportunity.

The answer is, yes, we have conversations but I wouldn't lead you one way or the other because there are people listening.

Got you, thanks.

Casey, just to add to that we really have the vehicle for growth now. We just came off of our fourth record quarter in a row. We have got commercial real estate continuing to be very strong. Specialty finance just finished up their third quarter here. There is clearly a lot of growth there.

So we have got the growth engine in place and C&I has ticked up the last couple of quarters, which is very positive to see. So we are not going to stretch on that front but there are opportunities for us there.

Got you. Thanks for taking the questions.

Matthew Clark, Credit Suisse.

Good morning, guys. Most of my questions have been asked and answered, but can you just clarify on Sandy that you had a $0.01 in the expense line but also about $0.02 in the provision?

That is correct.

Okay. Then the TDR amount this quarter, accruing TDRs.

Accruing TDRs were $52.6 million.

Okay. Then of the 21 basis points in prepayment penalty income, would you be able to guesstimate maybe how much of that came from the pull-forward of activity maybe that occurred in December or just in the fourth quarter that may have contributed to that outsized contribution?

We are really on the buy side of that activity so we wouldn't have received the pre-pay penalty income. It is sellers on the other side that needed to sell (multiple speakers) on the buy side.

Got it. Okay, thanks, guys.

Chris McGratty, KBW.

On the size of the investment portfolio, the guidance on the loan growth was helpful. How should we think about kind of securities as a percent of earning assets? I think a year ago it was, call it 50%; we are low 40%s today. Is there a level that this normalizes on over the next two years?

I think there is a level that we will need because we do need those securities to collateralize borrowings. Certainly we could take it down a little bit more. But, ultimately, we would like to maintain that securities portfolio at or around where it is today to make sure that we have adequate borrowing capacity and really an absolute dollar amount right around where this is that.

All right, thank you.

Herman Chan, Wells Fargo Securities.

Thanks. Good morning, guys. Question on the efficiency ratio.

After the elevated expense growth related to Signature Financial subsides in Q1 should we expect the efficiency to trend down to that 35%, 36% level that the Bank was able to achieve in the latter half of 2011?

Absolutely. We definitely think we can drive that efficiency ratio down, but at a very slow pace. There is not much lower that we can really go on that, Herman.

Got it. The historical taxi medallion that appears to have joined a competitor, can you talk about that exit and also give some color on competition for teams at this juncture? Thanks.

Well, back in the end of the first quarter, beginning of the second quarter when Signature Financial joined, they already had an existing taxing medallion business. We thought it best to combine our existing taxi medallion business with their taxi medallion business because it is such a limited market that you really shouldn't have two distinct teams from one institution competing for business.

So, unfortunately, the existing team became somewhat superfluous. One of the two partners, group directors on the team left in March and the other one chose to leave later on because their business was combined with Signature Financial and they were doing other things within the institution.

In terms of color on teams themselves, I said earlier that the pipeline is relatively active and we certainly look forward to bringing on some teams in the very near future.

Thank you very much, guys.

John Pancari, Evercore Partners.

Good morning, guys. This is Raul (inaudible) on behalf of John. I have a quick question on -- most of my questions have been answered -- a question on the unamortized premium on the book. How much is that currently?

I'm not really sure what that dollar amount is. I would have to get back to you on that.

Okay. Then could you give us some color around the expected pace of multifamily growth in coming quarters? What kind of competition are you seeing in this space? Then maybe around C&I book.

I can tell you the competition that we are seeing on the multifamily is that a number of other institutions have come in. I think they believe that they can do the business because of the low risk profile of this type of asset.

I think the advantage that we have over all those institutions is that the efficient teams that we have out in Melville that are able to close the business within 45 days. The clients and perspective clients are very comfortable with the fact that who they deal with on the original deal is the same team that they will deal with if they want to refinance or if they want to do something with the property.

So that gives us a big advantage over all the newcomers that are now coming in to try to do this business. Because you need to be able to show those clients not only do you give them a fair rate, and we are getting our fair share of business even though we have a higher rate, but because of how efficient and how trustworthy the team is that they deal with.

On the C&I side, the competition is a little different because even in the low to middle end of the C&I market you have the larger institutions. So you have the Chases -- the J.P. Morgan Chases, the HSBCs, the Bank of Americas of the world where you don't see them on the space that we are in on the multifamily.

What they are doing on rate is somewhat, I will use the word unconscionable because on the floaters the spread to LIBOR has gotten very thin. However, we are willing to sacrifice some NIM to get quality clients, because rates are not always going to be this low, and to bring on floaters because we believe for an asset liability purpose it makes sense for us to have a good combination of floating rate and fixed.

Okay, thanks. That is helpful.

Peyton Green, Sterne, Agee.

Good morning, great quarter. Just to make sure I have this right, Joe, you all are expecting for budgeting purposes $2.2 billion in loans and about $1.4 billion in deposits?

Yes. (inaudible)

And I guess a year ago when you would have thought about this it would not have included Signature Financial and the estimate was for about $1 billion.

Exactly, so that is why we included a little higher amount.

And I guess, maybe to compare and contrast, it seems like you are still getting more than your fair share of the multifamily and CRE business. Has that changed year over year? Has it gotten a little better? How has your presence in the market helped, or do you expect that to slow going forward?

I think you are correct, it has gotten a little better. However, the loan growth and the deposit growth is a net figure. It is not new loans being booked or new deposits coming in.

Deposits flow out every day and loans get paid. As our Chief Credit Officers says, it is not bad to have loans paid back. So those figures are net figures and they are very hard to project. The easiest thing to project is the expenses, which Eric has done admirably over the years, so that is why we project on a conservative basis.

Okay. Then I don't know if you have this at your fingertips or not, but to what degree did you refinance loans that prepaid versus did they go to the street?

Peyton, we will have to get back to you on that. We don't have that. I am sure we can get it, that information.

I have a tendency to believe that those that we refinanced we kept more often than not, than we would have -- I would say I would think three-quarters of the loans we kept and a quarter left to go elsewhere if I had to give a projection.

Okay. Then any idea as to what degree or growth rate the existing teams posted in loans and deposits year over year in 2012?

We haven't run those numbers yet, Peyton, but we will have those available probably for the first quarter call.

Okay. Do you think that they slowed down any or stayed pretty comparable?

I think that they grew at a pretty hefty clip.

Okay, all right. So no -- all right, great. Thank you all very much.

I am showing no further questions in the queue at this time. I would like to turn the conference back to management for any final remarks.

I want to thank you for joining us today. We appreciate your interest in Signature Bank. As always, we look forward to keeping you apprised of our developments.

Alicia, I will turn it back to you to close it up.

Thank you. Ladies and gentlemen, this concludes the Signature Bank 2012 fourth-quarter and year-end results conference call. Thank you for your participation. You may now disconnect.