Signature Bank (SBNY) 2013 Q3 法說會逐字稿

Welcome to the Signature Bank 2013 third-quarter results conference call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer, and Eric R. Howell, Executive Vice President, Corporate and Business Development.

Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions).

It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. Sir, you may begin.

Good morning and thank you for joining us today for the Signature Bank 2013 third-quarter 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 operations 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, operation, new private client team hires, new office openings and business strategy. 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 those described in our quarterly and annual reports filed with the FDIC which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made.

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 EVP of Corporate and Business Development, will review the bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

The 2013 third-quarter marks another where Signature Bank demonstrated topline revenue growth driven by strong core deposit and record loan growth culminating in our 16th consecutive quarter of record earnings. We achieved these record results while maintaining stellar credit quality and further investing in our future as evidenced by the addition of an asset-based lending team marking our entry into the segment of the market. I will start by reviewing earnings.

Net income for the 2013 third quarter reached a record $60.2 million or $1.25 diluted earnings per share, an increase of $12.5 million or 26% compared with $47.7 million or $1 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 primarily driven by continued core deposit and loan growth as well as an increase in loan prepayment penalty income. These factors were partially offset by an increase in noninterest expense.

Looking at deposits, deposits increased $775 million or greater than 5% to $16 billion this quarter including core deposit growth of $582 million. For the first nine months of 2013, deposits grew $1.96 billion or 14% and for the trailing 12-month period, deposits have increased $2.42 billion or nearly 18%.

Average deposits for the quarter increased $830 million or 5.5%. Noninterest bearing deposits of $4.8 billion represented 30.1% of total deposits. Our deposit growth, loan growth and securities purchases this quarter led to an increase of $4.5 billion or 27.6% in total assets which reached $21 billion this quarter versus the third quarter of last year.

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

Now, let's take a look at our lending businesses. Loans during the 2013 third quarter increased over $1 billion or 9.4%. For the past 12 months, loans grew more than $3.3 billion and represents 57.6% of total assets compared with 53.2% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate, multifamily loans, and specialty finance.

Nonaccrual loans remained stable at $40.2 million or 33 basis points of total loans this quarter compared with $35.9 million or 32 basis points for the 2013 second-quarter and $28 million or 32 basis points for the 2012 third quarter.

The allowance for loan losses was 1.05% of loans versus 1.08% of loans in the 2013 second quarter and 1.18% for the 2012 third quarter. Additionally, the coverage ratio or the ratio of allowance for loan losses to nonaccrual loans continued to be strong at 316%.

Given the record loan growth, the provision for loan losses for the 2013 third quarter was $11 million compared with $9.7 million for the 2013 second quarter and $10.1 million for the 2012 third quarter.

Net charge-offs for the 2013 third quarter were $3.1 million or an annualized 11 basis points compared with $3.5 million or 13 basis points for the 2013 second quarter and $4.6 million or 22 basis points for the 2012 third quarter.

Now turning to the watch list and past-due loans. Watch list credits increased slightly by $3.9 million this quarter to $142.8 million or a low 1.18% of loans. During the 2013 third quarter, we saw an increase of $7.2 million in our 30 to 89 day past-due loans to $47.3 million and we also saw an increase of $5 million in the 90-day plus past-due category to $10.1 million.

While we are pleased that our credit metrics remain strong this quarter, we remain mindful of the uncertainty in the economic and political environments and again we conservatively reserved.

Just to review teams for a moment, one team joined thus far in the fourth quarter bringing our total teams hired to eight this year and we are pleased to have added a very experienced asset based lending team to lead a new initiative for the bank.

At this point, I'll 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 third quarter reached $167.4 million, up $25.7 million or 18.2% when compared with the 2012 third quarter and an increase of 8.3% or $12.9 million from the 2013 second quarter. The linked quarter increase was positively impacted by an additional $1.6 million of loan prepayment penalty income.

Net interest margin was down 24 basis points in the quarter versus the comparable period a year ago and decreased 4 basis points on a linked quarter basis to 3.32%. When prepayment penalty income is excluded from the 2013 second and third quarters, core net interest margins for the linked quarter declined 5 basis points to 3.16%. The linked quarter decreases in overall and core margins are predominantly due to an increase in commercial mortgage refinance activity fueled by the pickup and five- and 10-year rates.

Now let's look at asset yields and funding costs for a moment. Due to the prolonged low interest rate environment and heightened competitive landscape, interest-earning asset yields declined 38 basis points from a year ago and they were down 5 basis points from the linked quarter to 3.87%. Given advantageous market conditions at the very end of the second quarter and further in the third quarter, we capitalized on the steeper yield curve by pre-investing future cash flows in our securities portfolio. As a result, our average investment portfolio increased $531 million.

Yields on the portfolio increased 9 basis points to 3.1% this quarter mostly due to higher reinvestment yields and from a slowdown in premium amortization. And with the higher interest rates at quarter end, the duration of the portfolio extended to 3.99 years.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 12 basis points to 4.58% compared with the 2013 second quarter. Excluding prepayment penalties from both quarters, yields would have declined 15 basis points again driven by increased refinance activity and commercial real estate.

And now looking at liabilities, money market deposit costs this quarter remained stable at 71 basis points and our overall deposit costs remained at 51 basis points.

With the strong loan growth and advantageous market for securities investment, average borrowings increased $729 million to $2.56 billion or only 14.5% of our balance sheet. Given the short-term nature of these incremental borrowings, the average borrowing cost is down 35 basis points from the prior quarter to 1.06%. This helps to lead to a decrease of 3 basis points in our overall cost of funds.

Onto noninterest income and expense; noninterest income for the 2013 third quarter was $7.9 million, a decrease of $485,000 when compared with the 2012 third quarter. The decrease was driven by a $1.7 million decline in net gains on sales of SBA loans and an increase of $966,000 in write-downs in other than temporary impairment of securities. These were offset by an increase in gains on sales of securities of $2.2 million. $1.8 million of this increase was from a gain on sale of an SBA interest only strip security.

Non-interest expense for the 2013 third quarter was $62.3 million versus $54.9 million for the same period a year ago. The $7.4 million or 13.5% increase was principally due to the addition of new private client banking teams, the new asset based lending team and our continued investment in the growth of Signature Financial.

Even with the significant hiring since last year, the bank's efficiency ratio still improved slightly to 35.6% from the 2013 third quarter compared with 36.6% for the 2012 third quarter.

In turning to capital, our capital levels remain strong with a tangible common equity ratio of 8.38%, Tier 1 risk-based of 14.61%, total risk based ratio of 15.66% and leverage capital ratio of 8.74% as of the 2013 third quarter. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet.

And now I'll turn the call back to Joe. Thank you.

Thank you, Eric. The 2013 third quarter was our 16th consecutive quarter of record earnings fueled by strong core deposit growth, record loan growth, solid credit metrics and topline revenue expansion. Moreover, while the bank continues to deliver record earnings quarter after quarter, we also remain focused on our long-term strategy of attracting talented banking professionals to our network as evidenced by the addition of our new asset based lending team, the further expansion of our specialty finance subsidiary, Signature Financial, and the hiring of additional private client banking teams.

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

(Operator Instructions). Ken Zerbe, Morgan Stanley.

Great thanks, good morning. I guess maybe just starting off with a question on loan growth. Obviously very, very impressive numbers this quarter. When you look ahead over the next quarter, the next year, is there anything on the horizon -- even whether it is seasonality or competition -- that causes you a little more concern than where we were say last quarter in terms of the ability to continue to grow loans or maybe it's just can you continue to hire teams and are they still out there, etc.? So a pretty open-ended question. Thanks.

Ken, nothing causes us any concern. The one thing we would highlight for this particular quarter where we had a little over $1 billion in growth was that when the 10-year went up to the 3% level, we saw a flurry of refinance activity because clients and prospects wanted to make sure that they got their rates in -- their loans done with these rates because there was an expectation that rates were going to go higher. So we saw a flurry of activity and so there may have been some pull forward into the quarter of that activity of refinance.

And we also saw for the first time in a while some transactions whereby we are financing the purchases of real estate. So that was what would have driven the quarter to over $1 billion.

For our expectations going into the fourth quarter, we look at an activity level of somewhere between what we did in the second quarter which was $700 million and what we did in the third quarter which was $1 billion. So nothing causes us concern to continue the robust growth that we have had over the last several years.

Okay, perfect. And then just quick on expenses. I guess with the addition of the ABL team, should we -- have you changed your forecast or how you think about expense growth over the next year?

Yes, with ABL and we are seeing a pretty robust pipeline on team growth, we project that expenses will be up in the 10% to 15% range looking year-over-year going several quarters out.

Perfect, thank you.

Christopher McGratty, KBW

Good morning. Eric, on the premium amortization that you alluded to in your prepared remarks, can you quantify how much you have and how much it was in the quarter as well as second quarter?

Yes, it was about $1.8 million less premium amortization that we had in the quarter. In total, we have about $19.6 million in premium amortization in the quarter.

Okay, and then can you help us with the comment on the securities portfolio side. You talked about pre-buying some securities last quarter given the move up in rates. How should we think about the size of the investment book in the fourth quarter and early 2014? Thanks.

I think we will keep it around the level that it is at today. It could be plus or minus a little bit. Some of that is going to be predicated upon deposit growth which can be choppy at times as you know with escrow funds coming in and out. So if we see a very strong quarter -- although I think we just had a very strong quarter of deposit growth - so let's say a beyond strong quarter, then I would think you would see us increase the size of our securities portfolio.

Thanks.

Bob Ramsey, FBR.

Good morning, guys. I was curious if you could quantify how much of the loan growth was from the specialty finance group this quarter?

It was a little over $200 million came out of the specialty finance.

Okay. And then as you think about that business and obviously the hires in that business, where do you think we are in terms of what the potential for that group is?

They had about a $4.5 billion book of business at their prior institution. We see no reason why they can't get to that level. They have been averaging approximately $200 million to $300 million in their peak quarter which is the fourth quarter. So we would expect them to have a similar run rate going forward.

Although they are starting to face heavy principal repayments coming back at them because their loans ourselves amortizing, they are three- and five-year self amortizing loans. So they are against that headwind a bit but we would expect that they will have relatively the same level of growth as we've seen over the past 18 months.

Ken, one thing that we have an advantage at Signature where comparable to their previous institutions is that we have 80+ teams that have an ability to refer business to them of their existing clients that we were not doing before. And that did not occur at their previous institution so that could offset any of the premium -- any of the loan payments that we are getting over the three- and five-year periods.

Okay, great. That's helpful color. And then last question, how should we think about the gain on sale of loans line? Obviously it can be a little volatile and this quarter was a little lighter but what is the right way to think about that on an annual basis or sort of on a normalized basis the sort of our earnings power on that line?

I think this quarter is more of a normalized number for them. They have had some stellar quarters over the last year or so as there's really -- the SBA pools that we offer to our investors have really been the only government guaranteed option out there that's got any type of yield to it. With the pickup in the five- and 10-year, we saw other alternatives come into play. So they are a facing that competition of other government alternatives out there and that's why we saw the level of their sales decline this quarter back to what I would consider a more normal level. So I would use this quarter's run rate going forward, Bob.

Okay, that's helpful. Thank you.

Thanks, Bob.

Dave Rochester, Deutsche Bank.

Good morning, guys. Nice quarter.

Hey, Dave, good morning, thank you.

Did you guys see any loan growth in traditional C&I and could you also quantify what you saw multifamily commercial real estate?

Traditional C&I was relatively flat. It was up slightly. Multifamily CRE was up a little over $600 million this quarter.

And then CRE was the balance?

CRE and specialty finance was the balance.

Oh, okay. Got you. So the multifamily piece was $600 million roughly?

Right.

Okay. Can you -- just switching to the margin just talk about what you are outlook is there and I would imagine you are assuming that the premium [AM] expense of close to $20 million continues to ratchet lower?

Correct, it should trickle down a little bit from the level it was at this quarter. We really expect margins to be stable to down 3 basis points. A lot of that will be predicated upon how much we have in commercial real estate refinance activity but we think we are closer to the bottom since we did see an acceleration in that refinance activity in the third quarter.

Great. And just real quick on the funding side, I know you mentioned that money market deposit costs were pretty steady this quarter. Can you just talk about the competition in that space today? Do you think you might be able to get at least a few more basis points out of that over the next couple quarters?

Well, it was at -- on the interest-bearing money market was at 71 basis points, the last month of the quarter in September it averaged about 70 basis points. So there is maybe an opportunity to get another basis point or two. We are really reaching the bottom of what we can get in terms of being able to decrease the existing clients.

What would drive it down a basis point or two more are some of the newer dollars that we are bringing in at below the 70 basis point range from some of the bigger institutions. But as we've said in the past, the type of clients that we target are those that keep substantial amount of DDA and substantial money market dollars so they do command a rate that is higher than a normal mass-market retail client.

Great, understood. All right, guys, thank you very much.

Steven Alexopoulos, JPMorgan.

Good morning, guys. On the multifamily, have you guys taken up the size credit you will add or was that a factor in third-quarter growth? Maybe can you just talk about outside of loans picking up for the movement in rates maybe the activity in the multifamily market? Are they accelerating or are you just picking up more share?

We have done -- I wouldn't say it contributed to the $1 billion growth this quarter but what's happened over the last several quarters is that we used to have loans that we were doing above $25 million rarely. Now we are doing them a little bit more but we still keep our sweet spot up to about $25 million. So I forget -- Eric can tell us how many we have.

Yes, we have 24 loans that are greater than $25 million now. But the average size of the portfolio is still $3.5 million per loan so it's fairly granular.

So it's fairly granular and you can tell that it doesn't really drive it. What's really driving it is the volume of the $3.5 million average that we have.

What we saw in the third quarter and what we are saying a little bit in the early part of the fourth quarter is something we hadn't seen in the previous quarters is that there is some activity of sales. So I guess what drove some of that is the rates moving and the 10-year going up to 3% or so spurred some activity for us to be able to finance some of these purchases which clearly helped us in the third quarter and will help us for our growth in the fourth quarter. I don't know, is that enough color or --?

Yes, Joe, that's helpful. Eric, relative to the core loan yields, I missed this if you said it, but where are blended new core loan yields coming in in the quarter?

I would say mid-3s. You still have -- or mid to high 3s. Specialty finance ex the taxi business is coming in north of 4%. Taxi loans are coming in around 3%. Our five-year fixed rates today are around 3.75% on the CRE space -- I'm sorry -- north of 4% in CRE, 3.75% in multifamily. So it's really in that high 3% range now.

Okay. And maybe just one final one. It's really remarkable where the efficiency ratio has moved down to. Do you think you can see any other gains or should we be modeling out that at some point this needs to turn the other way?

Well I don't know if we can get blood from a rock. It would be hard to model it down further. Although we are very efficient across the board. I don't know, I'd kind of model it that it would be stable and leave it at that.

Fair enough. Thanks for the color.

Casey Haire, Jefferies.

Thanks, good morning, guys. So just a couple follow-ups on the NIM. Number one, Eric, just to clarify, the flat to down three bps, is that ex prepay? And then two, on the borrowings, they ticked up a little bit here, now 14% of the overall funding base. Is that the right level going forward or should we see that increasing in size?

Yes, the stable to down 3 is ex prepayments. That is on the core NIM. I think we will stay relatively around this level of borrowings. Again, that's got a be predicated upon deposit loan growth. And given the choppiness of deposit growth, we can see borrowings spike up at any time at a quarter end.

Okay. Okay on these incremental borrowings, I would assume they are shorter in duration given the tick down in rate?

That's correct.

Okay. And then just lastly switching to capital, with this level of growth, the Tier 1 leverage ratio now at 8.74%, I know historically 8% has been a hard floor for you guys. Is that still the case or has that changed given the credit quality as well as the balance sheet size?

As we speak, we are looking at that because when we had in the past looked at a minimum back in let's say 2007, we were one-third the size. Now we are 12.5 years in existence, $1.7 billion in excess book value capital, $21 billion in size, we were hoping that our clients would have a lot more of a comfort level today than they would have had five years ago, six years ago and so we are going to measure that comfort level.

We want to keep capital at levels higher than others but we also don't want to keep it at such a level that is not necessary. So it's kind of a hard question to answer at the moment particularly with -- we want to compare where we will be versus our competitors, the multi-trillion dollar institutions.

So let's just say we wouldn't be shy about raising it but we don't foresee in the near-term having to do so.

Okay, thank you very much.

Lana Chan, BMO Capital Markets.

My questions have been just answered. Thank you.

Erika Najarian, Bank of America Merrill Lynch.

Good morning. I just had one question. Given the optimism that you have conveyed with regards to potential hires, could we look forward to more than eight teams being hired in 2014? In other words, the pace of hiring could accelerate next year. And if you can give us an update on what the hiring and competition is like in the New York Metro area please. Thank you.

Sure. One of the things that we talked about in the second-quarter earnings call was that we had a fairly active pipeline and that pipeline was primarily for 2014 that we didn't foresee really any additional hires in 2013. And then we went out and hired our eight teams thus far in the fourth quarter. I would expect that we will actually add on a team or two in the fourth quarter -- additionally in the fourth quarter. So some of what we planned on in 2014 will be moved forward and hired in 2013.

Now to answer your specific question about 2014, let's just say we have a very active pipeline. We haven't seen any increased competition for those that we have been talking to. We have seen an increase clearly in opportunities but not necessarily in the competition for the people that we are trying to hire. It's hard to predict right now what we would say for the number of teams in 2014. We will have a better handle on that when we do the fourth-quarter earnings call to give you an idea of what we anticipate in 2014. But the eight teams thus far will probably either be nine or 10 for this year.

Okay, thank you.

Jason O'Donnell, Merion Capital Group.

Good morning. Just following up on an earlier question, just given the implications for your overall loan yield, how would you characterize the pace of CRE refinance activity you are currently experiencing relative to the pace just maybe a couple months ago?

I would say it's about the same.

Okay.

Yes, I would say about the same.

Okay, okay. And then with respect to the newly hired ABL team, can you just tell us what your objective is from a geographic coverage perspective and how long you expect it to take to fully build out that unit through additional hires?

Well initially we are expecting really be Metro New York area end market because we have the opportunity of our existing 80+ teams to refer business and then their own business that they had when they were at Amalgamated. But I would say if you expanded out a bit somewhere in the near future, the Northeast to the Southeast, I would say we are staying pretty much on the East Coast at least initially and we are talking somewhere between four and 12 people and that would probably take a year or so if not a little bit longer to build that out.

Got it, thank you.

John Pancari, Evercore.

Along those lines of the ABL team, can you remind us about how big your targeted size of that portfolio you can reach once you build out the team to the size that you just mentioned, Joe?

That's a great, great question because it's a fairly wide range because we have more opportunity here to build out with what -- let me take a step back.

At Amalgamated, they had an opportunity that was limited because of the size of the institution and because of the flux of things that were going on in the institution. Now they come here and they have more opportunity because of our size being far greater and because we have the 80 teams that have been chomping at the bit to refer some business.

Just to remind you, it's really our existing clientele and the bankers that have driven what we would do next. It was clear back in 2006, 2007 that to round out what we were doing then we needed to do commercial real estate. Then it became apparent that equipment financing, although it's a national business, was clearly next on the list of our teams to again round out what they were doing.

Now it's asset based lending where we have been passing on opportunities in the marketplace to do business and we see that by the referrals that have been coming in. So although they had about a $300 million commitments with $200 million in outstandings at Amalgamated, that could be a multiple here with the same amount of people that they have just clearly because of the opportunities that exist.

So it's still a little early to say what it would but it will clearly be multiples of that.

Okay, all right, that's helpful. And then lastly, can you give us a little bit of color about what you are seeing currently right now in terms of the trends in the multifamily business as well as in C&I? For example, are you seeing any moderation in the real time here in the growth in that multifamily book just given competition and the size of it at this point?

And then separately on C&I, I know it was flattish this quarter, but are you seeing any pickup in activity there?

Well, we are hoping that we will have a pickup in activity in the C&I. What we are seeing on the competitive front on C&I is that the interest rates are just -- although we want to do that business because it's floating rate and that's good for us to have floating-rate assets on the books although we don't expect rates to move for quite a long time. With the floating-rate activity which we want to put on, it's very difficult when the spreads are so thin and the competition there has all the major institutions because it's the middle market. You have the Chases, you have the Citis, you have the Wells, you have Bank of America and so on and so on where you don't have those large multi-trillion-dollar competitors in the CRE space that we are in up to the $25 million. And so they can really drive down the interest rate.

So that's the trend we are seeing in C&I. However, having said that, we are seeing some opportunities to bring on some real quality clients particularly on Long Island which we won't pass up on even if the pricing is thin. That's the trend we are seeing there.

On the multifamily side, I think I may have said earlier one of the trends we were seeing is that there was more purchase activity and where we believe that because with the purchase activity there's more time of the essence than there is in an refinance that we are getting a larger share or a lion's share of the purchasing activity because we can close a lot more efficiently and in a lot shorter timeframe than some of our competitors.

Okay, thank you.

Herman Chan, Wells Fargo Securities.

Thanks. Along the lines of purchase activity, what do you think is driving that activity over the past couple months?

Herman, I think it's being driven by the interest rate. What happened was when the long end of the curve started to go up, some of the clients or prospects thought it was an opportunity to sell because of the interest rate environment. They didn't want to sell if that 10-year was up another 100, 200 basis points. I don't know if they are regretting it now because of where it is where it's come down but clearly it was rate driven.

Understood. And there are some media reports on HSBC exiting some small business relationships. Can you talk about the opportunity for Signature from a client acquisition perspective and also has that been additive to the hiring pipeline? Thanks.

Some of the activity -- I would say some -- we haven't quantified it because we really don't keep track of it but clearly a number of teams have been able to take advantage of a situation whereby HSBC has sent out quite a few letters to some of their small business clients that they were exiting those clients and they had to leave by a certain date. What has helped us is not so much those clients that have received the letters but the ones who haven't received the letters. Understand -- well what's going on, what's the next step? Am I to receive a letter in the future? Will the services be diminished. So that has helped us and anecdotally we have a number of examples whereby we've been able to pick up some clients and some fairly decent size clients as a result.

I wouldn't say that it has driven any growth in the third quarter. It may drive -- it may -- I use the word may -- it may drive some growth in the fourth quarter but clearly the teams that we have should be taking advantage of the situation.

Regarding recruiting and how that may help the team, well, sure there are some of those bankers that have been raising their hands wanting to come here. We have to be more diligent because in the past when we were recruiting we were the ones going out looking. Now we are in the inevitable position where they are coming to us and you want to make sure that they're coming to us for the right reasons.

Understood. Thank you very much.

Terry McEvoy, Oppenheimer.

Good morning. I was just wondering, did the movement up in rates last quarter change discussions with the deposit customers at all meaning you got a pretty sophisticated customer base that is watching rates go up. They've probably been used to getting next to nothing on their deposits and maybe starting to ask you questions, hey, can we get more?

Only in reaction to what some competitors did. We didn't really have any discussions with clients because as you said in terms of how sophisticated they are, they saw the rates moving up on the long end not the short end. So while their rates may have been going up on their loans if they were doing commercial real estate, they weren't really pushing on the deposit side only in reaction to some competitors inching up their rates a little bit because they needed to fund some of the loan business they were doing. Other than that, no.

And then just as a follow-up, how should we think about investments going forward in risk management operation support? Is the growth there pretty consistent to what we see in terms of the banking team hires and some of their constant expenses there? And is there any call it catch up in terms of investments that would to be made or one-time investments should the bank hit a certain size that would be noticeable from our perspective on the expense line?

It was nothing noticeable. In fact, probably the expense growth at least on a percentage basis exceeds the 13.5% that we had in growth -- expense growth overall because we've not only had to add more people but we've had at least two if not three consulting firms working with us in terms of what we are doing in enterprise risk management and what we are doing along those lines. So we are fairly confident that we are keeping up with the growth that we have on the business development side with enterprise risk management.

Perfect, thanks, Joe.

Matthew Clark, Credit Suisse.

Just on credit with things fairly stable and benign, looks like your net addition to reserves here roughly 75, 76 basis points in new growth or net loan growth. Can you give us a sense for how we should think about the 105 coverage on loans and where that could continue to drift to?

As long as we continue to put on high quality well secured loans such as what we did in the multifamily sector, you should continue to see that allowance as a percentage trickle down. We put on $1 billion worth of growth this quarter and we saw it go from 108 to 105. There's quite a bit of over providing there. You see from a dollar perspective we expect our allowances to continue to grow but as a percentage, it will start to -- it will continue to trickle down a bit.

Okay, the rest has been asked and answered. Thanks.

David Darst, Guggenheim Securities.

Good morning. Joe, you've talked about the growth you saw this quarter but you've also talked about the level of refi activity. Typically it's hard to have both in the same quarter. Is some of the refi activity you are seeing actually market share gains where people are bringing or -- relationships are bringing more loans to you?

And then on the prepayment income, as you continue to grow -- or the multifamily portfolio seasons, should we expect this level of maybe 15, 16 basis points to be sustainable?

At some point, the prepayment penalty income on the refi activity will come down. That's why we make it a point to not only talk about NIM on a top-level but NIM on a core level because we look at the NIM being core because we don't expect -- in fact, the prepayment penalty income for the first three quarters of 2013 exceeded by several hundred thousand dollars the prepayment penalty income for all of 2012. We don't see that being sustainable. In fact, we would prefer that the clients not refinance and keep their rates where they are. So that's why we always talk about core.

In terms of refinance, it's not just our clients that are refinancing; it's us gaining some more market share.

Okay. Yes, so you are referencing that market share broadly with that commentary. And then but as these loans you are bringing over today season, I would assume the average duration of these loans is probably around three years? That suggests just overall this income grows?

Typically, the duration is 3.5 years but you are putting on a loan today in today's environment you've got to expect that it's going to stay here for five years.

Okay, thank you.

Peyton Green, Sterne, Agee.

Good morning. Just a question, Eric and Joe. Yes, Eric and Joe, just a question in terms of the interest rate sensitivity. I know you all have become more liability sensitive I guess over the last three or four quarters as you go up 300 or 400, and I don't guess anybody really see that coming in the short run. But where does your -- at what point would you start to worry about that sensitivity moving too far that way?

We talked in prior quarters about how we show a shock scenario and we are going to put a ramp scenario into our 10-Q disclosures this quarter. On a ramp basis, we are slightly asset sensitive in the 100, 200 but we've really positioned our balance sheet for a steeper yield curve and that's what we've seen. Those disclosures both in a ramp and a shock scenario are in parallel shifts upward and we really haven't anticipated that and that's not what we've seen so we are well positioned to take advantage of this steeper yield curve environment that we are in, albeit the 10-year has come back down a bit.

So we feel pretty good about how we are positioned. We have got a tremendous amount of cash flow as you know rolling off the securities portfolio, coming in from deposit growth that we are able to be very nimble in any interest rate environment that present itself. So we feel pretty good where we are.

I guess we have various levels that we look at in our enterprise risk management where we see in a plus 300, plus 400 if we are 30% or 40% movements in [EDE] or earnings at risk and if we see it go higher than that, then we will take appropriate actions but we haven't really seen a need for us to maneuver at all from where we are.

Okay and then I know there is not much room lower on the interest-bearing deposit costs but is there a level that you'd be willing to go up to on the borrowing side? Simply -- you could borrow two- to five-year money as cheap as you can get overnight money market deposits. Would you expect to utilize more of that going forward to achieve that?

That's all going to depend on what deposit loan growth is. I don't think you're to see us borrow just to lever up the balance sheet. We will borrow if loans outpace deposits by a few hundred million then will borrow a couple hundred million or potentially use the securities portfolio runoff to pay that down and if deposit growth is in excess of loan growth you'll see us pay down those borrowings. But I wouldn't see us using borrowings for the sake of levering up at this point.

Okay, so balance sheet management as usual?

Correct.

Okay, great, thank you.

There appear to be no further questions at this time. I would now like to hand the floor back over to Joe DePaolo for any closing remarks.

Thank you, Lori, and think you for joining us today. We appreciate your interest in Signature Bank and as always, we look forward to keeping you apprised of our developments. Have a great day. Thank you.

If you would like to listen to replay of today's conference, please dial 800-585-8367 and refer to conference ID number 76521684. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your lines at this time and have a wonderful day.