Signature Bank (SBNY) 2015 Q1 法說會逐字稿

Welcome to Signature Bank's 2015 first-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 & Business Development. Today's call is being recorded.

(Operator Instructions)

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

Good morning and thank you for joining us today for the Signature Bank 2015 first-quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead Susan.

Thank you, Joe. This conference call and oral statement made from time to time by a representative 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 in the interest rate environment, loan and deposit growth, loan performance, operations, 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 on 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.

Signature Bank delivered another exceptional quarter of growth and performance, resulting in our 22nd consecutive quarter of record earnings. We again delivered strong deposit growth and record loan growth, expanded top-line revenues, maintained stellar credit quality, and continued to invest in our future with the hiring of three private client banking teams. I will start by reviewing earnings.

Net income for the 2015 first quarter reached record $83.4 million, or $1.64 diluted earnings per share; an increase of $17.4 million, or 26.3%, compared with $66 million, or $1.37 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 strong deposit growth and record loan growth. Each again surpassing $1 billion. These factors were partially offset by an increase in non-interest expense, attributable to our revenue growth initiatives as well as, in part, regulatory and compliance costs.

Looking at deposits. Deposits increased $1.4 billion, or 6.2%, to $24 billion this quarter; including core-deposit growth of $1.1 billion and average deposit growth of $1.2 billion. Since the end of the 2014 first quarter, deposits increased $5.7 billion, core deposits increased $4.3 billion and average deposits increased $5.6 billion.

Non-interest-bearing deposits of $7.4 billion presented 30.6% of total deposits, and grew $288 million this quarter. This substantial deposit and loan growth, coupled with earnings retention, led to an increase of $5.5 billion, or 24% in total assets, since the first quarter of last year. The ongoing strong deposit growth is attributable to the superior level of service provided by all of our product client banking teams who continue to serve as a single point of contact for their clients.

Now let's take a look at our lending business. Loans during the 2015 first quarter increased a record $1.44 billion, or 8.1%, to $19.3 billion. In the prior 12 months, loans grew $1.5 billion and represent 67.5% of total assets, compared with 61% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate and multifamily loans.

Our credit quality remained solid this quarter with nonaccrual loans increasing to $27.8 million, or 14 basis points of total loans, compared with $21 million, or 12 basis points, for the 2014 fourth quarter and $36.2 million, or 25 basis points, in the 2014 first quarter. The provision for loan losses for the 2015 first quarter was $7.9 million, compared with $7.6 million for the 2014 fourth quarter, and $8.2 million for the 2014 first quarter.

Net charge-offs for the 2015 first quarter were $1.5 million, or an annualized 3 basis points, compared with net recoveries of $181,000, or 0 basis points, for the 2014 first quarter and net recoveries of $244,000, or 1 basis point, for the 2014 first quarter. Consequently, the allowance for loan losses was 0.88% of loans, versus 0.92% for the 2014 fourth quarter, and 1.01% for the 2014 first quarter. Additionally, the coverage ratio remained very strong at 614%.

Now, turning to the Watch List and past-due loans. Watch List credits increased by $21.3 million to $143.8 million, or a low 75 basis points of loans, compared with $122.5 million, or 86 basis points of loans, for the 2014 first quarter.

During the 2015 first quarter, we saw an increase of $23.9 million in our 30 to 89 day past due loans, to $46.8 million. And 90 day plus past-due loans increased slightly by $600,000, $3.8 million.

While we are pleased that our credit metrics were strong again this quarter, we remain mindful of the uncertainty in the global economic and political environments, and again, we are appropriately reserved. Just to review teams for a moment, we're off to a solid start in 2015 with the addition of three teams. Our team pipeline remains active and we look forward to the opportunities for attracting talented banking professionals to our network.

Also, in the first quarter we opened our 29th, and first out-of-state banking office, in Greenwich, Connecticut. At this point, I will turn the call over to Eric and he will review the quarter's financial results in greater detail.

Thank you, Joe, and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the first quarter reached $222.5 million, up $36 million or 19%, when compared with the 2014 first quarter, an increase of 3%, or $6.8 million, from the 2014 fourth quarter.

Net interest margin decreased 13 basis points in the quarter, versus the comparable period a year ago, and increased 3 basis points on a linked-quarter basis to 3.26%. Excluding prepayment penalty income, core net interest margin for the linked quarter increased 4 basis points to 3.17%. Approximately 2 basis points of the linked quarter increases were due to two less days in the quarter. Additionally, margins were positively affected by the deployment of excess cash balances into loans at the end of the fourth quarter, and an increase in loans as a percentage of the balance sheet.

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 20 basis points from a year ago. However, on a linked quarter basis, yields increased 1 basis point to 3.72%.

The linked quarter increase was driven by the deployment of excess cash balances into loans at the end of the fourth quarter, less headwinds from CRE refinance activity, and an increase in loans as a percentage of the balance sheet.

Yields on the securities portfolio declined 6 basis points linked quarter to 3.14%, given the challenging market for securities reinvestment due to compressed spreads and lower treasury yields. But, the ratio of the portfolio decreased slightly to 2.69 years.

And turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 8 basis points to 4.09%, compared with the 2014 fourth quarter. Excluding prepayment penalties from both quarters, yields would have declined 5 basis points.

And now looking at liabilities. Our overall deposit costs this quarter declined 2 basis points to 43 basis points, mostly due to an increase of 7.4%, or nearly $500 million, in average non-interest-bearing deposits. Additionally, money market costs decreased 3 basis points as we continue to lower rates, given the prolonged low interest rate environment.

With a substantial deposit growth in the quarter, average borrowings decreased $180 million to $1.9 billion, or only 6.8% of our average balance sheet. Given the short-term low-cost nature of the borrowings we paid off, the average borrowing cost increased 6 basis points from the prior quarter to 1.42%. Overall the cost of funds for the quarter decreased 3 basis points to 50 basis points.

And on to non-interest income and expense. Non-interest income for the 2015 first quarter was $10.1 million, an increase of $3 million when compared with the 2014 first quarter. The increase was mostly due to a rise in net gains on sales of loans of $2.7 million, predominantly from our SBA pool assembly activities.

Non-interest expense for the 2015 first quarter was $81.7 million, versus $70 million for the same period a year ago. The $11.7 million, or 16.7%, increase was principally due to the addition of new private client banking teams, our continued investment in the growth of Signature Financial, as well as an increase in costs in our risk management and compliance activities.

Factoring in significant hiring since last year, and increased regulatory costs, the bank's efficiency ratio still improved slightly to 35.1% for the 2015 first quarter, compared with 36.2% for the 2014 first quarter.

Turning to capital, our capital ratios were all well in excess of regulatory requirements, and augment the relatively low risk profile of the balance sheet, as evidenced by a tier 1 leverage ratio of 9.25% and a total risk basis ratio of 13.08%, as of the 2015 first quarter. Now I'll turn the call back to Joe, thank you.

Thanks, Eric. Once again this quarter, we have demonstrated the strength, stability and consistency of our distinctive business model. With 95 product client banking teams now in place, providing clients with exceptional service for our single-point of contact approach. We delivered record earnings, strong deposit growth, record loan growth, solid credit metrics and top line revenue growth.

During the first quarter, we again made significant investments in the future with the addition of three private client banking teams, while also increasing personnel in our equipment financing group. We've remained focused on growing our network by continuing to attract the veteran bankers who flourish at Signature Bank, and in turn, provide the level of service to which our clients have grown accustomed.

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

(Operator Instructions)

Dave Rochester, Deutsche Bank.

Good morning guys, great quarter. Eric, can you talk about your NIM outlook, if you still feel good about that flat-to-modest pressure through 2015? And, what kind of rate expectations you have embedded in that, that would be great.

Hi, Dave. We do expect core NIM to be relatively stable, with perhaps a slight bias downward, given the rate of the environment we're in. Day count, certainly for the second quarter, will be a negative. So, that will probably take out 2 basis point in the second quarter. We will have some modest pressure from CRE refinance activity, but it's less of a headwind, given that people are really refinancing now to extend duration and less to reduce rate.

We have deployed much of our excess liquidity, so that should be helpful. But the lower 10-year will continue to really affect our reinvestment rates on the securities portfolio. So, I would say we have a slight bias downward. But, most of that is going to be predicated upon deposit growth. That's probably the biggest factor at this point. If we have robust quarter of deposit growth again, then we will see our NIM's negatively affected. But that is a trade-off were willing to take every quarter.

Any concern about security's [premium NIM] popping up? Or, you're well structured there, right? You're probably not --

The structure is that we put in -- no, not much of a concern. Certainly if they stay at these levels for a while, we will see some more premium amortization. But, between the structures we put in place and the focus on the underlying collateral within our securities, we feel pretty comfortable that, that's going to be fairly well contained.

And on the loan growth, this quarter was outstanding. Can you talk about some of the larger transactions you've done in terms of multi-property deals? And on the loan pipeline, how does that look heading into 2Q, if you have any visibility for more larger deals? Any color there would be great.

In the CRE world, multifamily world, during the first quarter we did 5 loan packages, comprised of 51 loans. And, we did 2 other larger loans above $25 million, for a total of 53 loans, for about $691 million, primarily multifamily. How that compares to the fourth quarter, to give you an idea, we did 1 loan package and 5 large loans, for a total of 11 loans and $400 million in the fourth quarter.

So we're having a real opportunity to do more and more packages, the loans are pretty granular. Not any one loan is very large, within the package. In fact, for the beginning of the second quarter, we already did one loan package of $94 million with eight loans.

Great, thanks. So, it sounds like some of that momentum is continuing into the second quarter?

Yes, I would say that we have a pretty robust pipeline. Although I'm not sure we will duplicate $1.44 billion again. But, we actually have another package closing at the end of April, beginning of May for about $80 million. So yes, the momentum is there.

That's some great color there. And lastly, can you talk about the strength in the SBA business this quarter? What drove that and what would be more of a normalized level that we should expect going forward?

We've been building up the loan warehouse there for a little while, and we've brought on some additional salespeople over the years that are really gaining some traction in that space. I think there is just the -- people are scrambling for government guaranteed assets with any type of yield to them, right now. So, that helps the equation. We don't want to anticipate having gains quite at these levels. I would look back to last year's levels for the second third and fourth quarter of this year.

Okay great, thanks guys. I appreciate it.

Ebrahim Poonawala, Bank of America Merrill Lynch.

Good morning, guys. Joe, I guess if you could comment in terms of what the hiring environment looks like today? Both in terms of the private client side as you look out for the rest of the year, and also in terms of Signature Financial, and expanding that field's team, what we should expect as the year unfolds.

On private client teams like recently, we hired three thus far in the first quarter. Our pipeline is relatively active. We have, I would say, a fourth team joining us, probably within the next several weeks. And then, we have another handful or so in various stages of discussions.

On the Signature Financial side, we're looking at several lines of business. One of the lines of business that we're looking at is municipal, which we'll probably bring on a team shortly. To give you some background, the senior guys from Signature Financial, when they joined us three years ago, their business was $4.5 billion in outstanding at Capital One, of which $2 billion was in the municipal area.

We're very encouraged by this new vertical that could come in. Not new to them, but new to the bank. That is for critical services like police cars, fire trucks and the like. Usually 3 to 10 years, fully amortizing, is the standard. On a selective basis, we may do 15-year fully amortizing. And that is just one example of new verticals that Signature Financial will be using.

And we will see whether or not we can take advantage of GECC. I do know that they are very familiar with them, and we're going to try to do some hiring around the country from GECC. And also, see what sort of loans or assets they have for us to pick and choose from, because they're all not going to be multi billion large packages. There's going to be some opportunities for our capital markets desk to buy some assets.

That is helpful. I was going to ask you on GECC, so that will help. Thank you.

And another question on a separate subject area. If, and no one knows when but, if the fed lifts rates in the back half of the year, how should we -- if you can talk to big picture, how we should think about the sensitivity of the assets and liabilities side from short rates moving higher, even if we get no move at the longer end of the curve?

We've got a significant amount of cash flows from our securities portfolio and from deposit growth, that's going to allow us to be nimble in really any environment. We will look to obviously put those to use in higher-yielding assets, when and if rates do rise.

We should see a pick up in Signature Financial's loans, because they are priced to swap markets. That should be beneficial. We do expect that it will be a ramp scenario, versus a shock scenario. So we're better positioned for that. And a lot of our modeling and disclosures -- or all of our modeling and our disclosures, doesn't factor in growth. It is static. We obviously expect to have growth in a rising rate environment.

And, we really have a tremendous amount of borrowing capacity. That's going to be beneficial and we'll be able to pull on that when we see opportunities to onboard assets at attractive yields. All of the things should be beneficial to us when rates rise, and we think we are well positioned for that.

Got it. Thanks for taking my questions.

Lana Chan, BMO Capital Market.

Good morning. A quick question on capital ratios. When I look at the risk-weighted capital ratios declining because of the growth clearly in the commercial team multifamily, how do think about the capital ratio's inadequacy over the next year, given the type of growth that you are putting on?

There are two ways of looking at it. In the past, the more immediate past, when we did a comparison of our capital ratios versus the too big to fail banks, the Mega Banks. We always felt we had to keep capital levels higher than our competitors, because they were $2.5 trillion in size, and we wanted our clients who keep substantial deposits with us that are uninsured, to sleep well at night.

But we're now thinking that with buffers, the bigger banks are going to have to keep large amounts of capital. And maybe we don't need to keep as large amount because, we don't have risky assets and we don't need the buffers that they need. So maybe it's a complete turn, and you don't have to keep capitals very high. So we're kind of on the fence at a tipping point of which way to go. We're not sure yet.

Would the leverage ratio still be the primary ratio for focus for you guys?

I would say so.

Okay. Thanks, Joe.

Steven Alexopoulos, JPMorgan.

Good morning, everyone. I wanted to start and follow up on the larger loan deals that closed in the quarter. Could you give us some color on the environment for these? Maybe talk about how many are coming to market, how many are you winning, what is your share? And then, the competitive environment for these.

I can tell you why we're getting them. We have a commercial real estate banking team in Millville that does an extraordinary job of closing in a timely manner, with great efficiency. And in 2013, we had an opportunity to do two large packages where time was important, or of the essence. And that allowed us to build a reputation in Millville that larger loans -- large packages I should say, granular loans, could be closed in a timely fashion, and we're getting our opportunities more than before.

One other factor you have to put in there is that several years ago, before 2013, we weren't doing larger loans or packages. Because, we were still doing in the $3 million to $5 million, or $3 million to $10 million range. But as we have gotten larger, we feel more comfortable, particularly in the multifamily realm, to do the larger loans.

The large packages -- I can't tell you what the opportunities are, of how many there are in the market. All I can tell you is that we are getting our fair share. Some are refinances out from other institutions and some are outright purchases and sales. But when you look at them, they are granular. There's not anyone big particular loan within the package.

Okay that is helpful, Joe. I want to develop on Eric's comments that clients are extending duration, which I guess is taking some pressure off loan yields. To give more color on exactly what are you seeing, in terms of duration extension?

What we're seeing are clients in their third or fourth or fifth year of their loans right now, extending their duration, looking for 7 and 10 year loans. We will go out to 7 years in a very select basis, but we will not do a 10 year loan. But we continue to see this refinance wave happen because the clients are looking to lock-in these lower rates for longer.

That is helpful. And finally, I think I have to ask the question on the taxi medallions. Somebody was going to. Could you talk, Eric, where the balances were at quarter end? Maybe split up by market and talk about any pressure you might be seeing there? I don't know if that was what contributed to the Watch List and NPA's, thanks.

It did a little bit. There is truly a difference between the New York market and Chicago market, which are the two markets we really are active in. Currently in New York, we have 1,005 medallion loans, totaling $633 million. Out of those 1,005 loans we have 9 that are delinquent. 7 of those are 30 days and 2 are 60 days. Those are very normal numbers of delinquency. In fact, we had 9 a year ago, and we had very similar numbers in the prior years as well. A lot of those are medical related reasons why people go delinquent, and we really are not at all concerned about that. Utilization in New York remains high at 93% to 94%.

Our LTV's in New York are at approximately 77% currently. And our debt service coverage is right around 1.3 times. Those are based on the latest, lowest values which is $900,000 for a corporate medallion and $800,000 for a personal medallion. We feel pretty good about New York, the cash flows are strong there and we're really not seeing really many issues there. Chicago is a little bit different story. Clearly it's a more volatile environment politically, so we're keeping a very close eye there. And we have effectively backed away from that market, lending wise, as well as really in New York, for that matter.

Cash flows have been affected there by a lease cap reduction of about $595 per week. So that's affecting the cash flows a bit there. Currently in Chicago, we have 753 medallion loans totaling $174 million. Approximately $32 million is past due and $3 million is on nonaccrual. And we did take a charge-off about $590,000 in the first quarter on 11 medallion loans. But we're actively working with the owners and drivers there to restructure those credits. We have seen utilization down to about 85%, but we still do have an LTV at 92%, and that's based on a value of $250,000.

One of the good things to note, in the last quarter in Chicago is that there were five sales. Three at $270,000 and two at $290,000. We're using a $250,000 value and that's giving us a 92% LTV. And, our debt service coverage is right around 1.2 times. We still feel that we're going to come out okay in the Chicago area, but we are keeping a very close eye on it. And we're actively managing through that portfolio at this point.

All right that was great color. I appreciate it.

Ken Zerbe, Morgan Stanley.

Great, thanks. One of your competitors, or broadly one of your competitors, earlier this week, was making comments on commercial real estate deals done around the New York market. If I can quote them accurately, they basically set a 10-year CIRI deal somewhere just over 2%. Are there any circumstances or situations where you guys might actually want to do those types of loans? And have you been? Thanks.

No and no. To give you a little color, we are doing five-year -- I will talk multifamily. We're doing five-year fixed at 3 3/8%. That interest rate has not changed since March 2014. And we will, if it's a great LTV, maybe go an 1/8% lower.

On seven-year, we had recently raised our rates 3 3/4% to 3 7/8%. Although we will do seven years at 3 3/4% and we have seen some deals we've done a little lower than that just because the LTV's were again, fantastic. We've stayed away from doing 10-year deals. Unless it's a floating rate, over my dead body, if it starts with a 2.

Understood, that helps. Eric, the duration extension that you were talking about, are these guys who were in a five year loan moving into a seven year loan? Or, you think it's something different?

That is certainly the case for many of them. They have a 5 year loan and are going to 7, or looking to go 10, which we won't do. Or it's 7 years going to 7 years.

Got it perfect, thank you.

Casey Haire, Jefferies.

Good morning guys. A quick question on deposit growth and deposit pricing. Obviously, a very strong quarter with deposits up $1.4 billion, and money market pricing down. I know you mentioned low rates as the driver. But I was wondering, given that some of your larger scale competitors have been quite publicly looking to get rid of excess deposits, if that is what is contributing to the strong deposit growth and flexible pricing?

Some, not a great amount. We're seeing a little bit more this quarter, where there may be opportunities for some of the bigger banks to have to get out of some of the lines of business. I would say that in part, it contributes.

Do see that as a significant opportunity for you guys? Or is that just a nice tailwind?

We want to be involved in some of that, and I think some of it because we want to be able to have a relationship. We don't want to be the place where excess deposits stay and you don't be able to build any sort of relationships there. Yes, we see a great opportunity, but not to be a depository just for excess funds.

Okay, understood. And just following up on the municipal business, it seems like a decent opportunity for you guys. Are those floating rate loans? And if so, good that potentially improve the asset sensitivity profile?

No, they are typically not floating rates, and terms can run anywhere from 3 years to 10 years. And in some cases, they can go up to 15 years on a fully amortizing basis. But they are fully amortizing loans, so that will help the asset sensitivity a little bit.

But they are fixed rate?

They are fixed from anywhere from 3 years to 10 years.

Got you. Thank you.

Jared Shaw, Wells Fargo Securities.

Good morning. Just two questions. First when you look at the teams you hired in the first half of 2014, would you say that they have started hitting their stride? Is that reflected in the numbers we saw this quarter? Or are they still developing their book and bringing it over to Signature?

I would say they are not hitting their stride yet. They are in various stages. That's why we love the opportunity. Because 2013 and 2014 teams will really start to contribute this year.

Okay, great. And then on the regulatory expense side, last quarter you had spoken about, with the strong growth, layering in a little more regulatory expense, how is the implementation going there? Should be expect to see continued ramp-up as the balance sheet continues to grow?

I don't think you'll see a continued ramp-up in the spend. We spent a significant amount of money in 2014 and we are spending a lot in 2015 as well. I don't think you'll see an end to the spend either, Jared. We're going to continue to spend a significant amount around regulations and compliance. I don't see it trending off or trending down. But I wouldn't see a significant uptick either.

Great, thank you.

Chris McGratty, KBW.

Good morning guys, this is actually Mike Perito, stepping in for Chris. Can I ask the expense question a different way? Looking back over the last few years, you guys have ranged from low to high teens, on a year-over-year expense growth basis. Taking some of your previous comments about some of the team hiring outlooks and the record growth to start the year, are you guys thinking that you're going to end up on the higher range of that in 2015? Or do think there'll be some moderation in the back half of the year?

I think it will be some moderation. We don't expect it to be any more than what we've said. Because, we build in the fact that we're going to hire teams, and we also build in the fact that we're going to have regulatory and compliance costs increase as a result of stress testing and some of the other things we're doing. That was all anticipated. Now, that could change. If we come out one day and say, we just hired eight new teams, then that would change. But we would let you know that.

Okay. Any thoughts or expectations -- the last couple of quarters it's been very modest, but the loan growth has outpaced the deposit growth, just on a dollar basis. I know some of the teams you've hired recently have had more of a deposit focus. Do you guys think you will be able to keep that trend going as we go forward? Or is it going to be a bit more volatile? Volatile's not the right word, but jump back and forth like it has been the past?

Actually over the last 12 months, we grew deposits $5.7 billion and loans $5.1 billion. It could change from quarter to quarter, but what we've see on average, on an annual basis, it's been very close. It's been within several hundred million. We are pretty comfortable either way.

Okay, thanks, guys

Whether we grow (multiple speakers) in one or the other, were pretty comfortable.

Thanks

Bob Ramsey, FBR.

Good morning, this is Martinas Terskin for Bob Ramsey You mentioned that you made five loan packages in the last quarter. Was it more backend loaded or spread out, throughout the quarter?

I think that was fairly spread out, throughout the quarter. I wouldn't say -- this quarter was fairly spread out, whereas in the third quarter and the fourth quarter, we had a significant amount of loans close at the very end of the month -- of the quarter. In fact, in the fourth quarter we had nearly $600 million in loans close in the last 15 days. I think here in the first quarter, we have seen a more normal or ratable amount of closings throughout the quarter.

Got it, thank you. And for the loan prepayment figure, do you actually have a dollar amount for that? And, what is the outlook for the prepayments going forward?

We expect prepayments to continue to trend down slightly. The number for penalty income was $6.1 million this quarter, versus $6.9 million for the fourth quarter. We expect that, that trend where it continues to trickle down, will continue to occur. But it can be quite volatile.

Okay, got it. And then for nonaccrual loans, they went up $7 million this quarter. Is there any -- can you give some color around that?

They are coming off of the all-time low, so given our growth in loans, we fully anticipated that we would see an uptick in nonaccrual loans. About $3 million of it was in the taxi space and another $1.6 million was from Signature Financial.

Got it. And one more before I hop back in to the queue. I see that you have a very good loan growth obviously. And going forward for 2015, do you see it being funded rather, from the deposit side? Or from reduction in securities and the short-term investments?

From deposits.

Deposits. Got it, thank you very much.

Joe Fenech, Hovde Group.

Last few quarters, I would say we came away with these calls feeling pretty good about the ability to protect NIM. Mostly because of the positive shift you guys have had in the mix with both sides of the balance sheet. But a lot of that you just referred to Joe, had to do with when loans are funded in the prior quarter, and then the excess cash. It sounds like the excess cash situation is mostly played out. It doesn't seem as though the loan fundings were -- you had that same dynamic you had last quarter.

Is it fair to say, Eric, will be a little more challenging to maintain margin the way you have the last few quarters without that benefit? Or are there other factors that may be offset that I'm not thinking about? The margin outlook is pretty much the same and you feel as good about margins as you did come off the last few calls?

I think the margin outlook is pretty much the same, Joe. The fact that we've deployed that cash is going to be beneficial for this quarter as well.

Although it won't help greatly, it will help that we're going to have a full quarter of the money market deposits in the business and personal side. On the personal side, they came down March 1, on the business side they came down February 1. So we had two months of one, and one month of the other. For the second quarter, we're going to have a full three months of both, where the rates are lower. That may help somewhat.

Okay. I understand the rationale for -- you've commented in the past about letting the allowance drift lower here, the allowance ratio, especially when look at where peers are. But are we approaching guys, [toward] the lower end of the threshold, in terms of where we could see that go? Or could this continue for a while longer? And if so, what sort of a peer comparison do you guys look to that might give us a sense for where we might ultimately be headed there?

It's not so much a peer comparison as it is what economic factors you see, the type of industries you're in and your own performance. It's really hard to say what range you could be in. Because, when you're sitting down with the regulators and your auditors, and you have to prove out where you are, with your performance.

It's hard to pinpoint other institutions and what they are doing, because they want to know what you are doing. There is no bright line. One thing I can say is, our allowance includes basis points against multifamily at a higher rate than our competitors. So there could be some room for it to downshift a little bit more.

Fair enough. I guess, in prior quarters you guys had said that, that could drift lower. I guess you're still saying the same thing, is what I'm hearing. That it could still drift lower from here.

One thing -- for the last 30 quarters, 29 out of the last 30 quarters our provision exceeded our charge-offs. We are about $5 million to $6 million most of the times, each quarter, that we're surpassing our charge-offs with the provision. We are building it, we're not trying to take it back. It just that the loan growth is there. And the loan growth does not, believe it or not, support that much more growth in the provision, or the allowance, because the credit metrics are so good and we're in safe categories of assets, such as multifamily.

Okay. And then on capital, Joe, you touched on this earlier. But in terms of specific numbers, you guys sound like you're still in this process of figuring this out. Could you remind us what the lower threshold was, in terms of the leverage ratio, and how you think about that? And just to confirm, are you saying that the lower threshold could be lowered further now, based on how you're thinking about capital? And can you give us a sense of what that new range could be?

It could be lower. Right now -- we look at two things, tangible common equity and the leverage ratio. They are both above 9%. There were times that we were comfortable with the tangible common equity going as low as 8%.

Okay. And last one for me, as you guys grow outside the state now, with the Connecticut opening. Growth expectations, would you say, any different from, historically would have been your core market? Maybe given the less density, do you have the same expectations going forward as you grow outside the state, as you've had in the past, in the core markets?

I know we said in the script that it's our first out-of-state. But the Greenwich office is closer to Midtown than our offices out on the Island. So, even though it's out-of-state, we kind of look at it as being in the New York Metropolitan area. So, we don't have any different expectations. We have the same aggressive expectations we would have for any of our teams. The one thing that everybody on the call can help us with is, we have one team in Greenwich, and we're looking for second team. If anyone has a lead, just give Eric or myself a call.

Good, thanks guys.

David Long, Raymond James.

Good morning, guys. On that note, as you guys continue to bring in new teams and your pipeline's still robust, and what point do the larger banks that the teams are coming from start to take notice and try to defend their bankers?

They have tried. But you have to have a completely different mindset. And you have to be able to recognize that, when you hire people, they are pretty valuable. And I think at the big institutions, there's a middle management group that thinks that they're more valuable than those that are actually bringing in the business. We're pretty comfortable that behavior will not change at the big institutions, and we'll still have more opportunity to hire.

Got it, okay. And Eric, shifting gears, you mentioned higher regulatory costs in the quarter. As you grow, how have the regulatory costs been increasing? Is it simply based on the size of the bank? Or what else should we be looking at there?

It's clearly accelerated the last couple of years with the stress testing and the regulatory environment that we're in. And we expect that we will continue to spend at a pretty hefty pace for the next several years, Dave.

Okay. And at one point -- at what point do you get to a size where you may get more scrutiny, assuming that the low end of the [SIFI] cap is at $50 billion?

Let's see. We're clearly approaching $30 billion. I still think we're far enough away -- I don't think there's any more scrutiny at $30 billion or $40 billion. I think, what the regulators have told us, or what the regulators have made a point is that, when you average $50 billion over four quarters, you will be under new guidelines and new regulations. But prior to that, we don't believe that they will. And they have said that.

That could change, but you have to be prepared well in advance of $50 billion, as you approach $50 billion. We're thinking about it now. As we hire and continue to spend on multiple consultants to help us, our senior management group here always says, let's think as if we're going to be a $50 billion bank. And whatever you help us with today, has to be a building block toward the $50 billion.

Got it. Thanks for the color guys.

David Darst, Guggenheim Securities.

Good morning. I think I'm good. But, Eric, maybe would you comment on some of the other specialty businesses, and how they are progressing and maybe what they can contribute this year. I think there's like [Marine] and a few others.

Let's talk about franchise first. They funded about $23 million in the first quarter, so it's a nice first quarter. And we've got another $10 million or so that we anticipate in the pipeline for the second quarter. Maybe $25 million in total backlog there. We have got some nice loans yet to fund in the franchise space.

Commercial Marine, we did a few million in the first quarter. And we've got about $15 million that were looking to bring on board in the second quarter. It's really starting to kick in now. And Joe talked about the municipal line. Really, we will be building out that business in the second quarter. And we anticipate starting to close loans there in the third quarter.

Okay, got it. And that's -- the $2 billion is what the book is in this, and not the $4.5 billion?

The $2 billion, correct. Their overall book was $4.5 billion at All Points Capital which is North Fork/Capital One. Of that $4.5 billion, $2 billion was municipal.

Great, thanks.

Bob Ramsey, FBR.

Just a quick follow-up. Deposit fees as a percent of deposits were down this quarter. Do you have any detail what's driving that?

Could you repeat the question, I'm sorry?

Deposit fees were down as a percentage of total deposits. I was wondering if there's a specific event that's driving that.

It's really, typically it's a pickup in demand deposits. Our clients earn earnings credits off of demand deposits and that goes to pay for their fees. That is probably the primary driver for that.

Got it. Thank you. And then finally, given your strong loan growth in Q1 and your guidance, are you more comfortable in the top range of the guidance now?

We like to stay $3 [million] to $5 [million]. We'll keep it at that. Although, I daresay, if we had to pick one, I would say the top range.

Top range, got it. Thank you very much.

Thank you.

There appear to be no further question. I'll now return the call to Joe DePaolo for any additional or closing remarks

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

This does conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID number 22573423. 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.