Q2 2015 Signature Bank Earnings Call

Jul 21, 2015 AM EDT
SBNY - Signature Bank
Q2 2015 Signature Bank Earnings Call
Jul 21, 2015 / 02:00PM GMT 

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Corporate Participants
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   *  Joseph J. DePaolo
      Signature Bank - President & CEO
   *  Susan Lewis
      Signature Bank - Media Contact
   *  Eric Howell
      Signature Bank - EVP of Corporate & Business Development

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Conference Call Participants
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   *  Ken Zerbe
      Morgan Stanley - Analyst
   *  Lana Chan
      BMO Capital Markets - Analyst
   *  Ebrahim Poonawala
      BofA Merrill Lynch - Analyst
   *  Chris McGratty
      Keefe, Bruyette & Woods, Inc. - Analyst
   *  Steven Alexopoulos
      JPMorgan - Analyst
   *  Jared Shaw
      Wells Fargo Securities, LLC - Analyst
   *  Casey Haire
      Jefferies LLC - Analyst
   *  Bob Ramsey
      FBR & Company - Analyst
   *  Dave Rochester
      Deutsche Bank - Analyst
   *  Peyton Green
      Piper Jaffray - Analyst
   *  Brian Horey
      Aurelian Management, LLC - Analyst
   *  Jay Hickman
      HVN Capital - Analyst

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Presentation
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Operator   [1]
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 Welcome to Signature Bank's 2015 second-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 of Corporate and Business Development. Today's call is being recorded.

 (Operator Instructions)

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

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [2]
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 Good morning, and thank you for joining us today for the Signature Bank 2015 Q2 results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

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 Susan Lewis,  Signature Bank - Media Contact   [3]
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 Think 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 risk 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, operations, new private client team hires, new office openings, and business strategies. 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.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [4]
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 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 23rd consecutive quarter of record earnings. We again delivered strong deposit and loan growth, expanded top-line revenues, maintained stellar credit quality, and continued to invest in our future with the second-quarter hiring of one private client banking team, and another team thus far in the third quarter. Additionally, we launched our municipal finance and commercial vehicle finance businesses.

 I will start by reviewing earnings. Net income for the 2015 second quarter reached a record $90.5 million, or $1.77 diluted earnings per share, an increase of $18 million, or nearly 25% compared with $72.5 million, or $1.48 diluted earnings per share reported in the same period last year. A considerable improvement in net income is mainly the result of an increase in net interest income. Primarily driven by strong deposit and loan growth. 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 $430 million, or 1.8%, to $24.46 billion this quarter, including core deposit growth of $413 million, while average deposit growth of $1.17 billion more than doubled core deposit growth. In the past 12 months, deposits increased $4.7 billion. Core deposits increased $3.75 billion, and average deposits increased $5.5 billion. Non-interest-bearing deposits of $7.8 billion represent 32% of total deposits, and grew $436 million this quarter. The substantial deposit and loan growth, coupled with earnings retention, led to an increase of $5.4 billion, or 22% in total assets since the second quarter of last year. The ongoing strong 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 for their clients.

 Now, let's take a look at our lending businesses. Loans during the 2015 second quarter increased $1.23 billion, or 6.4% to $20.5 billion. In the prior 12 months, loans grew $5.1 billion and represent 68.5% of total assets, compared with 62.9% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate and multi-family loans. Our credit quality remained solid this quarter, with non-accrual loans increasing to $41.6 million, or 20 basis points of total loans, compared to $27.8 million, or 14 basis points for the 2015 first quarter, and $32.7 million, or 21 basis points for 2014 second quarter.

 The provision for loan losses for the 2015 second quarter was $9 million, compared with $7.9 million for the 2015 first quarter and $7.6 million for the 2014 second quarter. Net charge-offs for the 2015 second quarter were $2.6 million, or an annualized five basis points, compared with $1.5 million, or 3 basis points for the 2015 first quarter, and $718,000 or 2 basis points for the 2014 second quarter. Consequently, the allowance for loan losses was 0.86% of loans, versus 0.88% in the 2015 first quarter, and 0.98% for the 2014 second quarter. Additionally, the coverage ratio remained very strong, at 426%.

 Now turning to the watch list and past-due loans. Watch list credits increased by $122 million to $266 million, or a low 1.3% of loans, compared with $144 million, or 75 basis points of loans for the 2015 first quarter. The increase was due to our decision to place the bulk of the Chicago taxi medallion portfolio on the watch list.

 During the 2015 second quarter we saw a decrease of $9.3 million in our 30-to-89-day past-due loans, to $37.6 million. 90-day-plus past-due loans increased by $20.2 million to $24 million. $9.5 million of this increase was due to New York City taxi medallion loans that were already refinanced this month, and are now current. 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 environment, and again we appropriately reserved.

 Just to review teams for a moment, we added one private-client banking team in the second quarter, and another thus far in the third quarter, bringing the year-to-date total to five. Additionally we launched municipal finance and commercial vehicle finance businesses. At this point, I'll turn the call over to Eric, and he will review the quarter's financial results in greater detail.

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [5]
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 Thank you, Joe, and good morning everyone. I will start by reviewing net interest income and margin. Net interest income for the second quarter reached $236.3 million, up $42.6 million, or 22% when compared with the 2014 second quarter, an increase of 6%, or $13.8 million, from the 2015 first quarter. Net interest margin decreased 4 basis points in the quarter versus the comparable period a year ago, and increased 1 basis point on a linked quarter basis to 3.27%. Excluding pre-payment penalty income, core net interest margin for the linked quarter remained unchanged at 3.17%.

 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 13 basis points from a year ago. However, on a linked quarter basis, yields decreased just two basis points to 3.7%. The linked quarter decrease was predominately driven by head winds from CRE refinance activity.

 Yields on the securities portfolio declined 10 basis points linked quarter to 3.04%, given increased CPR speeds, associated with lower market interest rates in the first half of the second quarter. The duration of the portfolio increased this quarter 3.16 years, given the rise in the 10-year treasury rate at the end of the second quarter.

 Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 3 basis points to 4.06% compared with the 2015 first quarter. Excluding pre-payment penalties from both quarters, yields would have declined 4 basis points.

 Now looking at liabilities, our overall deposit cost this quarter declined 3 basis points to 40 basis points, mostly due to an increase of 8%, or $558 million in average non-interest-bearing deposits, and a 3-basis-point decrease in our money market costs.

 Average borrowings this quarter increased $52.7 million to $1.95 billion, or only 6.6% of our average balance sheet. Given the short-term, low-cost nature of the borrowings we added, as well as the run-off of some higher-cost borrowings, the average borrowing cost decreased 8 basis points from the prior quarter to 1.34%. Overall, the cost of funds for the quarter decreased 3 basis points to 47 basis points.

 On to non-interest income expense. Non-interest income for the 2015 second-quarter was $9.8 million, a decrease of $2.6 million when compared with the 2014 second quarter. The decrease was driven by a $4.4-million gain on sales in SBA interest-only strip security that occurred in the 2014 second quarter. Excluding this gain, non-interest income would have increased $1.8 million, or approximately 14%.

 Non-interest expense for the 2015 second quarter was $84.9 million, versus $73 million for the same period a year ago. The $11.9 million, or 16.4% increase, was principally due to the addition of new private client banking teams, and our continued investment in the growth of Signature Financial, coupled with an increasing cost in our risk management and compliance activities. We anticipate these investments will facilitate further growth. Factoring in the significant hiring since last year, and increased regulatory cost, the bank's efficiency ratio still improved slightly to 34.5% for the 2015 second quarter, compared with 35.4% for the 2014 second 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 9.16%, and a total risk-based ratio of 12.63% as of the 2015 second quarter. Now I will turn the call back to Joe. Thank you.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [6]
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 Thanks Eric. Signature Bank has repeatedly reported record results, and consistently demonstrated stellar performance across all key metrics -- deposits, loans, and earnings -- due to the ways in which we efficiently utilize capital to grow our business organically by attracting talent to the list-out of private client banking teams, without experiencing any of the disruptions typically associated with acquisitions and the chaos of consolidation. Additionally we have invested time, effort, and capital to diligently and prudently broaden our offerings and capabilities, extend our geographic footprint, and diversify our revenue streams through the addition of complementary businesses.

 We are proud of our ongoing accomplishments and 23rd consecutive quarter of record earnings, which were achieved through the collective efforts of our colleagues. We look to further our growth across all facets of Signature Bank, as evidenced by our second-quarter results, with strong deposit and loan growth, further team and business expansion, top-line revenue growth, and record earnings.

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

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Questions and Answers
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Operator   [1]
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 The floor is now opened for questions.

 (Operator Instructions)

 Your first question comes from the line of Ken Zerbe of Morgan Stanley

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 Ken Zerbe,  Morgan Stanley - Analyst   [2]
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 Thank you, good morning. First question, just in terms of the NIM outlook, it sounded like -- obviously you had very solid core NIM being stable, but it sounded like that may have benefited from some of the high-cost funding rolling off. When you look out over the second half of the year, is there anything else that could actually keep core NIM relatively stable, or what's your outlook on that? Thanks.

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [3]
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 Yes, well, we expect NIM to be stable over the next several quarters. We see less head wind from CRE refinancing activity. We'll continue to increase loans as a percentage of our balance sheet, so that will certainly be helpful. If the 10-year remains were it is, we should see a slow-down in our CPR speeds. We did have a pick-up in CPR speeds in the second quarter that took a couple basis points out of the NIM. We should have some benefits there. We expect NIM ultimately to be stable now for these next few quarters. A ratio of 9.1 --

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [4]
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 Well, one other items that may help it -- not necessarily as much in the third quarter than it would in the fourth quarter -- is just yesterday we increased our multi-family five-year fixed interest rate from 3-3/8% to 3.5% Now we have a pretty robust pipeline of CRE loans, multi-family loans; but they won't get -- we won't get the benefit of increasing the rate, because anything that's already in the pipeline will get the rate of 3-3/8%. That's why I'm saying we'll probably get more of a benefit in the fourth quarter.

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 Ken Zerbe,  Morgan Stanley - Analyst   [5]
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 Got it, that helps. Then just on some of the new business lines you guys got into, like the municipal or the commercial vehicle businesses. Is there any way to help us dimension the size of that market, are how meaningful these new businesses could actually be to your overall -- or your total loan growth?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [6]
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 Well, if you look at the municipal business -- and we have been discussing this for a while -- the team that we brought over from Capital One slash All Points or North Fork had a $4.5-billion book of business at their prior institution. $2 billion of that $4.5 billion was in the muni finance space. However, they did have a tendency to do a little bit longer-dated paper than we may be willing to do here. All that being said, we certainly expect that they'll be able to grow back to that $2-billion amount, but it will take a few more years, I would expect. We're really looking for them to grow anywhere from $50 million to $100 million per year in that space. Then on the commercial dealer front, that's another business we anticipate will have about $40 million to $50 million per year in annual growth.

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 Ken Zerbe,  Morgan Stanley - Analyst   [7]
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 Got it. Okay, thank you.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [8]
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 Thank you, Ken.

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Operator   [9]
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 Your next question comes from the line of Lana Chan of BMO Capital Markets.

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 Lana Chan,  BMO Capital Markets - Analyst   [10]
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 Thanks, good morning.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [11]
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 Good morning, Lana.

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 Lana Chan,  BMO Capital Markets - Analyst   [12]
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 Can you give us an update on just the increase in the taxi medallion loans on the watch list, and what the characteristics are in the current LTDs in that service coverage ratios, and how much of a reserve you have on it right now?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [13]
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 Sure. We call it a tale of two cities. We looked at them separately. First, we'll take the New York piece. We currently have $628 million in total loans for over 1,000 medallions. Of that $628 million, $16.7 million is past due 30 to 89 days. $10.3 million was past due 90 days. But of that $10.3 million, $9.5 million is already refinanced in July and is now current. That's an important point. $9.5 million of the $10.3 million is now current.

 There was some slowness in payments, because there's less utilization of the medallions. What that means is there were less second-shift drivers. Still, the utilization is about 90%. In the New York portfolio, the overall LTV is 77%, and the debt service coverages is 1.2%. Now Chicago has 753 medallions at $172 million. Approximately $29 million is past due, and $10 million is on non-accrual. Year to date we've charged off about $1.9 million. We are currently actively working with the Chicago fleet owners and driver owners and restructuring. In June we restructured $60 million, and in July we're restructuring $52 million. The current LTV is 92%, and debt service coverage on the Chicago portfolio is 1.28%

 Now something I think bodes pointing out is that with medallions, we consider them as what we call hostage collateral. What that means is this is their livelihood. When they give up a medallion, they are not just giving up an asset, they are giving up their job. It's very different from collateral for another type of loan. That's why they're willing and we're willing to work with them. I think the key thing is that it's their livelihood, and it's all about cash flow. The cash flow right now is such that we'll be paid back.

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 Lana Chan,  BMO Capital Markets - Analyst   [14]
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 Thank you, and can -- do you have the reserves allocated to the portfolio?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [15]
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 It's about 1% in reserves on the New York portfolio and about 4% on the Chicago portfolio.

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 Lana Chan,  BMO Capital Markets - Analyst   [16]
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 Great, thank you. Just a follow-up question on fee income. You had some pretty good growth on the fees and service charges, as well as commissions this quarter. Anything to call out there, or do you think those are sustainable levels?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [17]
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 I think they're fairly sustainable. We're just seeing an increasing client activity, and we did see some activity in our FX and swap businesses that helped that along. Mostly, it's just a pick-up in client activity.

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 Lana Chan,  BMO Capital Markets - Analyst   [18]
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 Okay, thank you.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [19]
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 Thank you, Lana.

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Operator   [20]
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 Your next question comes from the line of Ebrahim Poonawala of Merrill Lynch.

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 Ebrahim Poonawala,  BofA Merrill Lynch - Analyst   [21]
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 Good morning, guys. Just a quick question. Joe, you talked about raising the pricing on the CRE multi-family loans earlier, I guess, last quarter. Can you just take that and what drove that decision, and also touch upon what the competitive landscape is, both from a loan-growth standpoint, as well as from a hiring standpoint?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [22]
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 What drove it was over the last quarter we've seen rates increase, both on treasury and on the swaps, and we've seen the increase being sustained. We've been wanting to raise interest rates for the last several weeks, but competition wasn't moving. We're always 0.25% to 3/8% higher. You can't be 0.5% or more higher. Because no matter how much they lose you, no matter how efficient our commercial real estate team is, a half is a half, and it means a lot.

 Some due diligence was done last week and again yesterday, and it was found that our competitors were raising their five-year fixed from let's say as low as 3% and 3-1/8% to 3.5% -- I'm sorry to 3.25%. They raised to 3-1/4%, we're at 3-3/8%, and we simply raised ours to 3.5%. That was yesterday. Like I said earlier, anything in the pipeline gets the 3-3/8%. We should see more of an effect of interest income in the fourth quarter.

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 Ebrahim Poonawala,  BofA Merrill Lynch - Analyst   [23]
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 Understood. In terms of loan growth looking out into the back half of the year, do you see the same momentum you had in the first half continue? Also, are you continuing to see opportunities for closing on larger packages, which was obviously a big contributor last quarter, in 1Q?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [24]
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 I can tell you that the pipeline for loans during the period now is as strong as it was going into the second quarter. Going into the third quarter is equal to going into the second quarter in terms of pipeline. The second half of the year, at least I'll talk about the third quarter, bodes well. In terms of large loans or packages, at $25 million and above -- to give you a reference point -- we had $691 million in the first quarter, we had $326 million in the second quarter, between four packages and two loans that exceeded $25 million. Anything else?

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Operator   [25]
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 Your next question comes from the line of Chris McGratty of KBW.

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 Chris McGratty,  Keefe, Bruyette & Woods, Inc. - Analyst   [26]
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 Good morning, everybody.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [27]
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 Good morning, Chris.

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 Chris McGratty,  Keefe, Bruyette & Woods, Inc. - Analyst   [28]
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 Joe or Eric, just to close the loop on the taxi, on the exposure in Chicago, is there an active market to which you could dispose of this portfolio if you decided to?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [29]
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 There are certainly buyers in the market place. I wouldn't say it's tremendously active at this time, but we're not ultimately looking to exit the portfolio right now.

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 Chris McGratty,  Keefe, Bruyette & Woods, Inc. - Analyst   [30]
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 A question, Eric, on the margin. Do you have the dollar amount of the premium amortization, both in first quarter and the second quarter?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [31]
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 I don't have the absolute dollar amount, but I can tell you that premium amortization was $1.2 million greater in the second quarter versus the first quarter.

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 Chris McGratty,  Keefe, Bruyette & Woods, Inc. - Analyst   [32]
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 Okay, that's helpful, thank you. Maybe the last question, your leverage ratio was about a little over 9%, 9.2% or so. I believe if memory serves, you raised last time you were around 8.5%. Joe or Eric, can you talk about your outlook for capital maybe the 12 to 24 months, or maybe the potential need if the growth continues to be as strong as it is? Thanks.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [33]
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 Thanks, Chris. It's an interesting question, because of what's going on right now with the big institutions. What I mean by that is with Basel III, they have to keep higher levels of capital due to more risk on the balance sheet. Because of the higher levels of capital that is necessary to be kept because of the risk, they would end up having capital levels higher than us. We've been using for the last 14 years our stance that our capital levels were higher than the multi-trillion dollar institutions, and we were safer, at least in terms of capital ratios.

 When you look at that, and you look at the fact that we've had $1 billion of growth in loans and or deposits for eight consecutive quarters, and we've added on a number of business, in addition to adding on a number of teams -- ABL, franchise lending, commercial marine and equipment finance, the commercial vehicle, and the municipal finance -- and then we're actually hiring some additional executive sales officers from GE at Signature Financial. The fact that we're generating tremendous amount of capital with earnings, but the growth is always exceeding that earnings or earning capacity at the moment.

 Based all that, we're having a lot of discussions about whether or not we should take the stance that we don't need higher levels of capital and the fact that the Chases of the world will need higher levels of capitals because of their risk, or do we raise capital to be closer to the levels that a multi-trillion-dollar institution has. When you say all that, it comes down to we're having a lot of discussions and the markets have to be receptive, which they seem to be. We always add capital in anticipation of growth, not when it's needed, and we're not shy about doing it. I'm just giving you a brain dump of all the things we're thinking about, without leading you to exactly where we are going to end up.

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 Chris McGratty,  Keefe, Bruyette & Woods, Inc. - Analyst   [34]
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 Okay, that is helpful. Thank you, Joe.

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Operator   [35]
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 Your next question comes from the line of Steven Alexopoulos of JPMorgan.

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 Steven Alexopoulos,  JPMorgan - Analyst   [36]
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 Good morning, everyone.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [37]
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 Good morning, Steve.

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 Steven Alexopoulos,  JPMorgan - Analyst   [38]
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 Joe, what changed versus last quarter that you decided to move the bulk of the Chicago taxi medallion loans to the watch list?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [39]
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 They were all current in the first quarter, for the most part. We saw a little bit of a slow-down, and we thought it made sense, particularly since there are going to be a lot of those loans as TDRs for the quarter. It made sense at that point to put them on the watch list when we refinance them. We wanted to get ahead of the situation, and not be behind the situation, whereby if we didn't do the refinance, they would be coming to us anyway. So it made sense to do it. We didn't put them all on the watch list, though -- probably 2/3.

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 Steven Alexopoulos,  JPMorgan - Analyst   [40]
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 Okay. Joe, can you give color on the restructuring that you're actually doing? Are you haircutting principal, getting more collateral? What exactly are you doing with the restructuring?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [41]
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 I won't, because we don't want our competitors to know. I will tell you this -- we're not taking haircuts. We're not forgiving principal. We're probably changing some interest. We're certainly getting more collateral.

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [42]
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 And more amortization

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [43]
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 That's right, and more amortization.

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 Steven Alexopoulos,  JPMorgan - Analyst   [44]
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 Got it, okay. Maybe shift -- go ahead.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [45]
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 I was just going to say, they were originally IOs, because that's what the market was. When you did medallions, you did interest only. As Eric pointed out, we now get amortization.

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 Steven Alexopoulos,  JPMorgan - Analyst   [46]
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 Okay. Joe, maybe to shift gears and look at deposits for a second. The period-end deposits were fairly soft, and it looks like interest-bearing were flat. Any color on this, and is this any read-through as we head into the third quarter?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [47]
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 Well, we are all into long-term growth. I'm surprised that I get questions about where we are at period end on deposits, because the average deposit growth was over $1.1 billion. Let me give you an example of what happened in July. In the first 10 to 14 days of July, we had four clients make deposits of $1.16 billion. On July 15, $780 million was withdrawn from one of those four clients. If we had gotten that $1.16 billion at the end of June, I think everyone would be applauding that we had $1.5 billion in deposit growth at period end.

 One of the things Eric has said multiple times is really look at the average, because there's a portion of our deposits that are very choppy due to in-flows and out-flows of escrows, particularly when you have large class-actions lawsuits, 1031s, and the like. There's nothing to read into it, other than that it really was a timing issue. Deposit growth is fairly robust right now -- here we are on July 21. However, I can't tell you what it will be on July 22, because of the in-flows and out-flows. But nothing to read into it at all.

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 Steven Alexopoulos,  JPMorgan - Analyst   [48]
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 Okay. Joe, maybe one final one. Anything that you're seeing related to the zero rent increase unstabilized that was passed? Are you expecting any impact to the business? Thanks.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [49]
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 Thanks. No, it is almost like everyone was expecting it. It seems like our clients have moved on, because there was an expectation. Remember, they are very experienced owners, developers that the ones that can afford things like this that happen. It was expected, and we don't see anything from a P&L standpoint, particularly the CRE portfolio credit-wise is pristine.

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 Steven Alexopoulos,  JPMorgan - Analyst   [50]
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 Okay. Thanks for taking my questions.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [51]
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 Thanks, Steve.

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Operator   [52]
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 Your next question comes from the line of Jared Shaw of Wells Fargo Securities.

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 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [53]
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 Hi, good morning.

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [54]
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 Hi, Jared.

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 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [55]
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 Just following up on the deposit question, as we see the shift more into core, is that more of a permanent transition, or is that more of the average versus period end items that you were just talking about? Also, is that something that we should be seeing more of a -- expecting more of a greater focus on core?

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 Joseph J. DePaolo,  Signature Bank - President & CEO   [56]
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 We continue to focus on core. I think there are times when we get some deposit flows that look like they're not core; but from an escrow standpoint, we consider them core because -- well, we don't consider them core but we do consider them core from our vantage point. That's what I mean. We tell everyone that they're escrows, but they're operating accounts that just happen to have big flows in and out -- example, 1031. You have constant transactions. If we have the main operating account, every 90 days there may be another transaction or transactions. We haven't changed anything from day one. It may look like a shift, but it's really not. Our teams are pretty sedulous in going after core deposits, and we figure they'll remain that way.

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 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [57]
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 Okay great, thanks. Then when you look at the declines this quarter in cash and securities balances, was that -- is that something we should expect to continue to see turning down? Are those assets going to be funding loan growth in the future? Ultimately, where would you like to see that loan to deposit ratio fall out?

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 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [58]
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 Cash, I think, is at a level now that we'll probably sustain at or around these levels. We did have quite a bit of excess over the last few quarters. The securities portfolio is really more a function of where the 10-year was. For the majority of the quarter it was not a very good quarter for us to invest in. We started to deploy into the securities portfolio at the end of the second quarter, and we continue to do so throughout the third quarter. I would expect to see those balances would increase, or certainly not fall from the levels they're at now. As it relates to a loan-to-deposit or a loan-to-asset ratio, we are a ways away from being anywhere near where we want it to settle out. We can assess that as we grow those ratios.

------------------------------
 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [59]
------------------------------
 Okay. Great, thanks. Finally, looking at the allowance for loan loss ratio, that's continuing to decline as you're growing the Signature Financial -- Signature Finance sections, and you had the trends in taxis this quarter. Should we expect to see that as a percentage of the loan book start to grow as these other lending categories continue to grow, or is there still some room for that to come down?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [60]
------------------------------
 It's hard to say, because we do an analysis every month pretty consistently. But we will say this. The reserves that we have on the multi-family portfolio is much higher than our competitors. As our multi-family portfolio continues to mature, that may go one way, where the other new businesses that we're bringing in could be going the other way in terms of building reserves, and they can offset each other. We just don't know. But that's how we're thinking.

------------------------------
 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [61]
------------------------------
 Great. Thank you very much.

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [62]
------------------------------
 Jared, just to add to that, if you look at the Signature Financial portfolios, they're really not high-loss businesses, especially the municipal business, which has been a zero-loss business for pretty much ever. We don't really see those adding significantly to our reserving methodology.

------------------------------
 Jared Shaw,  Wells Fargo Securities, LLC - Analyst   [63]
------------------------------
 Great, thank you.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [64]
------------------------------
 Thanks, Jared.

------------------------------
Operator   [65]
------------------------------
 Your next question comes from the line of Casey Haire of Jefferies.

------------------------------
 Casey Haire,  Jefferies LLC - Analyst   [66]
------------------------------
 Hi, good morning, guys. Just one for me. Eric, you mentioned you're investing again late in the quarter, and continuing in the third quarter here. Just curious, what is the yield on new money securities?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [67]
------------------------------
 In the high 2%s, and some in the low 3%s.

------------------------------
 Casey Haire,  Jefferies LLC - Analyst   [68]
------------------------------
 Okay, great. Thank you.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [69]
------------------------------
 Thank you, Casey.

------------------------------
Operator   [70]
------------------------------
 Your next question comes from the line of Bob Ramsey of FBR Capital Markets.

------------------------------
 Bob Ramsey,  FBR & Company - Analyst   [71]
------------------------------
 Hi, good morning guys. Did you have the dollar number for loan pre-payments? I saw it was 10 bps, but I'm just curious if you had the dollar amount?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [72]
------------------------------
 Bear with me a second.

------------------------------
 Bob Ramsey,  FBR & Company - Analyst   [73]
------------------------------
 Sure.

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [74]
------------------------------
 $7.3 million in pre-payment penalties in the quarter.

------------------------------
 Bob Ramsey,  FBR & Company - Analyst   [75]
------------------------------
 Perfect, thank you. Then maybe could you touch a little bit on fee income? It seemed to me that commissions and deposit fees were probably at record levels this quarter, and gain on sale loans was also strong. Just curious what's driving that strength, and how you're looking at those line items?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [76]
------------------------------
 It's really just overall growth in clients and client activity, Bob. I can't really point to any one particular item that's driving that. I think it's just an overall growth in our client base, and they're doing more business with us.

------------------------------
 Bob Ramsey,  FBR & Company - Analyst   [77]
------------------------------
 Okay, fair enough. Thank you very much.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [78]
------------------------------
 Thanks, Bob.

------------------------------
Operator   [79]
------------------------------
 Your next question comes from the line of Dave Rochester of Deutsche Bank.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [80]
------------------------------
 Hi, good morning, guys. Nice quarter.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [81]
------------------------------
 Hi, Dave, good morning.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [82]
------------------------------
 That was encouraging to hear on the pipeline, the loan pipeline, given 3Q's normally a seasonally softer quarter. Are you still looking for a little bit of softness there, or would you think that given a stable pipeline that growth could actually buck that seasonality a little bit?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [83]
------------------------------
 Well, the pipelines is strong. It's strong where it needs to be in the beginning of the quarter, because there will be some softness toward the end of August. We have one thing going against us this here that we didn't have last year. I know this will make some people smile, but last year we had an advantage because Labor Day was September 1. That meant clients were coming back sooner. This year Labor Day is September 7, which means clients come back a week later, and some loans may be pushed into the fourth quarter. Having said that, the pipeline in the beginning and what we're booking in the beginning of the quarter is very strong, which is where it needs to be.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [84]
------------------------------
 Great, and just one on expenses. I was just wondering how much of the expense from the hires that you've announced is already embedded in that 2Q run rate? Then would you expect hiring to slow here in the back half as you build that pipeline for next year?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [85]
------------------------------
 Yes, I'd say most of the expense is baked into the second-quarter numbers. I wouldn't see too much of a bump for the third quarter. We are -- typically, when we get this late into the year, we're setting the stage for hiring for next year. There may be a team or two before the end of the year, but we are really setting the stage for next year.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [86]
------------------------------
 Got you. One last one on the tax rate. That was a little bit lower this quarter. Where does that settle on the back half of the year?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [87]
------------------------------
 I'd go with 41%. There were changes in the New York state and city tax laws that were beneficial for us, so we should see our effective rate come down to approximately 41% for the back half.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [88]
------------------------------
 Do you think that flows into next year, too?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [89]
------------------------------
 Yes.

------------------------------
 Dave Rochester,  Deutsche Bank - Analyst   [90]
------------------------------
 Great. Thanks, guys.

------------------------------
Operator   [91]
------------------------------
 Your next question comes from the line of Peyton Green of Piper Jaffray.

------------------------------
 Peyton Green,  Piper Jaffray - Analyst   [92]
------------------------------
 Yes, good morning. I think Dave just got my questions. But maybe Joe, if you could step back and take a look at the overall business, are you more optimistic now than you were six months to a year ago? How is the hiring landscape shaping up as you look at the pipeline? It may not really develop until the beginning of next year, but how do you feel about that relative to prior periods?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [93]
------------------------------
 Well I feel very good, because we've hired five teams that will -- that have started to contribute, but will contribute greatly as time goes on. The commercial real estate team continues to add, and they have now over 40 in their group, which is a wonderful group that's developing and continues to develop commercial real estate for us. The ADL team has now been around couple years, and is starting to contribute. Signature Financial is adding on line to business. Everything bodes well, and we been able to keep our expenses low.

 The only thing that clouds all of this is the continued expense and brain damage that we have to go through as it relates to regulation, and some of the things that we hire consultants for that are utterly ridiculous, but are necessary to do. That's the only thing the clouds the growth of an institution, the time that has to be spent where I believe is unnecessary in some instances.

------------------------------
 Peyton Green,  Piper Jaffray - Analyst   [94]
------------------------------
 Do you get the sense that most of that expense is embedded in the 2Q run rate, or is there another ramp going forward?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [95]
------------------------------
 I don't think there's another ramp. As Eric's been saying about expenses, the regulatory expense -- when I say regulatory expense, I mean the expense that we're adding people, personnel. We're adding consultants to help us and systems, and writing procedures and policies. Our expense rate would probably be 10% or below, if we didn't have all of that additional expense. It's embedded in there. I don't think we'll have any major jumps quarter to quarter. It will just continue to be going up, probably at about a mid-teen rate. But you've got to understand, it's going up let's say mid-teens every quarter. It's a higher base, so there's more actual dollars.

 But that's not any different than any other institution that's going through the compliance aspects, the risk aspects that you have to do. It's just getting -- there are a lot of dollars being put into it. One of the things we're doing, Peyton, that I think is very important is that everything we do today -- we always have to deal with what we call the closest fire to the house, but we have one that's further away, and we're constantly thinking about it, and we're working toward it, and that's the $50-billion mark. If that doesn't change by the time we reach $50 billion in assets, we should be ready, and there should be no excuse.

------------------------------
 Peyton Green,  Piper Jaffray - Analyst   [96]
------------------------------
 Okay, great. Thank you very much.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [97]
------------------------------
 Thanks, Peyton.

------------------------------
Operator   [98]
------------------------------
 (Operator Instructions)

 Your next question comes from the line of Brian Horey of Aurelian Management.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [99]
------------------------------
 Hi, thanks for taking my question. I had a couple of housekeeping questions, just on the medallion portfolio. Can you give us the values that you used to determine the LTVs for Chicago and New York?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [100]
------------------------------
 Yes, we're using $250,000 in Chicago and $800,000 in New York for corporate owned, and $700,000 for an individual.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [101]
------------------------------
 Okay, and what was the utilization rate in the fleet in Chicago for your portfolio in that quarter?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [102]
------------------------------
 About 85%.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [103]
------------------------------
 Okay. The New York City loans that were 90 days past due that are now current, presumably those have gone through some kind of TDR process, is that correct?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [104]
------------------------------
 No, they weren't TDR. We were just -- they weren't trouble. It was just timing of getting the loans re-documented with the borrower.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [105]
------------------------------
 Okay. Are you all making any new loans for new clients in the taxi space at this point, or are you just refinancing current clients as they come up for renewal?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [106]
------------------------------
 We haven't made new loans, but we wouldn't -- if we saw something that made sense, we would certainly make it.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [107]
------------------------------
 Okay. You referenced additional amortization in some of your restructurings on some of the loans. Historically I guess there's been in the industry a 25-year amortization period, generally speaking. To the extent that new loans do get made going forward, do you expect that 25-year period to be the norm, or where would you expect to see that come in?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [108]
------------------------------
 One of the things we saw, we expect it to be whatever the industry is. One of the things that in terms of the industry, many of them were IOs. They weren't all with amortization. They were three-year IOs. We changed to two amortization as part of the refinance.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [109]
------------------------------
 Okay. Is there a new rule of thumb as to what kind of amortization period makes sense, do you think, for this kind of asset?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [110]
------------------------------
 No.

------------------------------
 Brian Horey,  Aurelian Management, LLC - Analyst   [111]
------------------------------
 Okay, thank you.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [112]
------------------------------
 Thanks.

------------------------------
Operator   [113]
------------------------------
 Your next question comes from the line of Jay Hickman of HVN Capital.

------------------------------
 Jay Hickman,  HVN Capital - Analyst   [114]
------------------------------
 Hi, guys, thank you. A couple of quick questions. Did you indicate that your Chicago debt service coverage was 1.28? That would be an up-tick, I think from the last quarter. Could you maybe explain how that happened? Second, could you give us a break-out of your New York City corporate medallion loans versus independent loans?

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [115]
------------------------------
 The 1.28 was about the same as the first quarter on the debt service part.

------------------------------
 Jay Hickman,  HVN Capital - Analyst   [116]
------------------------------
 It was about that. Okay, I thought you had said 1.20.

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [117]
------------------------------
 Our corporate balance is $116 million, and individuals are $511 million.

------------------------------
 Jay Hickman,  HVN Capital - Analyst   [118]
------------------------------
 Okay, and one last. What did you use for New York's value, medallion values in the third quarter. I think you said your LTV -- excuse me, in the first quarter. You said your LTV was 77% in both quarters, but I thought you used about $100,000 more in the value for each of the corporate individuals in the first. I am wrong on that?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [119]
------------------------------
 Yes, we used $900,000 for the corporates and $800,000 for the individuals.

------------------------------
 Jay Hickman,  HVN Capital - Analyst   [120]
------------------------------
 In this quarter, and same in the first quarter?

------------------------------
 Eric Howell,  Signature Bank - EVP of Corporate & Business Development   [121]
------------------------------
 Yes.

------------------------------
 Jay Hickman,  HVN Capital - Analyst   [122]
------------------------------
 Okay. Thank you, guys.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [123]
------------------------------
 Thank you.

------------------------------
Operator   [124]
------------------------------
 At this time there are no further questions. I will now return the call to Joseph DePaolo for any additional or closing remarks.

------------------------------
 Joseph J. DePaolo,  Signature Bank - President & CEO   [125]
------------------------------
 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. Now I will turn it back to you, Lori.

------------------------------
Operator   [126]
------------------------------
 If you would like to listen to a replay of today's conference, please dial (800) 585-8367 and refer to conference ID number 80820311. 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.




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