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Signature Bank (NASDAQ:SBNY)

Q4 2012 Earnings Call

January 22, 2013, 10:00 am ET

Executives

Susan Lewis - IR

Joseph J. DePaolo - President & CEO

Eric R. Howell - EVP & CFO

Analysts

Dave Rochester - Deutsche Bank

Erika Penala - Bank of America Merrill Lynch

Jason O'Donnell - Merion Capital Group

Bob Ramsey - FBR

Steven Alexopoulos - JP Morgan

Casey Haire - Jefferies

Matthew Clark - Credit Suisse

Chris McGratty - KBW

Herman Chan - Wells Fargo Securities

Rahul Patil - Evercore Partners

Peyton Green - Sterne Agee

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Signature Bank 2012 Fourth Quarter and Year-End Results Conference Call. With us today are Joseph J. DePaolo, President and Chief Executive Officer and Eric R. Howell, Chief Financial Officer. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for your questions. (Operator Instructions) Today's conference is being recorded January 22, 2013.

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

Joseph J. DePaolo

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

Please go ahead Susan.

Susan Lewis

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

Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings and business strategy. These statements often include words such as may, believe, expect, anticipate, intend, potential, opportunity, could, project, seek, should, will, would, plan, estimate or other similar expression.

As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to: (i) prevailing economic conditions; (ii) changes in interest rates, loan demand, real estate values and competition, any of which can materially affect origination levels and gain on sale results in our business, as well as other aspects of our financial performance, including earnings on interest-bearing assets; (iii) the level of defaults, losses and prepayments on loans made by us, whether held in portfolio or sold in the whole loan secondary markets, which can materially affect charge-off levels and required credit loss reserve levels; (iv) changes in monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and Board of Governors of the Federal Reserve System; (v) changes in the banking or other financial services regulatory environment and (vi) competition for qualified personnel and desirable office locations.

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

You should keep in mind that any forward-looking statements made by Signature Bank speak only of the date as which they were made. New risks and uncertainties come up from time-to-time, and we cannot predict these events or how they may affect the Bank. Signature Bank has no duty to, and does not intend to, update or revise the forward-looking statements after the date on which they are made. In light of these risks and uncertainties, you should keep in mind that any forward-looking statements made in this conference call or elsewhere might not reflect actual results.

Now I would like to turn the call back to Joe.

Joseph J. DePaolo

Thank you, Susan. I will provide some overview in to the quarterly results and then Eric Howell, our Chief Financial Officer will review the bank’s financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

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

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

Looking at deposits; deposits increased $459 million to $14.1 billion this quarter. For the year, total deposits grew a record $2.33 billion, core deposits grew a record $2.17 billion and average deposits were nearly $14 billion; all increasing 20%. Non-interest bearing deposits of $4.4 billion represented 32% of total deposits and grew $1.3 billion or 41% for the year. With the substantial deposits and loan growth as well as earnings retention, total assets reached $17.46 billion, an increase of $2.79 billion or 19% since the fourth quarter of last year. The ongoing strong core deposit growth is attributable to the unparalleled level of service provided by all of our Private Client Banking Teams who continue to act as a single-point-of-contact to their clients.

Now, let’s take a look at loans. Loans during the 2012 fourth quarter increased a record $1.02 billion or 12%. For the year, loans increased a record $2.9 billion and now represents 56% of total assets compared with 46.7% one year ago. This transformation is significant considering the $2.79 billion growth in assets this year. All of our major lending areas including commercial and industrial, commercial real estate and multifamily loan and specialty finance contributed to the record loan growth. Additionally, for the fourth quarter due to the expected increase in capital gains taxes in 2013 approximately $184 million in loans closed that would have closed into 2013 first quarter.

Non-accrual loans decreased to $27.2 million or 28 basis points of total loans this quarter compared with $28 million or 32 basis points for the 2012 third quarter. Non-accrual loans at year-end 2011 were $42.2 million or 62 basis points. The allowance for loan losses was 1.10% of the loans versus 1.18% of loans in the 2012 third quarter and 1.26% for the 2011 fourth quarter.

Additionally, the coverage ratio or the ratio of allowance for loan losses to non-accrual loans further improved to 395% compared with 367% for the 2012 third quarter and 204% for the 2011 fourth quarter. The provision for loan losses for 2012 fourth quarter was $10.4 million compared with $10.1 million for the 2012 third quarter and $14.6 million in the 2011 fourth quarter. This quarter’s provision includes reserves for the anticipated effects of Superstorm Sandy which cost approximately $0.02 in earnings.

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

Now turning to the watch list and past due loans; watch list credit again decreased this quarter by $34.3 million to $152.9 million or 1.6% of total loans. During the 2012 fourth quarter, we saw an increase in our 30 to 89 day past due loan of $18.4 million to $48.7 million, which is well in line with our historical performance. We also saw a decrease of $2.2 million in the 90 day plus past due category to $28.8 million; while we are pleased that both non-accrual and watch list credit decreased this quarter and our credit metrics remain strong, we are mindful of the uncertainty in the economic environment as well as the potential effects on our clients from Superstorm Sandy and we again conservatively reserve.

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

Looking at 2013, our pipeline remains relatively active and we look forward to opportunities for attracting talented banking professionals to our network. At this point, I will turn the call over to Eric and he will review the quarter’s financial results in greater detail.

Eric R. Howell

Thank you Joe and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the fourth quarter reached $147.1 million up $21.9 million or 17.5% when compared with the 2011 fourth quarter and an increase of 3.9% or $5.5 million from the 2012 third quarter.

Net interest margin was down two basis points in the quarter versus the comparable period a year ago and decreased three basis points on a linked quarter basis to 3.53%. The linked quarter decrease was mostly due to the continued effect of the prolonged low interest rate environment on asset yields.

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

So let's look at asset yields of funding cost for a moment. Overall interest earning asset yields declined nine basis points this quarter to 4.16% as we continued to feel the effect of the low interest rate environment and increased premium amortization on the securities portfolio.

Asset yields were assisted however by an improving earning asset mix and an increase of $2.7 million in loan prepayment penalty income to somewhat offset the continued low interest rate environment. Given the strong loan growth and low interest rate environment, we are able to be very selective in securities purchases.

As a result, the average balance of the securities portfolio declined $104 million and yields declined 14 basis points to 3.19%. The duration remains stable at 2.75 years.

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

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

Odds to non-interest income expense, the non-interest income for the 2012 fourth quarter was $8.9 million, an increase of $1 million when compared with the 2011 fourth quarter. This was driven by an increase of $1.8 million in gains on sales of SBA loans. Non-interest expense for the 2012 fourth quarter was $58.1 million versus $47.1 million for the same period a year ago.

The $11 million or 23% increase was principally due to the addition of new private client banking teams and the Signature Financial hiring. Also, we incurred expense from Superstorm Sandy that cost an additional $0.01 of earnings. The bank’s efficiency ratio remains stable at 37.2% for the 2012 fourth quarter, compared with 36.6% for the 2012 third quarter.

Turning to capital, our capital levels remain strong but with a tangible common equity ratio of 9.45%, Tier-1 risk base of 15.32%, total risk-based ratio of 16.35% and leverage capital ratio of 9.51% as of year end 2012. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of balance sheet.

Now, I'll turn the call back to Joe. Thank you.

Joseph J. DePaolo

Thanks, Eric. The fourth quarter cap another exceptional year of achievements for Signature Bank. In 2012, we grew deposits a record $2.33 billion or 20%. We loaned a record $2.9 billion or 43%. Loans now account for 56% of total asset, maintain exceptional credit quality with non-accrual loans total asset of only 16 basis points; increased net interest income by $90 million or 20% that’s top line revenue growth.

84 private client banking teams as well as more than 50 colleagues to launch our specialty finance subsidiary of Signature Financial, maintained a solid capital position through earnings retention, even given the significant growth of the balance sheet, further solidifying our commitment to depositor safety.

And lastly, delivered a 24% increase in net income to a record $185.5 million on top of delivering a 50% increase in 2011.

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

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Dave Rochester with Deutsche Bank. Please go ahead.

Dave Rochester - Deutsche Bank

On the expense side, just to understand that Sandy impacted, did you say it was a penny a share and higher expenses?

Eric R. Howell

That’s correct it’s one.

Dave Rochester - Deutsche Bank

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

Eric R. Howell

No, it's in other G&A.

Dave Rochester - Deutsche Bank

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

Joseph J. DePaolo

Well, I will profess my comment Dave, as we have talked in the past that we are much better at execution than we are at projecting. For example, we [viewed] in the last several years we have given our budgeting numbers and in 2011 looking at 2012 we had budgeted a billion in loans and a billion in foreign deposits, so clearly we blew that away. So for this year and this is somewhat radically throughout the quarters, we are budgeting at approximately $2.2 billion in loans and about $1.4 billion in deposits. Now that’s directly from our budget process on budget process and where what I said, we have been able to over the last several years and all those numbers away but it doesn't make sense for us to project things back or very difficult to really project we rather just be able to execute.

Dave Rochester - Deutsche Bank

And just one more quick one here; sorry if you mentioned this, the securities you lose down a bit, I know that you want to really building securities books and I would imagine that's premium amortization and how much of that impacted the margin this quarter and the yield?

Joseph J. DePaolo

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

Dave Rochester - Deutsche Bank

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

Joseph J. DePaolo

Maybe just the little bit less pressure, we think first quarter we will still see a decent amount of pressure. I give a fairly wide range of has been done in another 3 to 7 basis points, the pick up in the 10 year so far this quarter should be beneficial to the securities portfolio but we need to see that stay there for a while. So as long as it stays alleviated should be beneficial but we are certainly getting pressures from the current wins that were on boarding loans and securities.

Operator

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

Erika Penala - Bank of America Merrill Lynch

My question is on your loan to deposit ratio, it’s clear and impressive what your deposit growth has been in 2012, when it clearly speaks to your ability to hire teams and onboard teams. I guess I am wondering, you know as you should have look out, I know you are cautious on the economy but if we're a little bit more optimistic on the trajectory. Is there a normal level of loans and deposit ratio at Signature or we really can't think of it that way because you are continuing to ramp up teams and therefore despite whether higher rates or a better economic trajectory, you will always grow deposit significantly.

Joseph J. DePaolo

Well, I think what you said about, it’s hard to do because the trajectory is there because of the continued hiring of teams. Although I have to say the existing teams contribute significantly to the growth on the deposit and the loan side by double digits. But our plan for the near future 2013 and ’14 is to continue to add on teams and take advantage of the opportunities that have presented them to us. The opportunities being that the large too big to fail institutions, what we jokingly call the government sponsored institutions. We find that there's some real opportunities there and that's evidenced by a number of banks that were not in New York City that have moved into New York City and try to take advantage of that. We've been able to do that and we continue to be able or see ourselves being able to do that. So it’s very difficult to come up with a normal trajectory when we are going to continue to add teams on in the foreseeable future.

Erika Penala - Bank of America Merrill Lynch

Got it, and you know you mentioned the expense related to Sandy. But is there a way to size any potential opportunity in terms of financing, rebuilding projects.

Joseph J. DePaolo

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

Erika Penala - Bank of America Merrill Lynch

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

Joseph J. DePaolo

It’s hard to say, I'll tell you why, because all of our competitors have a retail component and so the large institutions in particular can give clients 20 to 25 basis points. You know that old adage 20% of the clients give 80% of the profits. Those are the types of clients that we target at each of those institutions, and they command and require a higher rate. So when we see them coming from the Citi Bank, from the Chases, from the HSBC’s, they are not getting 25 basis points, they are getting 75 basis points or somewhere near that.

So we bring the clients over and we try not to do cliff diving with their rates. We try to take them down slowly, like we did this quarter from 82 to 78 basis points. We started off the December with 77 basis points, and we started to drop rates actually last week, this week and towards the beginning of February. So we are going to be able to continue to drop that slowly, although there's no real floor. In fact we've been seeing some advertisement from some competitors on the personal money market side, anywhere between 80 and 85. Again, that's what they are advertising and we have to be cognizant of that.

But I think there's a big difference here. Everyone looks at that rate; I think the best thing to do is to look at the efficiency ratio because we don’t have the experience of the retail. We don’t have the retail location which have a significantly higher cost in leasing and rental cost. We don’t have the advertising and marketing cost. So we get the better clients and pay them a little bit more and that affects on them. But clearly, when you look at our efficiency ratio bodes well for us because we don’t have all those extra costs. So it's very difficult to come down to where the floor is, but we're still going to be, as Eric likes to use the term runway, we still have a lot of runway there to drop our deposit for us.

Operator

Our next question comes from the line of Jason O'Donnell with Merion Capital Group. Please go ahead.

Jason O'Donnell - Merion Capital Group

I am just following up on the operating expense discussion, Eric. Can you just maybe give us the impact of Hurricane Sandy in pretax dollar terms?

Eric R. Howell

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

Jason O'Donnell - Merion Capital Group

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

Eric R. Howell

That’s correct. I’d expect that we see about 20% of first quarter, because remember, we brought on Signature Financial team right at the end of first quarter of 2012. So they have a very little impact on that quarter’s earnings. So I think we will see 20% and then we should go down for quarters two through four, down to a 10% growth numbers.

Jason O'Donnell - Merion Capital Group

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

Eric R. Howell

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

Operator

Our next question comes from the line of Bob Ramsey with FBR. Please go ahead.

Bob Ramsey - FBR

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

Joseph J. DePaolo

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

Bob Ramsey - FBR

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

Joseph J. DePaolo

It’s difficult to say because we are not sure how many clients’ held back to win business in Q4 because of fiscal cliff. They may have been some of that and we may have been the beneficiary of that in Q1, we are not quite sure. So we would like to have a little bit more under our belt, another quarter or two before we start breaking out projections for them.

Bob Ramsey - FBR

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

Eric R. Howell

That's right Bob.

Bob Ramsey - FBR

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

Eric R. Howell

Assuming where they stay, if they stay where they are now, yes, we would expect it to ease. They have been lowering for quite some time now, and we’ve had a decent amount of prepay activity happen over 2012 and 2011. So if they stay where they are, we should see it ease a bit, but that's a big assumption.

Bob Ramsey - FBR

Okay, great. And then last question and the I will (inaudible) out. But could you all give a new team goal for 2013, if you did, I missed it?

Joseph J. DePaolo

I know we did not. We have projected four new teams.

Operator

Our next question comes from the line of Steven Alexopoulos with JP Morgan. Please go ahead.

Steven Alexopoulos - JP Morgan

I just want to clarify, what was the balance of loans at Signature Financial at year end?

Eric R. Howell

A little over 750 million, Steve.

Steven Alexopoulos - JP Morgan

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

Eric R. Howell

I mean, that's so hard to predict, it really depends on how long we are in this low interest rate environment. I mean, we are reinvesting now in the high twos. If we had to reinvest it in a big way, if we didn't have the loan growth we would be reinvesting in the mid twos, so if we are in this for another few years and that's where I see it settling out in the twos, but it really depends on how long we are in this environment.

Steven Alexopoulos - JP Morgan

Right; but I guess near term we should expect pressure to stay at similar to what you saw this past quarter?

Eric R. Howell

I think so. We saw a decent amount of premium amortization this quarter that I would like to think if its 10 years say elevated for a good amount of time that that could ease a bit. But you know we still expect it to come down, no doubt.

Steven Alexopoulos - JP Morgan

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

Joseph J. DePaolo

It’s actually been very quite almost like in 1999 when we had Y2K it seems that we have not seen much activity one way or the other yet. I think its still being absorbed by the market. I know there's some information out there about outflows of DDA, but one of the things that we have to be cognizant of is Signature Bank most of our DDA, in fact 87% of the growth in DDA during 2012 was business DDA and we are seeing a lot of statistics that talk about DDA in personal account that would be leaving and going into interest bearing and only 13% growth in personal, so its been somewhat quiet on that front.

Steven Alexopoulos - JP Morgan

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

Joseph J. DePaolo

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

Operator

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

Casey Haire - Jefferies

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

Eric R. Howell

Well, I mean it was mostly CRE multifamily that was kicking in; the remainder of that’s about $360 million in multifamily and then a couple of hundred million more for commercial property and then I wouldn't just say it was the Hauppauge, it was both C&I across the board with the difference.

Casey Haire - Jefferies

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

Joseph J. DePaolo

Not seeing deteriorate -- on the CR, on the commercial real estate side, we have seen some stiffer competition in rates, but the team know and has been able to still get a quarter to three eights more. So we are looking at multifamily at 3.5 to 3.75 and that hasn't changed. And Signature Financial, on our business there, what we were doing in low fours, we are probably doing in the high three right now, so we are seeing a little pressure there and C&I we were seeing pressure all along. So the low rates as particularly on the floaters has continued to be rough.

Casey Haire - Jefferies

And then just switching to credit quality, loan-loss-reserve ratio, the coverage ratio down to close to 1%, I appreciate the Signature Financial credits are pretty safe; but is there a minimum that you wouldn't want to embed, where you see that ratio stabilize?

Joseph J. DePaolo

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

And we’ve had some very good experience over the last five plus years with that portfolio and when you compare it to others, we would have an allowance for loan-loss ratio below 1 but that’s not what we're advocating. We're just giving you that as an example in terms of color when you compare it because like if you take some of the savings banks, all they do is commercial real estate. So they don’t have a mixture like we have C&I and now that we have the specialty finance. So it's not a minimum that we don’t want to go below. There is no right line. There is no line in the stand. We will just talk about it on a quarter-to-quarter basis.

Casey Haire - Jefferies

And then just last one from me, just a big picture question on the growth strategy. Obviously, Signature Financial has worked out very well for you guys. I was just curious as to what kind of other opportunities similar to that that might be out there? Are you guys looking, is it a target rich environment, just any color there?

Joseph J. DePaolo

Well, if you were the only one on the call we still would (inaudible). Tell you if there was a target out there I will say this, we have constant conversations and that enables us to identify a great team that we brought on from Signature Financial and five or six years earlier those conversations led to a great team that we brought on in commercial real estate. So we are hopeful that we continue to have conversations and can get an opportunity. So the answer is yes, we have conservations but I wouldn’t lead you one way or the other because there are people listening.

Casey Haire - Jefferies

Thanks.

Eric R. Howell

Just to add to that, we really have the vehicle for growth now, it just came off about fourth record quarter in a row. We have got commercial real estate continuing to be very sharp, specialty finance just finished up their third quarter year. There is clearly a lot of growth there. So we have got the growth engine in place and C&I have picked up the last couple of quarters which is very positive to see. So we are not going to stretch on that front but there are opportunities for us there.

Operator

Thank you. Our next question comes from the line of Matthew Clark with Credit Suisse. Please go ahead.

Matthew Clark - Credit Suisse

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

Eric R. Howell

That’s correct.

Matthew Clark - Credit Suisse

Okay. And then the TDR amount this quarter [according] to yours?

Eric R. Howell

Recurring TDR, it’s worth $52.6 million.

Matthew Clark - Credit Suisse

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

Eric R. Howell

We are really on the buy side of that activity, so we wouldn't have received the prepayment penalty income. It was on the other side that (inaudible) itself on the buy side.

Operator

Thank you. Our next question comes from the line of Chris McGratty with KBW. Please go ahead.

Chris McGratty - KBW

On the size of the investment portfolio, the growth or the guidance for the loan growth is helpful. How should we think about kind of securities as a percent of earning assets in a year [grows] call it 50% or low 40s today, is there a level that this normalizes on over the next few years?

Eric R. Howell

Yeah, I think there is a level that one need because we do need those securities to collateralized borrowings. Certainly we can take it down a little bit more, but ultimately we would like to maintain that securities portfolio at or around where it is that to make sure that we have adequate borrowing the past week, and really in absolute dollar amount, we were right around (inaudible) for that.

Operator

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

Herman Chan - Wells Fargo Securities

A question on the efficiency ratio, after the alleviated expense growth related to Signature Financial (inaudible) in Q1, should we expect the efficiency to trend down to the 35%, 36% level that the bank was able to achieve in the later half of 2011?

Eric R. Howell

Absolutely. We definitely think we can drive that efficiency ratios down, but at a very slow pace, now there is not much lower that we can really go that far.

Herman Chan - Wells Fargo Securities

Got it, and the historical Taxi Medallion team that appears to have joined a competitor; can you talk about that accident and also give some color on competition for teams at this juncture. Thanks.

Joseph J. DePaolo

Well back in the end of the first quarter, beginning of the second quarter when the Signature Financial joined they already had an existing Taxi Medallion business, and we thought it best to combine our existing Taxi Medallion business with their Taxi Medallion business because it’s such a limited market that you really shouldn't have two distinct teams from one institution competing for business. So unfortunately the existing team became somewhat superfluous and one of the two partners group directors on the team left in March and the other one chose to leave later on because that business was combined with Signature Financial and they were doing other things within the institution. In terms of color on teams themselves, as I said earlier, the pipeline is relatively active and we started the flow to bringing on some teams in the very near future.

Operator

Our next question comes from the line of John Pancari with Evercore Partners.

Rahul Patil - Evercore Partners

Good morning guys this is Rahul Patil on behalf of John. I have a quick question on, most of my questions have been answered, a question on the unamortized premium on the book, how much is that currently.

Eric R. Howell

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

Rahul Patil - Evercore Partners

Okay. And then could you give us some color around the expected pace of the multi-family growth in coming quarters and what kind of competition you are seeing at this stage and then maybe around C&I.

Joseph J. DePaolo

We can; the competition that we are seeing on the multi-family that a number of other institutions have come in. I think they believe that they can do the business because of the low risk profile of this type of asset. I think what the advantage that we have overall those institutions is that the efficient teams that we have out in Melville that are able to close the business within 45 days and the clients and perspective clients are very comfortable with the fact that who they deal with on the original deal is the same team that they will deal with if they want to refinance or they want to do something with the property. So that gives us a big advantage over all the new comers that are now coming in to try to do this business because you need to be able to show those clients not only that you give them a fair rate and we are getting off their share of business even though we have a higher rate, but because how efficient and how trustworthy the team is that they deal with.

On the C&I side, the competition is a little different because even in the low to middle end of the C&I market you have the larger institutions. So you have the chases and the JPMorgan Chases, the HSBCs, the Bank of Americas of the world, where you don't see them on the space that we are in on the multi-family. And what they are doing on rate is somewhat I'll use the word unconscionable, because on the floaters the spread to LIBOR has gotten very thin, however we are willing to sacrifice some NIM to get quality clients because rates are not always going to be this slow and to bring on floaters because we believe for an asset liability purpose it makes sense for us to have a good combination of floating rate in fix.

Operator

Our next question comes from the line of Peyton Green with Sterne Agee. Please go ahead.

Peyton Green - Sterne Agee

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

Joseph J. DePaolo

Yes.

Peyton Green - Sterne Agee

Yeah, and I guess a year ago what you would have thought about this, it would not have included Significant Financial and the estimate was for about a 1 billion.

Joseph J. DePaolo

Exactly. That’s why we included a little (inaudible) amount.

Peyton Green - Sterne Agee

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

Joseph J. DePaolo

I think you are correct, it’s gotten a little bit better. However, the loan growth and the deposit growth is a net figure. It's not new loans being booked or new deposits coming in. Deposits flow out every day and loans get paid as our Chief Credit Officer says it's not bad to have loans paid back. So those figures are net figures and they are very hard to project. The easiest thing to project is the expenses which Eric has done admirably over the years. So that’s why we project on a conservative basis.

Peyton Green - Sterne Agee

Okay, and then I don’t know if you have this at your finger tips or not, but to what degree did you refinance loans that pre-pay versus that they go to the Street?

Joseph J. DePaolo

Peyton, we will have to get back to you on that. We don’t have that. I am sure we can get that information. I have a tendency to believe that those that we refinanced, we kept more often than not than we would have. I would say like three quarter, I would think three quarters of these loans we kept and a quarter left to go elsewhere. So I had to give a projection.

Peyton Green - Sterne Agee

Okay. And then any idea is to what degree or growth rate the existing teams posted their loans and deposits year-over-year in 2012.

Eric R. Howell

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

Peyton Green - Sterne Agee

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

Eric R. Howell

I think that they grew out at a pretty healthy cliff.

Operator

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

Joseph J. DePaolo

I want to thank you for joining us today. We appreciate your interest in Signature Bank. As always we look forward to keeping you apprised of our developments and Alicia I will turn it back to you to close it up.

Operator

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

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