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Signature Bank (NASDAQ:SBNY)

Q4 2008 Earnings Call Transcript

January 29, 2009 10:00 am ET

Executives

Joseph DePaolo – President and CEO

Susan Lewis – IR

Eric Howell – SVP and CFO

Analysts

Dave Rochester – FBR

John Pancari – JPMorgan

Lana Chan – BMO Capital Markets

Gary Townsend – Hill-Townsend Capital

David Long – William Blair & Company

Mac Hodgson – SunTrust

Julian Casarino – Prospector Partners

David Darst – FTN Midwest

Avi Barak – Sandler O'Neill

Al Savastano – Fox-Pitt Kelton

Andy Stapp – B. Riley

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Signature Bank's 2008 fourth-quarter and year-end results conference call. At this time, all participants are in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) As a reminder, this conference is being recorded today, Thursday, January 29, 2008. I would now like to turn the conference over to Joseph J. DePaolo, President and Chief Executive Officer and Eric R. Howell, Chief Financial Officer of Signature Bank. Mr. DePaolo, please go ahead.

Joseph DePaolo

Thank you, Mitch. Good morning and thank you for joining us today for the Signature Bank 2008 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 all 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. 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, plan, estimate, or other similar expressions. As you consider forward-looking statements you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the forward looking statements.

These factors include that are not limited to; one, prevailing economic conditions, two, changes in interest rates, loan demand, real estate values, and competition, which can materially affect origination levels and gain on sale results in our business, as well as other aspects of our financial performance. Three, the level of defaults, losses in 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. And four, competition for qualified personnel and desirable office locations.

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 on the date as of the date on which they were made. New risks and uncertainties come up from time to time and we cannot predict these events or have a misact the bank. Signature Bank has no duty to and does not intend to update or revise the forward looking statements after the date on which they are made. In light of these risks and uncertainties you should keep in mind that any forward looking statement made in this conference or elsewhere might not reflect actual results. Now I’d like to turn the call back to Joe.

Joseph DePaolo

Thank you, Susan. Before Eric and I review the results for the quarter, I would like to highlight Signature Bank’s achievements in 2008, one of the most challenging years ever for the financial services sector. We strengthened our already strong capital position by successfully raising 148 million of common stock in a public offering. Remember this offering increased by 35% due to overwhelming demand from the investment community and we issued 120 million in senior preferred securities through the treasuries capital purchase program. These raises increased our 2:1 leverage capital ratio to 10.61% and total risk-based capital ratio to 17.83%. These levels are among the highest in the industry and nearly two times that needed to be considered well capitalized by the FDIC.

We increased core deposits by $649 million or 15%. We increased our loan portfolio $1.44 billion, which now represents 48% of our balance sheet. Our credit quality remains stable despite the current difficult environment. We expanded our net interest margin resulting in record highs and reported solid earnings growth of 58% over 2007 or if you exclude OTTI in both years annual earnings increased 33%. Overall, we grew across all key metrics teams, deposits, loans, margins, capital, and earnings, while maintaining strong asset quality and building credit reserves. We remained committed to our depositor focused core business model, which continues to deliver solid performance.

Now, let’s discuss the bank’s results for the fourth quarter. Total deposits for the quarter increased $423 million reaching $5.39 billion at year-end. This includes core deposit growth of $214 million and an increase in short-term escrow deposits of $66 million and broker deposits of $143 million. In this environment liquidity is critical and even though we have abundant liquidity, we wanted to test another avenue. Therefore this quarter we tapped into the broker deposit market for the first time at fairly attractive rates. Again, we have abundant liquidity and this new avenue gives us further availability. Average total deposits for the quarter rose more than $153 million or 3.2%. As previously mentioned, this is a key deposit metric we closely monitor, due to fluctuations in short-term escrow deposits.

Non-interest barring deposits increased $173 million from last quarter to $1.56 billion, representing 29% of total deposits. Off balance sheet money market deposits declined in the fourth to $1.67 billion, a decrease of $120 million versus last quarter. Total assets reached $7.19 billion, up $493 million since last quarter or $1.35 billion since the end of 2007. And average assets for the fourth quarter grew $1.41 billion compared with the fourth quarter of 2007. Let’s look at loans. Loans in the fourth quarter were up $386 million or 12.5% reaching $3.47 billion, representing 48% of total assets at the end of the fourth quarter. This quarter’s loan growth stemmed from high quality commercial real estate and multi-family loans with even tighter underwriting standards led mostly by the seasoned team of banking and real-estate professionals that joined during the fourth quarter of 2007.

Non-performing loans remained stable at $31.9 million or 0.92% of total loans in the fourth quarter when compared with the third quarter at $30.8 million or 1% of total loans. As we have continually noted during 2008, we are well aware of the impact the current economic situation has had in the marketplace and obviously the potential for more turbulence is evident. As such, once again for this quarter, our provision for loan losses remains high and we expect this will continue. Now let’s review earnings. Net income for the quarter was $13.1 million or $0.37 diluted earnings per share versus a net loss of $3 million or $0.10 diluted loss per share for the fourth quarter of 2007. Excluding the after-tax effect of the impairment write-down of securities $6.9 million, net income for the fourth quarter was $16.9 million or $0.48 diluted earnings per share.

Net income for 2008 was $43 million or $1.35 diluted earnings per share, up 58% from the $27.3 million or $0.91 diluted earnings per share reported in 2007. Excluding the after-tax effect of OTTI for 2008 and 2007, net income for 2008 was $52.2 million or $1.64 diluted earnings per share versus $39.2 million or $1.30 diluted earnings per share in 2007. This represents an increase of $13 million or 33%. The growth in net income for both the quarter and the year is predominantly due to several factors, an increase in loans as a percentage of assets, growth in deposits, net margin expansion and an increase in non-interest income. Also the net income growth was offset for both the quarter and the year by a significant increase in the provision for loan losses.

I want to briefly review private client banking team expansion. In 2008, we added six teams, including another three from North Fork Capital One. We also opened two new offices one in Jericho Long Island and one in Staten Island, where we introduced Signature Bank to that marketplace with the addition of two teams during the fourth quarter. With 56 teams headed by 72 group directors, we continue to generate solid deposit in loan growth and grow this institution as evidenced by the strong quarterly and full-year performance. At this point I would turn call over to Eric Howell our CFO, who will review the financial results in greater detail.

Eric Howell

Thank you, Joe, and good morning everyone. Before I review net interest income and margin, I like to briefly address the OTTI for the quarter. We took OTTI on two Bank-pooled trust preferred securities that were downgraded during the quarter with an original book value of $10 million and a fair value of $3.4 million. Additionally, we took a small impairment on one ABS security for 300,000 hours with an original book value of less than $1 million. Conversely, we accreted $1.7 million into interest income for securities written down in previous quarters. Now let me get into net interest income and margin. Net interest income in the fourth reached $58.9 million, up $20.8 million or 55% when compared with the 2007 fourth quarter and an increase of 18% or $8.8 million over the 2008 third quarter. These increases were attributable to the growth and earning assets and margin expansion.

Net interest margin on a tax equivalent basis rose 25 basis points this quarter to 3.51% versus the 2008 third quarter reaching an all time high for the bank. This is predominantly due to the increase in loans as a percentage of assets where in the last year we have seen loans grow to 48% of the balance sheet from 35% a year ago. Additionally, this was positively impacted by the accretion of OTTI taken on securities in previous quarters. The accretion of $1.7 million added approximately 10 basis points to this quarter’s margin. Net interest margin on tax equivalent basis for the year expanded 37 basis points, 3.25% also primarily as a result of an increase in loans as a percentage of assets and a decrease of 92% basis points in the Bank’s cost of funds.

Let’s look at asset yields and funding cost for a moment. Yields on investment securities increased 44 basis points to 5.34% this quarter versus the last quarter due to the run-off of lower yielding positions and an attractive market. Adjusting for the accretion of OTTI the yield was approximately 5.12% for the quarter. All of the securities that we took OTTI write-downs on in prior periods other than the one Lehman Brothers bond continued to perform in line with expectations when we originally purchased them. Overall the portfolio quality remained strong with a contained average duration of 1.84 years and continues to provide consistent cash flow for reinvestment in higher yielding loans.

Turning to our loan portfolio, our yields on average commercial loans and commercial mortgages decreased 10 basis points to 5.68% this quarter from last quarter. This decrease was primarily driven by the reduction in prime for the quarter. Now to liabilities, cost deposits for the quarter increased 2 basis points to 1.73%. Despite the reduction in FED funds, we lagged the reduction to capture additional core relationships. Our cost of borrowings decreased 62 basis points this quarter as we strategically lowered the duration of our borrowings to capitalize on the extremely low short-term borrowing alternatives. The key drivers for margin expansion remain raising core deposits and increasing loans as a percentage of our balance sheet. Yet again we achieved both this quarter and expect to continue this trend.

Now on to non-interest income and expense, non-interest income for the fourth quarter was $4.3 million, an increase of $70.3 million when compared with the same period last year. Excluding OTTI on investment securities for the fourth quarters of both 2007 and 2008, non-interest income increased $2.8 million or 33.5%. This is mostly due to an increase in commissions of $2.3 million. Non-interest income for the year increased $18.9 million. Excluding OTTI and investment securities for both 2007 and 2008, non-interest income increased $14 million or 47%. The primary drivers of this growth were an increase in commissions of $7.2 million and an increase in gains on sales of securities of $5.5 million.

Taking a look at non-interest expense, non-interest expense for the 2008 fourth quarter was $31.8 million compared with $25.1 million for the comparable period last year. The increase of $6.7 million or 27% was mainly due to the addition of new private client banking teams and office openings. The Bank’s efficiency ratio in the 2008 fourth quarter improved to 50.3%. Excluding OTTI for the fourth quarters of 2008 and 2007 the efficiency ratio improved to 45.3% from 53.9%. The improvement stands from several factors, including a wider net interest margin, stronger fee income, and a further leveraging of our operating infrastructure.

Looking at capital, our already strong capital ratios will further enhance this quarter due to the $120 million raised from the senior preferred shares as part of the treasuries capital purchase program. This coupled with a nearly $150 million raised in our September 2008 offering considerably bolstered our capital ratios. Our 2:1 leverage ratio and total risk-based capital ratios of 10.61% and 17.83% respectively are almost twice the required amount to be considered well capitalized by the FDIC. Now, I’ll turn the call back to Joe. Thank you.

Joseph DePaolo

Thanks, Eric. In the worst year in banking history since the Great Depression, Signature Bank thrived. This institution consistently delivers solid results across all our key metrics because of our relationship based model, prudent capital management, diversified investment portfolio, and distinctive commitment to client care. Signature Bank stands on a solid footing with significant capital, liquidity, and a well positioned balance sheet that should allow us not only to weather the storm, but to take advantage of the turmoil in our industry. There is little doubt that 2009 will prove even more challenging and demanding for the financial services sector. However, as we look ahead to these tough times, we are confident in our foundation, a depositor focused model and our ability to execute.

Let me conclude by giving you some insights of 2009, keeping in mind that given the current environment it is difficult to project. Although we expect the competition for deposits to be intense, remember in New York we compete against all too-big-to-fail banks, we believe our core deposit growth in 2009 will be similar to last years growth of 650 million. We believe that loan growth given the current environment will be more challenging in 2009. Therefore we expect our growth in loans to be less than $1 billion. And lastly, we plan to add four teams. In fact our first team for 2009 joined yesterday, more details will follow in a press release on this new team next week. And now we would be happy to answer any questions you might have. Mitch I will turn in back to you.

Question-and-Answer Session

Operator

(Operator instructions) Our first comes from Dave Rochester with FBR, go-ahead please.

Dave Rochester – FBR

Hey guys good morning.

Joseph DePaolo

Dave, good morning.

Eric Howell

Good morning, Dave.

Dave Rochester – FBR

Great quarter. It was really good to see the core deposit growth come back. Can you talk about what drove that? And as a second part to that do you think you will be able to bring those cost down next quarter given the strong competition you were just talking about?

Joseph DePaolo

Sure. I will answer the second part first. We believe our deposit costs will come down, couple reasons. One, as Eric mentioned earlier in the call, we lag the drop in deposit interest rates, so we are starting to really drop them now compared to the fourth quarter and particular in the month of December and also we are seeing our competitors drop their rates significantly almost to the point that we were one of the leading interest rate for deposits that they came down significantly, so we will be able to bring the cost deposits down. To answer the first part of your question, I think it was several reasons. One, I believe that the brand of the two-big-to sale institutions had dense and those dense really woke up some their clients that weren’t being treated very well. That helped. I believe that – and this kills to saying it, but the FDIC insurance, which we never had to worry about here, we believe that helped because the unlimited FDIC insurance on non-interest bearing deposit and now accounts to 50 basis points when you compare one institution to the next why be at a too-big-to-fail institution where you are getting no service, when you could be at Signature and you are on a level playing field with the FDIC insurance. Then thirdly, our teams, our private client teams did a very good job of educating their clients and prospects. One avenue they used was all the additional capital that we raised in September and December and I think in comparing that and educating the clients we were able to move those clients over. One area that we were able to move some of the clients over where from the off balance sheet money market deposits, I think the low interest rates in those treasury funds, the treasury money market funds coupled with the good job, the teams did in educating the clients, we are able to move some of that over. They still think the competition for the first quarter in 2009 will be intense that’s why I was saying that our growth will be similar, although it will be intense, we are still a lot more educating to do – to bring clients over with their deposits to be had.

Dave Rochester – FBR

So it sounds like, even though there is still strong competition, deposit costs are still coming down and that is going to help you out in terms of the margin going forward?

Joseph DePaolo

Yes.

Dave Rochester – FBR

Sounds good. In terms of – just switching to credit real quick. Can you give us just a couple of quick data points on the 90 day delinquencies and the 30 to 89 delinquencies buckets and talk about any of the increases that you saw during the quarter and any changes since quarter-end?

Eric Howell

Sure, on the 38 to 89 day bucket, we saw it go from about $30 million up to about $32 million. Say, there was one particular credit in there that was $10 million that paid and caught up yesterday as a matter of fact, so that will come out of that number. At $30 million it is less than 1% of our overall loan portfolio and it’s at a level where we have been in the past before, so it is not an alarming level to us. The $12 million that we had at the end of September is probably a pretty low number. So, we really back-up to what we have considered to be a normal level of past Tuesday to 89 days. Under the 90 day bucket, we went up to $6 million from about $4 million, again that $6 million is a very normal number for us it is well below what we have seen in prior quarters going back several years. So, again we are uncomfortable with that. A lot of that happens to be our SBA business where there is significant delays in the timing payments going through the system there. So that is not alarming to us either.

Dave Rochester – FBR

Got it. So the real number of the 30, 89 is really more like 22 million effectively?

Eric Howell

Probably more like $21 million.

Dave Rochester – FBR

Okay. You guys have mentioned and everybody is talking about New York and the challenges there. At this point, what are the expectations for unemployment in the New York metro area that you are working in to your underwriting?

Joseph DePaolo

Somewhere between 9% and 10%. We are looking at unemployment going up. We are looking at vacancies increasing. So, therefore we don’t think it is going to get any better, in fact it is going to get worse. So, therefore as you can tell in 2008 our provision for loan losses was more than a 100% over that of 2007 and the levels for 2009 will be at least that of 2008 if not more for the provision just because we are getting ready for everything we are seeing and hearing to happen on the east coast and in particular in New York. And we want to stay ahead of the curve. I think for us the one word that we are concentrating on is uncertainty. We just don’t know what’s going to happen, so it is best to prepare for as soon as you can.

Dave Rochester – FBR

Alright, great. Thanks guys, appreciate it.

Joseph DePaolo

Thanks, Dave.

Operator

Okay. Thank you and our next question comes from John Pancari with JPMorgan, go ahead please.

John Pancari – JPMorgan

Good morning.

Joseph DePaolo

Hi, John.

John Pancari – JPMorgan

Can you talk a little bit more, I know we briefly chatted about it before, but the income producing property is more, you know some of the credit trends specifically for that portfolio that you are seeing, if you could talk a little bit about, you know, by type, by industry type or you might be seeing some pressure and then by market?

Joseph DePaolo

We meet weekly to discuss commercial real-estate, the income producing properties and we talk off – we have a conference call once a week and we actually meet face to face monthly to go over this. And in our last meeting we addressed what we are seeing and right now we have not seen any dense in the portfolio, we have actually not seen anything alarming so far in the portfolio. We don’t know if it’s – it is a combination of things, I mean strong underwriting standards that we’ve had, conservative view points that we take and some lock. However, as I said earlier we don’t believe it is going to get any better, but I will say this, we think that the owners of real-estate our – in particular our clients, who came with, came over because the banker’s have had long term relationships with them and this throughout since 2001 on up now occurring that our clients are smarter today than they are in the 90s, they have more cash on hand today than they had in 90s, they are more willing to negotiate with their tenants, what I mean, more particularly the commercial tenants to keep tenants in their offices or in their retail stores unless of course something goes bankrupt. So, we are just looking now at statistics that are telling us that in retail it is going to get very bad that 25% of retailers may close and because we are seeing some sort of data, we are taking that to heart and trying to build provisions and being even more conservative in our underwriting standards, but in terms of our own portfolio, in the fourth quarter and even right now in the beginning of the year, we haven’t seen too much in the way of debts.

John Pancari – JPMorgan

Okay. And on that note, Joe, do you happen to have the granularity of the loan loss reserve levels by loan bucket specifically for the income producing CRE versus C&I and then if you size up multi-family I guess as well?

Joseph DePaolo

Yes. We have in fact for the first time we did in the third quarter queue and it will be in the 10-K. So, for instance in multi-family residential properties, we put on 57 basis points with the allowance against that versus C&I where we would have 207 basis points against the C&I portfolio as an example. So, right now the allowance for loan losses as a percentage of loans is 1.07, but as you can see there is a vast difference between what we think we need to have on multi-family versus that of C&I.

John Pancari – JPMorgan

And do you have income producing CRE ex-multi family?

Joseph DePaolo

Yes. That would be 75 basis points on commercial properties ex the multi-family.

John Pancari – JPMorgan

Got you.

Joseph DePaolo

And with that schedule there would be a more detailed schedule in the 10-K. We thought it was important in the third quarter to break it out because as our loan portfolio was growing and everyone was growing their allowance as a percentage of loans we needed to break it out and sure everyone now on C&I, you know we are approaching, I think we were at 1.86 at the end of the third quarter and we are 2.07, but that we needed to show everyone that there was a vast difference and that’s what we started to break it out in the third quarter and we would continue to do so quarter-by-quarter.

John Pancari – JPMorgan

Okay alright and then lastly, can you talk a little bit more about loan demand? I know the growth that you are seeing is a result of the hiring and some of the renewals of credit as these relationships are coming over, but can you talk about organic demand right now that you are seeing, where are you seeing some good demand in your markets?

Joseph DePaolo

Well demand seems to be down. But we are also – part of that demand is down maybe due to people knowing that we are going to cherry pick and only pick or do business with prospects and clients that have had some sort of relationship with our bankers. One thing I want to point out that I think part of the reason what we haven’t seen at least not yet any troubles in our portfolio is the clients that own these – whether it is multi-family or commercial properties other than the multi-family have been long-term owners. We recently looked at two different deals where the owners actually had the properties for 50 years. There was one that owned the property since 1959. I was born in 1959 and they own the property that long, so that has been helpful to us. However, our pipeline is down and I think it is a combination of demand and us being able to cherry pick.

John Pancari – JPMorgan

Great, thank you.

Joseph DePaolo

Thanks, John.

Eric Howell

Thanks, John.

Operator

Okay thank you. And our next question comes from Lana Chan with BMO Capital Markets, go ahead please.

Lana Chan – BMO Capital Markets

Hi good morning. Most of my questions have been answered, but I just wanted to ask about the expected increase in FDIC insurance premiums for 2009, how much would that add?

Eric Howell

Sure. In the first quarter we expect it to add $920,000 and then in the second quarter we expect it to add an additional $750,000 on top of the $920,000.

Lana Chan – BMO Capital Markets

Okay. Are you thinking of anyways to potentially offset those costs in maybe some savings in any other areas on the expense side?

Eric Howell

I mean it is difficult to do. I mean we are clearly a growing organization and there is always ways to cut expense. I think the biggest offset for that will be in the cost of deposits, you know lot of that is to insure those deposits and I think the depositors are going to have to pay some of that.

Lana Chan – BMO Capital Markets

Okay thanks Eric.

Eric Howell

Sure.

Operator

Okay thank you. And our next comes from Gary Townsend with Hill-Townsend Capital, go ahead please.

Gary Townsend – Hill-Townsend Capital

Hill-Townsend Capital, How are you?

Joseph DePaolo

Hey Gary good morning how are you doing?

Gary Townsend – Hill-Townsend Capital

Good. Could you discuss a couple of things, just go over the rationale for participating in the – and taking the government preferred and why that was necessary? And then secondly, you moved in the direction of broker deposits for the first time and it just strikes me that your needful liquidity doesn’t seem to be particularly compelling and it seems to run contrary to the model that you’ve set forth for yourself over the years.

Joseph DePaolo

Yes Gary I will answer the second part first. We almost look at the broker deposit as a borrowing and that’s why we made sure we broke out for you how much was in the – how much in total deposits included broker deposits and although we do have an abundance of liquidity, we just wanted to have another avenue to use and that simply was nothing to do with the model whatsoever more as a liquidity avenue, a test. Regarding the TARP you know the one issue we have in the New York area is that not one or two, but all too-big-to-fail banks are here. And we have always, since we started the bank in 2001 talked about capital ratios, it seems to be now the fashion, everyone is coming into talking to their capital ratios, but I have to tell you, we did that in 2001 all the way through our history and now we got the public national bank all we did was talking about capital ratios. So, our feeling was because we are dealing with these too-big-to-fail institutions that will have low capital ratios and just simply going to be kept alive by the government that was important for us to have ratios that just blow people away and that was simply what we decided to do to have our clients because before the FDIC insurance changes in 2008, most of our deposits were uninsured and it was just to give an extra level of comfort to the client.

Gary Townsend – Hill-Townsend Capital

Washington as you know is planning to serve up an aggregator bank in some fashion that is yet to be determined, do you see any possible set of circumstances under which you would use them?

Eric Howell

I think it is a little hard to say right now, Gary. There is just too much noise about how they are going to do it. But we will have to see how it comes out in the end.

Gary Townsend – Hill-Townsend Capital

Okay thank you.

Eric Howell

Thanks Gary.

Joseph DePaolo

Thanks Gary.

Operator

Okay thank you. And our next question comes from David Long with William Blair & Company, go ahead please.

David Long – William Blair & Company

Good morning guys.

Eric Howell

Good mornings Dave.

Joseph DePaolo

Hi, Dave.

David Long – William Blair & Company

To follow-up on Gary’s question regarding the broker deposits, can you talk about the rate they are compared to some of your other borrowings and maybe what type of maturities you are targeting there?

Eric Howell

It was mostly in the mid-2s on those pretty short duration, three months, six months and it really – the key there is unsecured and that’s what one of the avenues we wanted to pursue. You know people in the past have asked us about our securities portfolio of being fairly large and could we bring that down? And our explanation had always been that we need a certain level of securities for liquidity and to secure some of the borrowings that we had. So, we are looking for an avenue of unsecured borrowings and really as Joe said we are just testing out that avenue in the broker market, but mid-2s was a pretty good rate for us on unsecured borrowing so made sense for us to layer some of that end.

Joseph DePaolo

And the rates were actually more favorable then what we were had to pay in the New York area.

David Long – William Blair & Company

Okay. And then secondly regarding expenses, due to the third quarter your expenses were down, it looks like they were driven down by the salary align item. Any one-timers or anything in there that we need to consider to going forward?

Eric Howell

Really I would just say as we’ve always had in the fourth quarter of every year, we did have a true up of our bonus accrual that probably took about 1.5 million out of that line item. So, it effectively looked that we maybe a little over accrued in the prior three quarters in the year and then we trued that up in the fourth quarter. So, if you want to normalize that I would add about 1.5 million back in for the first quarter. Other than that, everything is pretty much in line with prior quarters, we did pay about a 175,000 additional FDIC insurance for the guaranteed debt program and again we spoke about how that is going to increase for the first quarter.

David Long – William Blair & Company

Okay great. Thanks guys.

Eric Howell

Alright, Dave.

Joseph DePaolo

Thanks, Dave.

Operator

Thank you. And our next question comes from Mac Hodgson with SunTrust, go ahead please.

Mac Hodgson – SunTrust

Hi good morning.

Eric Howell

Good morning, Mac.

Joseph DePaolo

Hi Mac good morning.

Mac Hodgson – SunTrust

I had a question on multi-family I know it has become a decent size in the overall loan portfolio, I was curious if you guys had an in-house concentration limit on that portfolio?

Eric Howell

Well it is about 20% now Mac and I think it is safe to say that we are really not that close to an in-house limit at this point. So, –

Mac Hodgson – SunTrust

Okay, so you expect it to come at the bigger part of the portfolio going forward?

Eric Howell

We expect it could certainly become a bigger part of the portfolio, yes.

Mac Hodgson – SunTrust

Okay. Joe you mentioned kind of in the early prepared remarks just generally that you all have improved your underwriting or tightened your underwriting, I was curious if you can give us some specifics on that just across different loan categories?

Joseph DePaolo

Generally on other than commercial real-estate we are just taking a harder look and we are looking at clients EBITDA and earnings cash flow, how would they function in today or tomorrow’s environment if they had sales down, you know you do some stress testing a little bit more than you would have done a couple of years ago because you don’t expect two years ago sales to be down significantly so you just do some of that. On the commercial real estate portfolio back in October, we made some changes in terms of loan per value, we made some changes in terms of vacancy rates, cap rates, and just with one models so that instead of having a 5% vacancy rate in a commercial real estate office building we have a 15% vacancy rate and whether or not we could lend on that. Cap rates are up – now we are using cap rates probably in the sevens, but that’s when you – if you increase the loan to value, I mean decrease the loan to value from 75 to 65 if you increased the vacancy rates and you change your cap rates that’s going to make it a lot more tighter in terms of underwriting, so that’s what we have done across the board.

Mac Hodgson – SunTrust

Okay, thanks. And then maybe just finally a question on, you talked about kind of the outlook for ’09 deposit growth of $650 million and $1 billion in loan growth, is the expectation upon the remainder of the loan with the borrowings or bring the securities portfolio down a little bit?

Joseph DePaolo

Borrowings. Although you know what I said, I said, I was a little less definitive on the loan side, I just think we are going to be under a billion in loans, not quite sure where, but we would do with borrowings because our borrowing levels are kind of 15%, 16% so it is very, very reasonable.

Mac Hodgson – SunTrust

Okay, thanks.

Joseph DePaolo

Thanks.

Operator

Okay, thank you. And our next question comes from Julian Casarino with Prospector Partners, go ahead please.

Julian Casarino – Prospector Partners

Hi, this is Julian Casarino.

Eric Howell

Hi.

Joseph DePaolo

Hi.

Julian Casarino – Prospector Partners

Hi, can you tell me what the current amount of off-balance sheet deposits are at the end of the fourth quarter?

Eric Howell

Sure. Total off-balance sheet money market fund deposits were $1.67 billion at the end of the quarter.

Julian Casarino – Prospector Partners

$1.67 billion?

Eric Howell

Correct.

Julian Casarino – Prospector Partners

And what was that at the end of third quarter?

Eric Howell

$1.79 billion, so it was down approximately $120 million.

Julian Casarino – Prospector Partners

Okay. Has the rate you earn on those off-balance sheet deposits changed on or still around the quarter point?

Eric Howell

Yes it has come down. Obviously, as the yields in those money market funds have come down, we’ve had to make some concessions on the amount that we earn on those.

Julian Casarino – Prospector Partners

Okay. What is it around now? Is it around 15 or –?

Eric Howell

You know it is less, we’ve never given out how much we’ve earned on those.

Julian Casarino – Prospector Partners

Okay. And then I was wondering, with the current balance of private label CMOs was around 600 million at the end of the third quarter, was just wondering what that was now?

Eric Howell

Yes it is pretty flat to last quarter. It is really still right around that range or 600 million.

Julian Casarino – Prospector Partners

Are those held in available-for-sale?

Eric Howell

Yes they are.

Julian Casarino – Prospector Partners

Okay. And what about the current balance of the total trust preferred, you had some single issues, some pooled more than the two issues I think you took marked, I just wondering what the total balance was in the fourth quarter?

Eric Howell

Well the total balance in the pooled trust preferred was 30.3 million and single issuer trust preferred and corporate debt, the straight corporate debt was about 98 million.

Julian Casarino – Prospector Partners

Okay that includes the straight corporate debt?

Eric Howell

Correct.

Julian Casarino – Prospector Partners

Okay. And those are all in available-for-sale as well right?

Eric Howell

Yes they are.

Julian Casarino – Prospector Partners

And what percent of your commercial exposure whether it is CRE or C&I is to the retail sector?

Eric Howell

I don’t have the overall number as to the C&I and CRE, I can tell you of the CRE portfolio it is about 11% of the overall loans or 21% of the commercial real estate portfolio.

Julian Casarino – Prospector Partners

Okay and that’s largely I mean or all in the greater New York area right?

Eric Howell

Yes it is.

Julian Casarino – Prospector Partners

Okay great. Thank you.

Eric Howell

Welcome.

Operator

Okay. Thank you. (Operator instructions) And our next question comes from David Darst with FTN Midwest, go ahead please.

David Darst – FTN Midwest

Good morning.

Eric Howell

Good morning.

Joseph DePaolo

Good morning.

David Darst – FTN Midwest

Could you give us a sense of what your current C&I and CRE loan yields are in the current spreads?

Eric Howell

Of what we are putting on today?

David Darst – FTN Midwest

Yes.

Eric Howell

Anywhere from 6.25 to 6.50 for the most part.

David Darst – FTN Midwest

Okay. And then, should we expect to see the securities portfolio growth in ’09?

Eric Howell

There maybe some growth there, we’ve got a significant amount of capital put to use and we will be opportunistic in the current environment as to what we do about securities portfolio, so there could be some growth there. I wouldn’t expect it to be massive growth, but there could be some growth.

David Darst – FTN Midwest

Okay, thank you.

Joseph DePaolo

Just a clarification we wanted to make on the retail. Eric had given the figures on retail and commercial real estate. In the C&I, the retail is de minimis, very little on the C&I part.

Operator

Okay and thank you. And our next question comes from Avi Barak with Sandler O'Neill, go ahead please.

Avi Barak – Sandler O'Neill

Hi guys.

Eric Howell

Hi, Avi.

Joseph DePaolo

Hi, Avi.

Avi Barak – Sandler O'Neill

So in the past, you had given some thoughts on the breakeven for new teams that was somewhere between 12 and 18 months and that for newer teams that were starting to extend out, has your thought process changed it at all or have you change in the breakeven for the new teams and what’s your outlook there?

Joseph DePaolo

My view point hasn’t changed. I will say, although this is probably quite obvious, we have some teams really have a breakeven much quicker and then those that’s taken a little bit longer, I think, where it is taken longer is because of the current environment and convincing, although they have great relationships convincing a client to go from the bigger institution to a smaller institution albeit our capital ratios literally through the roof, it was still, it was a $7 billion institution. And so I think in part the current environment where it seems like any company that has the word bank in their name starts of with a black mark. It’s taken a little bit longer to bring those depositors over in particular.

Avi Barak – Sandler O'Neill

Okay, thank you.

Joseph DePaolo

Thanks, Avi.

Operator

Okay and thank you. And our next question comes from Tom Alonso with Fox-Pitt Kelton. Go ahead please.

Al Savastano – Fox-Pitt Kelton

Good morning, guys. It is actually Al Savastano pinch-hitting for Tom here.

Joseph DePaolo

Good morning, Al.

Eric Howell

Good morning, Al.

Al Savastano – Fox-Pitt Kelton

Just a question on your margin outlook of – with the Fed reducing rates and you guys lowering deposit cost, does that means stable margin or should we expect some expansion going forward?

Eric Howell

I think we can expect some modest expansion going forward. Obviously, we had a backup of 10 basis points or so from the writing up of the OTTI that we took down, but from that base we can expect some modest expansion as grow loans as a percentage of the balance sheet.

Al Savastano – Fox-Pitt Kelton

But, the OTTI accretion will continue the next couple of quarters.

Eric Howell

The OTTI accretion will probably continue over the next several years. Everything that we have written down other than Lehman Brothers is performing as we expected it to perform and we need to start creating that backup, so you will see that for quite sometime I would imagine.

Al Savastano – Fox-Pitt Kelton

It should be still be what – 1.7 million a quarter?

Eric Howell

No, a little of that was catch-up for the full-year ’08, so I would expect that to be between 500,000 to 600,000 a quarter going forward.

Al Savastano – Fox-Pitt Kelton

Right, thank you.

Eric Howell

Welcome. Thank you.

Operator

Okay, thank you. (Operator instructions) And our next question comes from Andy Stapp with B. Riley, go ahead please.

Andy Stapp – B. Riley

Good morning.

Eric Howell

Good morning, Andy.

Joseph DePaolo

Good morning, Andy.

Andy Stapp – B. Riley

Just wanted to confirm, you said that your retail CRE is about 11% of total loans?

Eric Howell

That’s right.

Andy Stapp – B. Riley

Is that incorrect or is that up from 7% at September 30?

Eric Howell

I don’t have September 30’s numbers in front of me Andy.

Andy Stapp – B. Riley

Okay. Alright, thank you.

Eric Howell

Okay.

Operator

And we have no further questions at this time. I would like to turn the conference back over to Mr. DePaolo for any closing statements.

Joseph DePaolo

Thank you for joining us today. We appreciate your interest in Signature Bank and as always we look forward to keeping you apprised of our developments. Thank you.

Operator

Ladies and gentlemen, this concludes the Signature Bank’s 2008 Fourth Quarter and Year-end Results Conference Call. As a reminder a web replay of this conference can be accessed through the Signature Bank’s website at www.signatureny.com by clicking on the Investor Relations tab then selecting company news followed by conference calls. Thank you for calling ACT and you may now disconnect.

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