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Signature Bank (NASDAQ:SBNY)

Q4 2013 Earnings Call

January 21, 2014 10:00 am ET

Executives

Joseph J. Depaolo - Chief Executive Officer, President, Executive Director and Member of Risk Committee

Susan Lewis

Eric R. Howell - Executive Vice President of Corporate & Business Development

Analysts

Bob Ramsey - FBR Capital Markets & Co., Research Division

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

David Rochester - Deutsche Bank AG, Research Division

Erika Najarian - BofA Merrill Lynch, Research Division

Casey Haire - Jefferies LLC, Research Division

Matthew T. Clark - Crédit Suisse AG, Research Division

Herman Chan - Wells Fargo Securities, LLC, Research Division

Lana Chan - BMO Capital Markets U.S.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

Jason A. O’Donnell - Merion Capital Group

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Operator

Welcome to Signature Bank's 2013 Fourth Quarter and Year-end Results Conference Call. Hosting the call today from Signature Bank are Joseph J. Depaolo, President and Chief Executive Officer; and Eric R. Howell, Executive Vice President, Corporate and Business Development. Today's call is being recorded. [Operator Instructions]

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

Joseph J. Depaolo

Good morning, and thank you for joining us today for the Signature Bank 2013 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.

As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include those described in our quarterly and annual reports filed with the FDIC which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made.

Now, I'd like to turn the call back to Joe.

Joseph J. Depaolo

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 year of record growth and performance resulting in our sixth consecutive year of record earnings. And for the fourth quarter, we again achieved record deposit and record loan growth, expanded top line revenues and maintained stellar credit quality culminating in our 17th consecutive quarter of record earnings.

Moreover, while achieving these substantial results, we spent this past year building a stronger foundation for the future success of Signature Bank.

I will start by reviewing quarterly earnings. Net income for the 2013 fourth quarter reached a record $64.3 million or $1.34 diluted earnings per share, an increase of $14.2 million or 28%, compared with $50.1 million or $1.05 diluted earnings per share reported in the same period last year.

The considerable improvement in net income is mainly the result of an increase in net interest income, primarily driven by record deposit and record loan growth. These factors were partially offset by a decrease in loan, prepayment penalty income and an increase in non-interest expense.

Looking at deposits, deposits increased a record $1 billion or 6% to $17.1 billion this quarter, including core deposit growth of $532 million and average deposit growth of $904 million. For the year, total deposits grew $2.97 billion. Core deposits grew $2.3 billion and average deposits increased $2.6 billion, all representing record increases.

Non-interest bearing deposits of $5.4 billion represented 32% of total deposits and grew $947 million or 21% for the year. Total assets reached $22.4 billion, an increase of $4.9 billion or 28%, as a result of our substantial deposit and loan growth and earnings retention.

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

Now, let's take a look at our lending businesses. Loans during 2013 fourth quarter increase a record of $1.4 billion or 12%. For the year, loans grew a record $3.75 billion and now represents 60.4% of total assets, compared with 56%, 1 year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate, multi-family loans and specialty finance.

Non-accrual loans decreased to $31.3 million or 23 basis points of total loans this quarter, compared with $40.2 million or 33 basis points for the 2013 third quarter and $27.2 million or 28 basis points for the 2012 fourth quarter.

The allowance for loan losses was 1%[ph] of loans versus 1.05% of loans for the 2013 third quarter, and 1.1% for the 2012 fourth quarter. Additionally, the coverage ratio or the ratio of allowance for loan losses to non-accrual loans reached a high of 431%. The provision for loan losses for the 2013 fourth quarter was $11 million, compared with $11 million for the 2013 third quarter and $10.4 million for the 2012 fourth quarter.

Net charge-offs for the 2013 fourth quarter were $2.8 million or an annualized 9 basis points, compared with $3.1 million or 11 basis points for the 2013 third quarter and $5.9 million or 25 basis points for the 2012 fourth quarter.

Now, turning to the Watchlist and Past Due loans. Watchlist credits decreased $12.8 million this quarter to $130 million or a very low 0.96% of loans. During the 2013 fourth quarter, we saw an increase of $7.6 million in our 30- to 89-day Past Due loans to $54.9 million and a decrease of $7.7 million in our 90-day plus Past Due category to $2.4 million.

While we are pleased that our credit metrics are strong again this quarter, we remained mindful of the prevailing uncertainty in the economic and political environment and continue to conservatively reserve.

Just to review teams for a moment, 2013 was a strong year for us, in addition to hiring 10 product line banking teams, we also added an asset based lending team to start that initiative for us. Additionally, we expanded the sales force within our specialty finance subsidiary, Signature Financial.

Thus far in 2014, we have already added 1 product line banking team and our pipeline remains active, and we look forward to opportunities for attracting talented banking professionals to our network.

At this point, I'll 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 $178.3 million, up $31.2 million or 21% when compared with 2012 fourth quarter, an increase of 6.5% or $10.9 million from the 2013 third quarter.

Net interest margin was down 21 basis points in the quarter versus the comparable period a year ago, and remained flat on a linked quarter basis at 3.32%. When prepayment penalty income is excluded from the 2013 third and fourth quarters, core net interest margin for the linked quarter, increased 5 basis points to 3.21%. The linked quarter increase in core margin was predominantly due to a slowdown in premium amortization on securities, and generally higher yields on recent loan originations and securities purchases.

Additionally, interest income of approximately $500,000 was recognized on a nonaccrual loan that fully paid off. This added 1 basis point to the margin.

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 31 basis points from a year ago and they were down 2 basis points from the linked quarter to 3.85%.

The average investment securities portfolio increased $242 million this quarter, as a result of the purchases made at the end of the third quarter. Yields from the portfolio increased 15 basis points to 3.25% this quarter, benefiting from higher reinvestment yields and a slowdown in premium amortization.

The higher interest rates at quarter end -- with the higher interests at quarter end, the duration of the portfolio extended slightly to 4.13 years.

And turning to our loan portfolio, yields on average commercial loans, mortgages and leases declined 20 basis points to 4.38%, compared with the 2013 third quarter. Excluding prepayment penalties from both quarters, yields would have declined 10 basis points, driven by continued pressure from refinance activity.

Now looking at liabilities. Money market deposit costs this quarter remained flat at 71 basis points. And overall deposit costs decreased 1 basis point to 50 basis points, mostly due to an increase in average non-interest bearing deposits of $432 million.

And given the strong loan growth, average borrowings increased $320 million to $2.9 billion or only 13.3% of our average balance sheet. Given the short-term nature of these incremental borrowings, the average borrowing cost is down 7 basis points from the prior quarter to 0.99%. This helps lead to a decrease of 1 basis point in our overall cost of funds.

And on to non-interest income expense. Non-interest income for the 2013 fourth quarter was $6 million, a decrease of $2.9 million when compared with the 2012 fourth quarter. The decrease was driven by a $1.9 million decline in net gains on sales of SBA loans, and an increase of $2.1 million in write-downs on other than temporary impairment of securities, predominantly stemming from the interim final vocal rule.

Non-interest expense for the 2013 fourth quarter was $64.5 million versus $58.1 million for the same period a year ago. The $6.4 million or 11% increase was principally due to the addition of new private client banking teams, the new asset-based lending team and our continued investment in the growth of Signature Financial.

Even with the significant hiring over the last several years, the bank's efficiency ratio still improved slightly to 35% for the 2013 fourth quarter, compared with 37.2% for the 2012 fourth quarter.

And turning to capital. Our capital levels remained strong with a tangible common equity ratio of 8.04%, Tier 1 risk-based of 14.07%, total risk-based ratio of 15.1%, and leverage capital ratio of 8.54%, as of the 2013 fourth quarter. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low-risk profile of the balance sheet.

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

Joseph J. Depaolo

Thanks, Eric. The 2013 fourth quarter capped another exceptional year for Signature Bank, where we grew deposits to a record $2.97 billion or 21%, increased loans a record $3.75 billion or 38%. Loans now account for 60% of assets.

Maintained stellar credit quality with non-accrual loans at only 14 basis points of total assets. Expanding net interest income by $99 million or 18%. Now, that's top line revenue growth. Added 10 product client banking teams, enhanced our capabilities with the addition of an asset-based lending team, sustained a solid capital position even with significant growth to the balance sheet, and delivered a 23% increase in net income to a record $229 million.

In closing, I would like to thank all my fellow colleagues for their efforts and execution, leading to our sixth consecutive year of record earnings. Now, we are happy to answer any questions you might have. Lori, I'll turn it over to you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Bob Ramsey of FBR.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Question for you about the loan growth. I noticed that the end of period loan balances were about $800 million greater than average. Is there any sort of year-end, SKU upward and end of period balances? Or is that a good starting point to build on as we head to the first quarter?

Joseph J. Depaolo

Well, we had 2 very large purchased transactions. 1 in the middle of November, and 1 in the beginning of December that could affect the difference between the year-end and the average balances. They totaled $450 million. They were 2 large purchase transactions. So that may answer your question, Bob.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. So that sounds like the growth was maybe a little bit back end loaded, but it is a good place to build from, from here. And then could you talk about -- could you just break out, maybe by portfolio, sort of what the growth -- where it came from this quarter, the $1.4 billion total? How much was CRE? How much was the Specialty Finance group? Sort of what the buckets are?

Eric R. Howell

Yes, multi-family was $900 million -- $902 million of the growth. Other CRE was $292 million of the growth. And then Specialty Finance was a little over $200 million of the growth. And then, the remainder would be C&I and other categories.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay, great. And then last question I'll hop out, but as you think about the path forward to 2014, do you think the securities portfolio will stay roughly the same size as it is today? Or do you expect that it will grow or contract?

Eric R. Howell

Well, we certainly don't see it shrinking from the levels that it is today, Bob. Liquidity is such an important factor these days, and we'd like to have an ample amount of securities for pledging purposes, but a lot of that will be predicated upon how strong deposit growth comes in. We see strong deposit growth as we did in the fourth quarter. And if that deposit growth outstrips loan growth, we could potentially grow the securities portfolio.

Operator

Your next question comes from the line of Chris McGratty of KBW.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Eric, on the securities reinvestment, can you tell us what you bought for the quarter in terms of yield? And how that might be compared to the third quarter?

Eric R. Howell

I'd say that yields were generally similar. And both quarters we were very selective as to when we entered the marketplace. And we're predominantly buying government agencies, so yields generally are still in the low-3s sometimes approaching the mid-3s.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And can you talk about pricing on the Signature Financial in the quarter?

Eric R. Howell

Yes. The growth in Signature Financial, again, was a little over $200 million in the quarter. Yields were generally around 4%.

Christopher McGratty - Keefe, Bruyette, & Woods, Inc., Research Division

And then, not a lot of movement in pricing sequentially, on that portfolio?

Eric R. Howell

Not much, I mean it's tied to the 5-year swaps. So as that -- the 5- or 3-year swap rate, so as those increased, their yields have been increasing.

Operator

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

John G. Pancari - Evercore Partners Inc., Research Division

I just want to -- also on the new loan yield question there, I just want to also get where you're originating multi-family paper as of the fourth quarter, what the new money yield is there, and then also on the non-multi-family CRE book.

Joseph J. Depaolo

On multi-family, we're at about 3-5/8. Right now that's the 5-year fixed on multi-family. During the quarter, it had actually bounced around a bit from 3-7/8 to 3-3/4 back and forth, and it's now in the first quarter at 3-5/8. And I would say, anything other than that would be somewhere between 25 and 50 basis points higher on CRE.

John G. Pancari - Evercore Partners Inc., Research Division

Okay, all right, that's helpful. And then also on the expense side, our efficiency ratio held an impressively -- stable this quarter, and I wanted to get your thoughts on the outlook there, on the ability to keep that ratio stabilized or continue to hire and grow the balance sheet as well.

Eric R. Howell

We think that we can maintain the level of efficiencies that we're at today, and hopefully, slightly improved those as we go forward. We continue to leverage the large investment we made in Signature Financial in early 2012, so we continued to gain efficiencies there. Obviously, we just put the asset-based lending group in, and hopefully, they'll start to close some loans down in the first quarter. That will help us to gain some efficiencies there as well, but it's hard to think that we'll meaningfully move it down below the 35% range, but we should be able to slightly improve that as we go forward, John.

Operator

Your next question comes from the line of Steven Alexopoulos of JPMorgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Before I actually asked my questions. I didn't understand your response to the first question. You said there was $450 million of loan growth from 2 transactions. Are you saying that you've purchased loans for $450 million? I can't imagine you booked 2 loans at $450 million on the balance sheet.

Joseph J. Depaolo

No, there were 2 -- when I say purchase transactions, I mean that they were real estate that was purchased and we financed the purchase of those 2 major transactions. I'll give you some of the detail. 1 transaction was $209 million. It composed of 86 buildings and we did 49 loans, purchasing the 86 buildings, for a total of $209 million. The other transaction was $241 million, where there were 36 buildings where we financed 29 loans to help our client purchase the 36 buildings. So there were 2 large transactions totaling $450 million.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay, that is very helpful. Thanks, Joe. If we look at the $3.75 billion of loan growth for the whole year, how much of that came from newer teams hired over the past 2 years, which would include Specialty Finance? And how much came from the legacy teams?

Joseph J. Depaolo

I would say a substantial portion came from the legacy teams, primarily in the commercial real estate arena. And Signature Financial, which is the newer business, we had a growth of about $800 million. So that would be the newer. So you're closing in probably somewhere around, with the newer teams let's say, about $1 billion or so of the $3.75 billion, and I would say $2.75 billion if had to give a number would be the legacy.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

And on the prepayment penalty fees, I know they're volatile, but given a pretty sharp decline in the quarter, are you seeing a notable reduction in prepayment activity here?

Eric R. Howell

I'd say we've seen a slight reduction in that. We're hoping for that to continue as we look out several quarters, Steve.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

And Eric, just one final one. Can you help us think about the effective tax rate for 2014?

Eric R. Howell

Yes, there's typically noise in that tax rate in the fourth quarter as we [ph] drove our numbers, so I'd go back using a 42% rate for 2014.

Operator

Your next question comes from the line of Ken Zerbe of Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

Looking at capital and your TCE ratio, you guys have been targeting about an 8% TCE, looks like your right there at this point. Can you just talk about how much flexibility do you have? What are some potential options that you guys would consider having to improve TCE? Or could you take it lower to where it is?

Joseph J. Depaolo

Thanks, Ken. The way I would look at it, it would probably be better if you look at the leverage ratio. The leverage ratio is 8.54%. And in terms of capital raising, first let me say, we don't anticipate the growth that we had of the third and fourth quarters could be in the near-term future. They were both well beyond robust growth. We expect our typical robust growth and with $60-plus million in quarterly earnings, we can support $750 million to $800 million in growth, a level at which we would not be displeased. Now, having said that, if you look at -- back in June of 2008, our leverage ratio was 90 basis points less than where it is today, it was 7.64%. That's when we had $400 million in equity, $6.4 billion in total assets, where today, we are $1.8 billion in equity. So it's a $1.4 billion more in equity, with $16 billion larger we came to a cycle. So we feel pretty comfortable with the levels of capital, both on a leverage ratio and tangible common equity. So in terms of raising capital, if you look at what we expect or what we would not be displeased at, at $700 million, our earnings of $60-plus million would actually be accretive to the capital. So we'll be at a look and see. We'll see where our levels of growth are expected to come in at each of the quarters. And if we continue to have beyond robust quarters, then we certainly wouldn't be shy about considering a capital raise.

Operator

Your next question comes from the line of Dave Rochester of Deutsche Bank.

David Rochester - Deutsche Bank AG, Research Division

On the margin, you mentioned the drop in securities, premium and expense this quarter, was just wondering if you could talk about where you see margin trending next quarter? And how much of a reduction in premium and expense are baking in at this point?

Eric R. Howell

Well, I mean we really see NIM as being stable from this point. We'd like to think we reached the bottom in the third quarter, but it's really largely going to be predicated upon the level of CRE refinance activity that we see. And it's very hard to predict that behavior.

David Rochester - Deutsche Bank AG, Research Division

Got you. And switching gears to the loan growth side, you guys had some good growth this quarter, and that was without a meaningful contribution from ABL. Was just wondering if you could remind us how you're thinking about the ABL opportunity for this year? It seems like they've got a pretty solid opportunity given across [ph] almost 90 teams and it's a brand-new product. Any way you can put parameters on that?

Joseph J. Depaolo

Too early. You're right, there seems to be more of an opportunity here than where the ABL group, that we're very happy to have on board, where they came from because we have the 90 teams. So truly a combination of potential business the 90 teams can bring plus their contacts throughout the ABL industry that they've had for the multiple decades that they've been around, it's really hard to pinpoint. But certainly, on a quarterly basis, as the questions come up, we'll be able to give you some more detail.

David Rochester - Deutsche Bank AG, Research Division

And this might be too early to ask, just given that you're still ramping up ABL, but do you guys see any other product opportunities that might makes sense for you?

Joseph J. Depaolo

There may be some opportunity in the Signature Financial world, because we're looking at lines of businesses that we're not in today. I won't get into specifics, #1. And #2 also geographically, there's still some opportunity, even though we're doing business in all 50 states, we're not necessarily where we want to be from a sales executive perspective. So we may add on throughout the year there as well. So that's not product, that's more geography.

David Rochester - Deutsche Bank AG, Research Division

And just one last one on the expense side. Outside of a large team hire, are you thinking that expense growth for 2014 should range in that 10% to 15%, as it has previously?

Eric R. Howell

No, we're not going to give out guidance this year because we found that in the past it hasn't always been that helpful, Dave. So will let you guys tackle that one, but we're going to keep you apprised as to how many teams we hire, how many locations we open. And given those, you should be able to project where you expect our growth to be.

David Rochester - Deutsche Bank AG, Research Division

Great. And one last one on that other expense line, is that a good run rate going forward? It looks like it jumped up a little bit? Just a small item there.

Eric R. Howell

Yes, I think that's a good run rate for you to use going forward.

Operator

Your next question comes from the line of Erika Najarian of Bank of America.

Erika Najarian - BofA Merrill Lynch, Research Division

Most of my questions have been asked and answered, but I have one follow-up question to Ken's final questioning on capital. And I'm only asking this, because you already seem to outperform even robust estimates for loan growth. When I look back to when you last raised capital, your Tier 1 leverage ratio was about 8.15%. Is sort of an 8% floor on Tier 1 leverage a potential similar floor to think about, similar to TCE?

Joseph J. Depaolo

TCE is certainly one of the things we consider, but we last actually raised capital, I know you are looking at the last time we raised, but there were times before we raised capital where TCE was actually about 6.69% when leverage was 7.64%. So we went that low when we were a bank that was only $6.4 billion with $400 million in capital. And now, we're a bank that's far greater in size and more robust and has been through the down cycle. With all of that, we're comfortable with the levels that we're at, and that we could go down to mid-7s on leverage -- on the leverage ratio. But one of the things that -- an intangible that we consider is that we use our balance sheet and our capital to attract quality clients. Since we don't advertise, #1, and #2, since we're competing against the too big to fail, mega institutions, we always talk about the cleanliness of our balance sheet and the strength of our capital. So if we believe that such would be necessary to continue to raise quality clients and bring them in, then we wouldn't be shy about it. So there's so many factors other than just the numbers to look into, Erika, when we're considering, let's just say we wouldn't be shy. But on the same token, first quarter growth is usually the slowest. In the last 5 out of 6 years, the first quarter was the slowest of loan growth. And if that continues, that trend, earnings will be probably be accretive to capital in the first quarter.

Operator

Your next question comes from the line of Casey Haire of Jefferies.

Casey Haire - Jefferies LLC, Research Division

So I know it's early, but I just wanted to hear your thoughts on what impact you're seeing on borrow -- multi-family borrowers given a more tenant friendly local government policy? And as a follow-up to that, given a tougher environment here in New York, is that -- is this the year that you guys kind of take it on the road to New Jersey and Connecticut?

Joseph J. Depaolo

Well, regarding the governmental or mayoral situation, we're certainly following it closely. One could be the increase in real estate taxes. And the other thing could be the rent freeze that may or may not occur. But one of the things we point out is that our average multi-family LTV is 58%. And our clients are usually the better operators who have multiple properties and have been doing it for many years, as they can handle usually whatever situations are presented, including any sort of counterproductive things that the government may do in the city. So we'll certainly stay on top of it. But right now, we're not sure if there will be or what the impact may be. Regarding taking it on the road, so to speak, we are doing business in New Jersey and Connecticut, it doesn't necessarily mean that we would be opening up offices there, but let's just say, if I had to predict we're closer to doing that than we were several years ago.

Casey Haire - Jefferies LLC, Research Division

Okay, great. And then on the borrowing side, that ticked up again this quarter. Is there an absolute limit where you would not want to go, see that concentration go at -- versus 15% today?

Eric R. Howell

I think we're so far away from the absolute limit, Casey, we haven't given too much thought to that. At the 15% level, we're very comfortable with our level of borrowings.

Casey Haire - Jefferies LLC, Research Division

Got you, and just last question. Do you have the loan-loss-reserve ratio on originations for the quarter?

Eric R. Howell

I don't have it on originations. No, but it's safe to say, it was clearly lower because it brought down our overall allowance from 1.05 to 1 and most of our originations were in the multi-family space, where typically we're going to provide around 70 basis points on those originations.

Operator

The next question comes from the line of Matthew Clark of Credit Suisse.

Matthew T. Clark - Crédit Suisse AG, Research Division

On the 2 larger deals this quarter, can you give us some color around pricing and terms there? And then, as a follow on talk to what is it about these 2 situations that may or may not be unique. And should we, maybe assume, that you're getting more looks at these types of larger transactions? That will be helpful.

Joseph J. Depaolo

Yes. I believe that the commercial real estate banking team in Melville did a terrific job, and were selected to do these 2 transactions because the buyers and sellers felt comfortable that they could be executed quickly because it involved, like I said -- I'll give you the details. We had 1 transaction, there were 36 buildings, 29 loans, debt service coverage above 1.5, loan-to-value about 70% and it was the 7-year deal at 4-1/4. And the other transaction was 49 loans with 86 buildings that serviced above 1.7 LTV about 67% 5-year at 3.75. So it bodes well that it involved multiple buildings, multiple loans, multiple appraisers, multiple returnees, multiple environmental of companies. So that made it complicated. There was a time that they needed to get these transactions done quickly. And because getting these transactions done and executed well, it's allowing us to see -- allowing our team in Melville to see other transactions this quarter that may or may not close or we may or may not get. So yes, your very intuitive thought that you had.

Matthew T. Clark - Crédit Suisse AG, Research Division

Okay, sounds good. And were those both existing clients? Or was 1 of them looking for a competitive win?

Joseph J. Depaolo

I think it was a combination thereof because they are multiple partners. Let's put it this way, they were known to us, but I'm not sure that they were both fully on board clients at the time.

Matthew T. Clark - Crédit Suisse AG, Research Division

Okay. And then just housekeeping item on Premium M, I guess, how much was that down relative to last quarter, I think it was $19.6 million last quarter?

Eric R. Howell

Right, it was down $2.25 million.

Operator

Your next question comes from the line of Herman Chan of Wells Fargo Securities.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Back to Special Finance. It didn't look like the bank saw a seasonal lift in the quarter. As we look ahead, can you talk about expectations for growth there? Should we expect higher growth than the $200 million mark, as you expand those operations?

Eric R. Howell

I think we'd be very pleased if we were to continue to see around that $200 million in growth. Remember, their loans are very short duration and have a lot of principal repayment coming back at us, because they are 3- and 5-years self amortizing loans and leases. So they're really starting to swim upstream against the principal repayments that come back at them. So we'd be very pleased, if they were to maintain this level of growth looking forward.

Herman Chan - Wells Fargo Securities, LLC, Research Division

Got it, and then switching gears on the deposit side. Eric, I know you've noted that the competition for deposits was somewhat more intense when the 10-year was around the 3% mark. As we're back in the 3% vicinity today, are you seeing that competition return at all?

Eric R. Howell

We think it's still pretty heated. Remember, for our type of client, they're really wanted by the other institutions. We don't have that retail component to our business, where we're able to effectively slash rates and still maintain the retail deposit. So if you're a client with a couple of million in PDA and several more million in money market funds, and lines of credit and loans outstanding, you're wanted by the mega institutions and we're having to fight that competition.

Operator

Your next question comes from the line of Lana Chan of BMO Capital Markets.

Lana Chan - BMO Capital Markets U.S.

Just wonder if you're giving any guidance in terms of how much team -- how many teams that you are expected to hire this year?

Joseph J. Depaolo

Well, Lana, we've always given you our budgeted numbers and we've always executed far greater. So let's just say as we hire them, we'll announce them. But the pipeline is relatively active and although we've hired 1 team thus far, don't be surprised if we have several more, either right before the end or at the beginning of the second quarter.

Lana Chan - BMO Capital Markets U.S.

Okay, great. And just to follow-up on the premium amortization. Is there any way to gauge what sort of a normalized levels Premium M is, I mean, if I look back over the last couple of years, I think it's been as low as in the mid-teens. Is there a way to gauge where, without any accelerated premium amortization, where it should be?

Eric R. Howell

It really all depends on where rates are, Lana.

Operator

Your next question comes from the line of Terry McEvoy of Oppenheimer.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

At about $13 billion of loans today, how much of the portfolio is to borrowers outside of greater New York? And internally, how do you think about geographic diversity and concentration? And I say that after you've just booked 2 relatively large loans in the fourth quarter.

Joseph J. Depaolo

Well, Signature Financial is at about $1.6 billion and maybe 1/2 of that is outside the New York area. On the commercial real estate side, and the C&I side, all that business is in the greater -- maybe 99.9% of it is in the greater New York area. We're very pleased and comfortable with the market that we're in. Although on the geographical dispersion, the dispersion among the boroughs and New Jersey and Connecticut and Westchester and Nassau, Suffolk counties, so we like that dispersion. We've even -- even in the downcycle, we're comfortable and will probably as we grow from an absolute dollar perspective with Signature Financial we'll be doing more business outside the New York area, but predominantly, when you take our Banking business including commercial real estate and C&I, it's going to be predominantly the New York metropolitan area.

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

And then just as a follow-up. Did the economics behind new team hires change at all in 2013 or here in the first quarter in terms of reflecting the competitive environment for lenders and teams? And is there risk at all going forward, that while we see the loan growth and the balance sheet growth, that it would not all fall to the bottom line like we've seen in the past because of either a comp structure, stocks, option, et cetera that would be a little more dilutive going forward?

Joseph J. Depaolo

No, we have not seen, although there are some competitive situations out there because there are more banks vying for bankers. We have not seen.

Operator

The next question comes from the line of Jason O'Donnell of Merion capital.

Jason A. O’Donnell - Merion Capital Group

Just given the loan production that you all achieved, how would you characterize demand at this point say, versus let's say, 12 months ago? And are you beginning to see any improvement in commercial line utilization?

Joseph J. Depaolo

Well, on the CRE side, I actually felt there was more demand a year ago than there was today, but the numbers don't bear that out. But I think it's because there are more transactions, purchase transactions, purchased and sales transactions, that we're able to participate in. But I thought there was more refinancing and more demand a year ago and maybe that had to do with tax rates, and the uncertainty in the political environment that some owners stepped forward to sell because they were concerned about tax rates going up. So that's my feeling anyway, at least on the CRE side.

Eric R. Howell

And utilization remained in the low 40% range, so we're still pretty low, Jason.

Jason A. O’Donnell - Merion Capital Group

Okay. Well, in terms of the -- just switching gears, the reserves-to-loans ratio. I know you get questions of this nature just about every quarter, but at what level do you see that ratio bottoming assuming no major changes in the loan mix going forward?

Joseph J. Depaolo

No, it's hard to say because as for U.S. GAAP, you really have to do your calculations, take your intangibles and not have a bright line or a line in the sand. We're still continuing to provide far greater than what we're charging off. I think what's bringing it down is the fact that we're doing quite a few multi-family loans where our competitors are providing at a 50 basis point and we're providing in the 70 basis point range. So that can continue to drive down our allowance as it relates to total loans. I don't think there's a bright line though. If we were doing more C&I, then -- or other type of loans, then that would support a higher allowance to total loans, but we're doing quite a bit in the multi-family area.

Operator

Your next question comes from the line of Peyton Green of Sterne Agee.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Joe and Eric, just maybe if you could comment, it's certainly been a great 4 or 5 years since recession. And just wondering maybe today versus maybe a year ago, what you're more optimistic about than you would have been and maybe what has crept in as a worry over the next year or 2, compared to maybe 6 months or a year ago?

Joseph J. Depaolo

Well, Peyton, I don't know if you ever haven't been optimistic. I'll say this, one of the things that did not exist 6 months ago that exists today that affects us because we're a New York-based commercial institution is the fact that we have a new administration in City Hall, which I know only affects New York City and we do the Metropolitan area, but that unknown certainly has us watching very closely to see how that's going to affect businesses. And businesses are affected are our clients. So that's something that is clearly different than it was 6 months ago, so to speak, or even a year ago. That would be the major item.

Peyton N. Green - Sterne Agee & Leach Inc., Research Division

Okay. And then anything that would make you more optimistic or?

Joseph J. Depaolo

No, my job is not to be optimistic. Healthy paranoia is what we need to do to run our institution.

Operator

There appear to be no further questions. This does conclude today's teleconference. If you'd like to listen to a replay of today's conference, please dial (800) 585-8367 and refer to conference ID number 31082319. 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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