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Signature Bank (NASDAQ:SBNY)

Q1 2010 Earnings Call

April 27, 2010 10:00 am ET

Executives

Joseph DePaolo - President and CEO

Eric R. Howell - CFO Signature Bank

Susan Lewis - IR

Analysts

Steven Alexopoulos - JPMorgan

Bob Ramsey - FBR Capital Markets

Matthew Clark - KBW

Terry McEvoy - Oppenheimer

Andy Stapp - B. Riley

Tom Alonso - Macquarie

Amanda Larsen - Raymond James

Jeff Bernstein - AH Lisanti

Peyton Green - Sterne, Agee

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Signature Bank's fiscal 2010 first quarter conference call. During today's presentation all parties will in a listen only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Tuesday, 27 April, 2010.

I would now like to turn the conference over to Joseph DePaolo, President and CEO and Eric R. Howell, CFO Signature Bank. Mr. DePaolo, please go ahead.

Joseph DePaolo

Thank you, Luke. Good morning and thank you for joining us today for the Signature Bank 2010 first quarter 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, competition, capitalization, new private client team hires, new office openings, the regulatory environment 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 but are not limited to; one, prevailing economic and regulatory 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 client's loans, deposits, 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 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 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 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. I will provide some overview into the quarterly results, and then Eric Howell, our Chief Financial Officer, will review the Bank's financial results in greater detail. Eric and I will address your questions at the end of our remarks.

Signature Bank reported another quarter strong results as evidenced by our record core deposit growth and record net income while maintaining strong credit quality. Let’s get right into the numbers. I will start with deposits

Deposits rose $675 million to $7.9 billion which includes record quarterly core deposit growth of $586 million or 8.6%. Since the 2009, first quarter deposits increased $2.06 billion or 35% for the last 12 months. Also for the quarter we saw increases of $80 million in short term escrow deposits and $9 million in broker deposits.

Average deposits for the first quarter was $7.64 billion an increase of $2.16 billion or 39% compared with the $5.48 billion reported in the 2009 first quarter. This is the key deposit metric which we closely monitored due to fluctuations in short-term escrow deposits.

Non-interest barring deposits of $1.88 billion represent a 24% of total deposits. With the exceptional deposit growth total assets reached $9.74 billion up $2.3 billion or 31% since the 2009 first quarter.

Now on to loans, loans during the 2010 first quarter rose $116 million or 2.6% reaching $4.49 billion which represent a 46% of total assets at quarter end. The loan increase in the quarter was primarily driven by growth in commercial real-estate and multi family loans with continued conservative underwriting standards. Non-performing loans decreased to 0.99% of total loans and 0.46% of total asset or $44.4 million. This compares with 1.07% of total loans or $46.6 million at year-end 2009 and 1.26% of total loans or $45.1 million for the 2009 first quarter.

The provision for loan losses for the 2010 first quarter was $11.2 million compared with $11.8 million for the 2009 fourth quarter and $9.6 million for the 2009 first quarter. Once again the provision was well and excess of charge-offs. This now the tenth consecutive quarter or our provision significantly exceed charge-offs. The elevated level of provisioning was primarily driven by the growth in the loan portfolio and provisions for the current economic environment. The provisioning led to a further increase in our allowance for loan losses which was 1.33% of loans compared with 1.26% in the 2009 fourth quarter and additionally the coverage ratio or the ratio of allowance for loan losses to non-performing loans improved again to 135%.

Net charge-offs for the 2010 first quarter was $6.4 million or an annualized 59 basis point compared with $6.4 million or 61 basis points for the 2009 fourth quarter and $7.2 million or 82 basis points for the first quarter of 2009. During the 2010 first quarter we saw an increase in our 30 to 89 day past-due loans or $14.8 million to $41.1 million and a decrease in the 90 day plus past due category of $5.4 million to $10.9 million. Although our credit metrics continue to improve and we see credit as manageable, we remain mindful of the continue uncertainty in the economic environment therefore we continue to prudently build our reserves.

Lets review our earnings, net income for the 2010 first quarter we see record $22.1 million or $0.54 diluted earnings per share, an increase of $7.5 million or 51% from the $14.6 million or $0.41 diluted earnings per share reported in the same period last year. Net income excluded the gains on sales and securities and other than temporarily impairment OTTI for the quarter was $20.3 million or $0.49 diluted earnings per share versus $13.2 million or $0.37 diluted earnings per share for the first quarter of last year.

The increase in net income versus the 2009 first quarter is predominantly attributable to net interest income growth of 37% fueled by record core deposit growth and continued loan growth. These factors were partially offset by increases in the provision for loan losses and non-interest expenses. Just a touch upon team expansion for a moment, we recently announced the addition of three teams, one of these teams has joined in the 2010 first quarter, the other two teams joined this quarter. We now have 71 teams headed by 92 group directors and we continue to evaluate the opportunities to attract new veteran banking professionals.

At this point I will turn the call over to Eric and he will review the quarter's financial results in greater detail.

Eric Howell

Thank you Joe and good morning everyone. I will start by reviewing net interest income and margin. Net interest income for the first quarter reached $78.8 million, up $21.2 million or 37% versus the 2009 first quarter and an increase of 4% or $3 million from the 2009 fourth quarter.

Net interest margin increased 14 basis points in the quarter versus the same period last year and grew 3 basis points on a linked-quarter basis to 3.51%. The linked-quarter expansion was mostly due to a 9 basis point decrease in deposit costs.

Look at asset yields and funding costs for a moment. Overall interest earning yields declined 5 basis points this quarter to 4.85% due to the continued low interest rate environment. In keeping with our conservative investment philosophy, we are selectively deploying cash while maintaining our high quality short duration investment portfolio, as a result yields on investment securities decreased 22 basis points to 4.35% this quarter versus last quarter.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages increased back one basis point to 5.56% this quarter from last quarter as we continue to selectively identify quality, lending opportunities at appropriate pricing.

Now on to liabilities, cost of deposits for the quarter further decreased 9 basis points to 1.2% as we gradually reduced deposit cost given the abnormally interest rate environment. We continue to employ a relationship based pricing philosophy to attract new core depositors which will prove beneficial in a rising rate environment.

Looking at non-interest income and expense, non-interest income for the 2010 first quarter was $11.1 million, an increase of $730,000 versus the 2009 first quarter. The increase was primarily due to an increase in net gains on sales of securities and loans. This is partially offset by a decrease in commission income and trading income as well as an increase in write-downs and other temporary impairment of securities. But the announced end of the Fed’s Quantitative Easing Program on March 31, 2010 and overall a tighter mortgage spreads, we capitalized on the opportunity to sell approximately $290 million in mortgage securities, resulting in gains of $12.7 million. We expect to deploy the cash from the security sales into higher yielding investments in the coming months.

Inversely during the first quarter we recognized OTTI of $9.5 million on securities. Most of the OTTI was on CDO positions, one of which was liquidated upon an event of default and our class received nothing upon liquidation. Due to this occurrence we reviewed the remainder of our CDOs more closely for event of default list and further wrote-down two more CDOs to better reflect the potential for a liquidation of risk in those securities.

The remainder of the OTTI was on four Bank-pooled trust preferred securities.

Commission income further declined by $576,000 versus the 2009 first quarter as deposits in off balance sheet money market funds decreased $549 million and commissions we earned on off balance sheet money market accounts continue to be significantly reduced and for some funds even eliminated to maintain positive yields on the funds in this unusually low interest environment.

Non-interest expense for the first quarter of 2010 was $39.7 million versus $34 million for the same period a year-ago. The $5.8 million or 17% increase was primarily due to the addition of new product line banking teams and additional costs relating to FDIC deposit assessment fees and the FDIC deposit guarantee program.

The Bank’s efficiency ratio improved to 44.2% for the 2010 first quarter, compared with 50.1% for the 2009 first quarter, despite higher FDIC assessment fees as we continue to leverage our operating infrastructure.

Looking at taxes, as we mentioned last quarter our effective tax rate increased to approximately 43% as the benefits of a wreath that we had established have been phased out for banks of average assets in the excess of $8 billion. We expect our effective tax rate to be approximately 43% for 2010.

Now on the capital, our capital levels remained strong with a tangible common equity ratio of 8.56% tier one risk base of 13.66%, total risk based ratio of 14.62% and leverage capital ratio of 9.1% as of March 31, 2010. Our regulatory capital ratios were all well in excess of regulatory requirements and reflect the relatively low risk profiles of balance sheet.

Now, I’ll turn the call back to Joe.

Joseph DePaolo

Thanks, Eric. Ten years ago this month, we set out with a clearly defined business plan to build the bank that could accommodate the void, we saw in folding here in the metro New York market place which remains prevalent, catering to privately owned businesses. Now the numbers truly speak for themselves.

To summarize the first quarter, we had record core deposit growth, strong loan growth, increased margins, stable credit quality, and record net income. I would say that 2010 is off to a positive start.

Now, we are happy to answer any questions you might have. Luke, I’ll turn it back to you.

Question-and-Answer Session

Operator

Thank you we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Steven Alexopoulos with JPMorgan.

Steven Alexopoulos - JPMorgan

Maybe I will start looking at the just over $11 million provision in the quarter, I am curious how did come in versus your expectations?

Joseph DePaolo

It actually came in right and where expectations work. We see that our metrics, our credit metrics of Signature Bank are pretty positive at the moment however we’re still concerned about the uncertainty in the environment. We kind of use the term “murky and cloudy” still in the environment and when it’s clear, we will provide less. So you may see a slow down. I use the term “may” see a slow down on the speed of which we are building reserves but we don’t believe it’s a time to stop until we see that the environment is a little bit more clear.

Steven Alexopoulos - JPMorgan

In terms of the unlimited FDIC insurance, do you guys plan on opting into that and extending it?

Joseph DePaolo

You mean that the transaction account guaranteed program?

Steven Alexopoulos - JPMorgan

Yes.

Joseph DePaolo

We have to make a determination by the end of this week, April 30 and we are currently in it. And we're going to continue to stay in it, as much as it pains me to say that. Our belief is that we still have the too big to fail bank situation. We would've preferred that the FDIC not extend it, because of our capital ratios and the strong balance sheet that we have. But, because we're currently in the program, we've decided to stay in, again because of the uncertainty. What's the next bomb-shelter drop with Goldman? And that affects, certainly, the environment for banks. So, therefore, we're staying in it.

Steven Alexopoulos - JPMorgan

Maybe just one final one for Eric, given the level of the security gains you took in the quarter, do you think basically you're done for the year now with securities gains?

Eric Howell

I certainly don’t expect that will have quite the level we had in the first quarter but where the 4 billion plus securities portfolio that we pretty actively managed. I would expect that we still have some gain opportunities. I mean we have had gains, really every single quarter since we opened our door so I wouldn’t expect that to go away Steven but it certainly wont be at the level that we had.

Steven Alexopoulos - JPMorgan

But maybe a more traditional run-rate?

Eric Howell

It maybe even a little bit less than what we saw prior to the first quarter.

Operator

Thank you our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please go ahead.

Bob Ramsey - FBR Capital Markets

With the securities book, could you talk about what opportunities you're seeing for reinvestment with an end of quantitative easing, sort of how security yields look on what you're buying today?

Eric Howell

The second quarter really started of well, unfortunately then we had some employment data, Greece and Goldman kind of drove yields down in the short term. We have been putting on some very well structured agencies picking up yields in the low to mid-4 range as of late mostly in the low 4% arena. We would expect that over time that will pick back up. But so it started off well but unfortunately there has been some short term noise have brought yields down but we expect it will widen out again and we will have better opportunities to invest on.

Bob Ramsey - FBR Capital Markets

And was there much noise in the first quarter from the agency land buyouts? In terms of yield on investment?

Eric Howell

A little bit the Freddy Mac buyouts cost us approximately $600,000 which is couple of basis points in the margin and also lets us having even more cash on hand so we had some reinvestment, that will have the challenges that we have to work through. Next quarter we will have Fannie Mae that will mostly be done from what we understand in the second quarter may be some of that will trickle into the third quarter but we should be in a better place come third quarter on that.

Bob Ramsey - FBR Capital Markets

And then, with in regards to the charge-offs that you will have this quarter, is most of that still coming out of the C&I Loan book?

Eric Howell

Yes it’s predominantly from the C&I Loan book.

Bob Ramsey - FBR Capital Markets

Great. And then, I think you guys gave this earlier, and I apologize. I missed it. But, what was the early stage delinquency number?

Eric Howell

30 to 89 day past-due was $41 million up from $26 million, approximately $8 million of that has already come out of that bucket. It was mostly paper work related issues and renewals that just didn’t get done in times so that was making up the majority of that increase.

Operator

Our next question comes from the line Matthew Clark with KBW.

Matthew Clark - KBW

Can you touch on the incremental changes you may have seen in the pipeline, whether or not things have improved materially or not and if they have improved what you're seeing there? And if you want to size it up, that will be great, too.

Eric Howell

You talking about the loan pipeline?

Matthew Clark - KBW

Yeah, exactly.

Joseph DePaolo

Yeah our loan pipeline right now indicates that the net growth for the second quarter would be larger than the growth we had in the first quarter. The growth we had was $116 million net growth for the first quarter. So our pipeline right now will build certainly things will be added to it and some things will come off it. We are seeing right now that our specific pipeline will have a growth greater than what we had in the first quarter however the environment seems to dictate, although we are seeing a little more activity on C&I that we had in the recent past that there is still a lot of inactivity and not only in the C&I side but even in the CRE side, we have seen that slow down particularly in this first quarter but even now, although there is a pipeline, we are seeing both areas having a slow down. Although our expectations are as I said is that we will continue to have loan growth and the loan growth in the second quarter will be greater tan it was in the first quarter. Last year we looked at the quarterly growth last year. And our growth in the loan portfolio was actually under $100 million in the first quarter of 2009 and we ended up having over $900 million in loan growth for the year. So there is no seasonality here, its just I am just giving you a comparison that we still may have some decent loan growth and that the first quarter is not any indication for the rest of the year.

Matthew Clark - KBW

Okay, great. And then, in terms of charge-offs, they've been fairly stable for the last three quarters. And I don't know if there's a view that maybe asset prices are stabilizing here. Could you argue that charge-offs should remain relatively stable here if that's the case? I'm just curious about your view on asset prices and potential losses.

Eric Howell

With the CNI book that we have you know you could get a lumpy quarter. I don’t think we see it meaningfully moving from where we have been charging off last couple of quarters. But it is hard to look out beyond a few more quarters. And it can get choppy at given time. But we feel comfortable that we will be able to manage through the credit environment.

Operator

Our next question comes from the line of Christopher Nolan with Maximum Group, please go ahead.

Christopher Nolan - Maxim Group

Joe, in the past conference calls, if my memory serves us correctly, have you indicated a slowing in transaction volumes that you're seeing for New York City commercial real estate. Is that trend extending, from your perspective, these days?

Joseph DePaolo

Yes, we have continued to see in activity on buys and sells, we actually were out there telling some clients that we would be interested in helping them buy discounted paper on very good deals whereby they would buy discounted paper. They would put up the significant cash and we probably loans for less than 50% loan to value so they can take advantage of some opportunities. We put that out there and discussing it with clients some of our bankers, particularly to handle commercial real estate. We have not seen much activity if any happening there. So I would say that yes it continues to be somewhat inactive although we are ready. We have the powder, we are ready to help some clients take advantage of some of real estate opportunities.

Christopher Nolan - Maxim Group

And in a follow-up to that, in your answer to an earlier question, you indicate that you're seeing in the loan pipeline more active from commercial real estate, but it's still pretty can you characterize it? Is it more active than 2009 second half or?

Joseph DePaolo

Not to say its actually right now it is less activity than it was in the past several years.

Operator

Thank you our next question comes from the line of Terry McEvoy with Oppenheimer please go ahead.

Terry McEvoy - Oppenheimer

Just wondering, have you or would you look at doing any kind of asset or portfolio acquisitions? I think we can all look at your balance sheet and look at what you're earning on securities and look at what you're earning on assets. And is there an opportunity or do you have an interest in opportunity and maybe picking up some bulk assets to improve the margin in your yield on earning assets?

Joseph DePaolo

Well I have to tell you we are always being opportunistic but we have a saying here particularly on the loan side. Is that if we do a loan you might have a face with the loan. And we you know we just as much as we like to have a face with the deposit and to avoid merely broker deposits. So for us unless it really knocks our socks off unless it really is something that’s going to move our yields it’s not something that we would look at. We just think that the economy when it moves, we are ready and you know we can go back to. When the economy gets better if you re-call our loan growth in 2008 was significant and we would certainly love to be at those levels again. And we would certainly wait it out until the economy is back.

Terry McEvoy - Oppenheimer

And could you just also talk about your outlook for new banking team hires? And then, just kind of expense growth, as well, is it still 20% to 25% type of expense growth going forward?

Eric Howell

Yeah well on the expense front I will hit that one first and let Joe talk about team hires. You know we had a pretty good quarter at 16.9% growth year-over-year. I think we said last quarter when we expected to be more in the 18 to 20% range. We just brought on three teams earlier this quarter and one team late in the first quarter that will certainly hit the expenses front you know fortunately we put them into existing space and didn’t have to build out any space so we are really to starting to see the infrastructure that we built out, our ability to leverage that at large infrastructure that we built out in the years ago.

So you know we are down from the 20 and 25% range where we were a year ago or two years ago. I think we are more in that 18 to 20 I will be at the first quarter where it was strong right. I think we are going to go back to 18 to 20% range.

Joseph DePaolo

And on the team, team hires we had projected 14 since 2010 and we have hired 3 thus far. We had gone on record debt if we had hired no teams, we still thought we can sustain growth included of all the things we have heard and the great jobs the existing teams are doing, but our pipeline right now is two to three teams. What that means is the pipeline is who we talking to. We are actually having discussions with two to three teams at the moment.

Operator

Thank you our next question comes from the line of Andy Stapp with B.Riley please go ahead.

Andy Stapp - B. Riley

I know you said your vision's murky. But how confident are you that non-performers may have peaked?

Joseph DePaolo

That’s a very good question I just believed with our portfolio that we can have blip in any one particular quarter. And we certainly seeing that in our past where it is going up then its going down, it could be one loan that we working out that, that could be a substantial loan. So in terms of real dollars it would make it a higher. In terms of percentage of loans and as it relates to our allowance we were feeling pretty good.

Operator

Thank you our next question comes from the line of Tom Alonso with Macquarie please go ahead.

Tom Alonso - Macquarie

Just a couple of housekeeping items here. Any non-performing investment securities, or were those part of what was written down?

Eric Howell

Well anything written down there is still some pieces left, so we had about $7.5 million in non-performing investment securities. That is down from $8.2 million.

Tom Alonso - Macquarie

Okay and then any Oriel.

Eric Howell

Just the same amount past the several quarters now 700,000.

Tom Alonso - Macquarie

Could you sort of comment on your interest rate sensitivity if you guys are still placed a benefit if rates start to move up how you guys are thinking about that?

Eric Howell

Yeah we are still poised to benefit if rates move especially we are putting on all these core deposit relationships that is really the key is how core funded we are at times. So we would expect an arising interest rate environment that will have improved then.

Tom Alonso - Macquarie

Okay. So, no floors that you have to burn through or anything like that, you get the benefit pretty much right away?

Eric Howell

There is certainly some floors that we will have to burn through but there are others that aren’t floored and again it is really going to depend on ability to lag on the deposit front. And it is also going to depend on loan demands coming back into the equation.

Tom Alonso - Macquarie

Okay. And to that point, on loan demand, what do you think kind of shakes people off the sidelines?

Eric Howell

I think we are not have to continue to see you know improved conditions in the overall economy. You know, yes things are improving and they have improved for several quarters. But they are improving from modern era of lows. So I don’t think anyone is out there you know overly excited about where the economy is going. That is why you know we continue to over provide at a pretty heavy clip, just because we are not seeing significant improvements in the overall economy and it is still cloudy out there. So until we see you know a few more quarters of sustained growth I don’t really don’t see demand coming back into the equation.

Operator

Thank you the next question comes from the line of Ken Usdon with Bank of America Merrill Lynch please go ahead.

Unidentified Analyst

Good morning, guys. This is actually Kasey filling in for Ken. So, regarding the teams hired last year, I know last quarter you guys had mentioned that they had a lot of upside potential. Is that still the case, or are they generating assets and gathering deposits, more in line with expectations?

Joseph DePaolo

No there is still a considerable amount of upside potential not only for the 2009 teams but even for the 2008 teams. Because some of these teams had fairly significant amount of books of business and it takes a while to bring them over, particular since their commercial business relationships. And when you take into account cash management, you take into account operating accounts particular if they are real estate. Management companies they have get their clients just sign paper work and move over. So it takes months if not quarters if not more than a year. So there is a significant amount of potential for them to continue to bring the business on you know we are just starting to bring the business over now.

Unidentified Analyst

Okay. So, the deposit growth this quarter, most of it was from teams prior the minority of it was from teams hired last year.

Joseph DePaolo

It was actually across the board cause we hired so many teams last year thirteen and then the year before we hired eight teams. So when you take that into account and then you take the cash into accounts the teams we hired from 2001 what makes us feel good about the growth is that it actually coming across the board with all the teams.

Unidentified Analyst

Okay, and then the expense guidance of 18% and 20% on the year, does that bake in does that assume that there's four teams hired?

Eric Howell

Yeah that assumes four teams even if we go higher than that will still be around 18 to 20% range.

Unidentified Analyst

Okay. Gotcha, and then, finally, did you guys give the watch list credit number?

Eric Howell

I don’t believe that we did the watch list went from $132 million to $139 million, so modest pick up in the watch list.

Operator

Thank you the next question comes from the line Amanda Larsen with Raymond James please go ahead.

Amanda Larsen - Raymond James

I understand that you're poised to have new expansion in a rising rate environment. But, given the probability that the Fed doesn't commence a tightening policy until 2011, what's your outlook for the name given the different elements going on right now and the fact that you hit that 3.51% record level again this quarter?

Eric Howell

Well you we would expect that we will be able to maintain and it might be down slightly in the next quarter. You know a lot of it is going to be depended on our ability to continue to drive down deposit costs. We have some ability to that but I really want to stress the word some. Because I certainly don’t expect us to be able to take the deposit course down another nine basis points. That would be a lot, but that is going to be one of the key drivers.

Amanda Larsen – Raymond

Is there going to be any overhang from the agency purchases in the second quarter?

Eric Howell

Little bit, we still have Fannie still purchasing back so we will have some over heading from that. We are also sitting on quite bit of cash. So if we can deploy that cash it is certainly going to help out as well. We have been waiting for opportunity time to do that.

Operator

Thank you the next question comes from the line of Jeff Bernstein with AH Lisanti please go ahead.

Jeff Bernstein - AH Lisanti

Hi, guys. It's a great quarter you put up. Can you talk about, on the commercial real estate side, the potential for maturity defaults in the market with the heightened level of activity that went on in '05, '06, etc. and where there's opportunity there for you, or risk, and how you think that might play out?

Joseph DePaolo

Well for us more than 85% of the commercial real estate that we put on our books, was actually originated in 08 and 09. So we feel very comfortable with our portfolio because we don’t have much in the vintages prior to that. And most of what we put on, in fact more than 85% of it were re-finances from the teams bringing their books of business over and just re-financing once the maturity occurred in 08 and 09 from their existing books. What gives us some excitement is because of some of issues prior to that. That our clients are in pretty good position because they have some cash on side line. We can see it within our institution that they could take advantage of buying the discounted paper. And with that cash the loan to value for us would be very good. One of the things we stressed though is that we lend on current cash flowing multi-tenanted property. And that certainly creates less of a risk for us.

Operator

(Operator Instructions) Our next question comes from the line of Peyton Green with Sterne Agee please go ahead.

Peyton Green - Sterne, Agee

Yes. I was just wondering. I think you referenced this earlier. But, the Freddie Mac securities issue clipped about 600,000 from net interest income in the first quarter? And what was the guidance on the Fannie part, going forward?

Eric Howell

Could it be about the same in the second quarter end.

Peyton Green - Sterne, Agee

Okay, and then, in terms of the money market cost of funds, I mean, with short-term rates staying low for some period of time, do you think there's ability to kind of walk those down over the next couple quarters?

Joseph DePaolo

Right now we, we were at 1.62 in the fourth quarter and now we are at 1.47. So it came down 15 bits, we are actually going through a process right now, that of trying to take into account the kind environment. But we don’t want to risk the relationship pricing, because the relationship pricing is based upon the total client relationship and that includes the DDA that they keep. So I think Eric may have mentioned this, we feel that there may be some and we will stress the word some. Down with movement on it but not nearly as much as the downward movement that we saw in the first quarter before the money market declined in interest rates. The pressure, I think that nearly the pressures are going to be our ability to deploy the excess cash and moving the loan growth along quicker.

Peyton Green - Sterne, Agee

Okay. And then, just a follow-up, I mean, would you expect, and I've forgotten that there's a little bit of seasonality between the fourth and the first, but would you expect the non-interest bearing to start growing a little bit better going forward than it did in the first, where it was really kind of flat?

Joseph DePaolo

Well it was high in the fourth quarter because we had some of the short escrows we always have the expectation of growth payments. And I think what we are seeing our hope will be full-filled in the next quarters because the clients that are coming over are usually move their interest bearing before they moved to non-interest bearing. Because the non-interest bearing and operating accounts that have a number of services that are tied to it.

So the expectation is that they will bring over that non-interest bearing. So we may to have to keep the problem is this, you bring over the money market account. And you bring it over at a level that you expect the DDA is going to come. And you hope when the DDA comes that we do see across the funds. But when you brining the new clients over first they are going to break come over, if you save them. Well you have to be at a reduced money market rate and see the improving DDA. We are the ones that have to take the risk of waiting for them to bring the DDA over. So that is why we think that there will be some downward moment on the cost of deposits because we are expecting some of the DDA to now come over.

Peyton Green - Sterne, Agee

Okay. And then, what was the on-balance sheet escrows at the end of the first quarter?

Joseph DePaolo

On balance sheet escrows at 331 were.

Eric Howell

Before 460 million.

Operator

(Operator Instructions) And Mr. DePaolo there are no further questions in the queue please proceed.

Joseph DePaolo

Thank you for joining us today we certainly appreciate your interest in Signature Bank and as always we look forward to keeping you appraised of all our developments and Luke I will turn it back to you thank you.

Operator

Ladies and gentlemen this concludes the Signature Bank fiscal 2010 first quarter results conference call 303-590-3030 or 1-800-406-7325 with the access code 428-48-28 or you may log in to www.signatureny.com. ACT would like to thank you for your participation you may now disconnect.

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Source: Signature Bank Q1 2010 Earnings Call Transcript
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