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Signature Bank (NASDAQ:SBNY)

Q2 2014 Earnings Conference Call

July 22, 2014 10:00 ET

Executives

Joe DePaolo - President, CEO

Eric Howell - CFO, EVP

Susan Lewis - Investor Relations

Analysts

Rahul Patil - Evercore

Casey Haire - Jefferies

Travis Potts - FBR Capital Markets

Steven Alexopoulos - JPMorgan

Ken Zerbe - Morgan Stanley

Timur Braziler - Deutsche Bank

Chris McGratty - KBW

Matt Schultheis - Boenning & Scattergood

Peyton Green - Sterne, Agee

Operator

Welcome to Signature Bank's 2014 Second Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer; and Eric R. Howell, Executive Vice President, Corporate and Business Development. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. (Operator Instructions)

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

Joe DePaolo

Thank you. Good morning and thank you for joining us today for the Signature Bank 2014 second quarter 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 maybe 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.

Joe DePaolo

Thank you, Susan. I would 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.

The 2014 second quarter marked our 19th consecutive quarter of record earnings led by strong performance across all key metrics. We again achieved record deposit growth exceptional loan growth and expanded top line revenues while maintaining stellar credit quality. Moreover, we successfully raised nearly $300 million in capital to further strengthen our bank.

I will start by reviewing earnings. Net income for the second quarter reached a record $72.5 million or $1.48 diluted earnings per share an increase of $18.9 million or 35% compared with $53.6 million or $1.12 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 growth and exceptional loan growth. These factors will partially offset by an increase in non-interest expense attributable to our revenue growth initiatives.

Looking at deposits that once again played a key role in results, deposits increased a record $1.45 billion or 8% to $19.8 billion this quarter including core deposit growth of $1 billion and average deposit growth of $1.3 billion.

For the past 12 months, total deposits have grown $4.5 billion core deposits grew $3 billion and average deposits increased $4 billion. Non-interest bearing deposits of $5.7 billion represented 28.9% of total deposits. The substantial deposit and loan growth coupled with earnings retention and our recent capital raise resulted in total assets reaching $24.5 billion an increase of $4.8 billion or 24% since the second quarter of last year. The ongoing strong deposit growth is attributable to the superior level of service provided by all of our private client banking teams who continue to serve as a single point of contact to their clients.

Now, let's take a look at our lending businesses. Loans during the second quarter increased $1.2 billion or 8.5%. For the past 12 months loans grew $4.4 billion and now represent 62.9% of total assets compared with 56.1% one 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 $32.7 million or 21 basis points of total loans this quarter compared with $36.2 million or 25 basis points for the 2014 first quarter and $35.9 million or 32 basis points one year ago.

The provision for loan losses for the second quarter was $7.6 million compared with $8.2 million for the 2014 first quarter and $9.7 million in the 2013 second quarter. Net charge-offs for the second quarter were only $718,000 or annualized two basis points compared with net recovery of $244,000 or 1 basis point for the 2014 first quarter. In the 2013, second quarter net charge-offs were $3.5 million or 13 basis points.

Consequently, the allowance for loan loses were 0.98% of loans versus 1.01% of loans in the 2014 first quarter and 1.08% one year ago. Additionally, the coverage ratio was a very healthy 459%.

Now, turning to the watch list and past due loans. Watch list credits again decreased $6.4 million this quarter to $116.1 million or a very low 0.75% of loans. During the quarter, we saw a decrease of $14.8 million in our 30-day to 89-day past due loans to $29.8 million and an increase of $1.7 million in the 90-day plus past due category to only $2.4 million.

While we are satisfied that all our credit metrics are stellar again this quarter, we remain mindful of the prevailing uncertainty in the economic environment and continue to conservatively reserve.

Just to review teams for a moment, we added one private client banking team in the second quarter bringing the year-to-date total to 5. Additionally, we will be opening 3 offices later this year to permanently house existing teams. Also, within Signature Financials, we recently added two new business lines, franchise lending and commercial marine, equipment finance which will help to expand our product offerings within specialty finance.

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 second quarter reached $193.7 million, up $39.2 million or 25.4% when compared with the 2013 second quarter, an increase of 3.9% or $7.2 million from the 2014 first quarter.

Net interest margin was down 5 basis points in the quarter versus the comparable period a year ago and decreased 8 basis points on a linked quarter basis to 3.31%. The linked quarter decrease was mostly due to a decline of $2 million in loan prepayment penalty income. When loan prepayment penalty income is excluded from the 2014 first and second quarters' core net interest margin for the linked quarter decreased 3 basis points to 3.22%. Two basis points of the linked quarter decrease were due to their being one more day in the second quarter.

Let's look at asset yields and funding costs for a moment. Interest earning asset yields declined 9 basis points from both a year ago and from the linked quarter to 3.83%. Given the considerable growth in average deposits for the quarter of $1.32 billion and growth in capital, we slightly increased the average investment securities portfolio by $92 million this quarter. Yields on the portfolio decreased 2 basis points to 3.3% this quarter due to lower reinvestment yields and the duration of the portfolio decreased slightly to 3.74 years.

Turning to our loan portfolio, yields on average commercial loans, mortgages and leases declined 13 basis points to 4.23% compared with the 2014 first quarter excluding prepayment penalties from both quarters, yields would have declined 6 basis points driven by continued pressure from refinanced activity and lower yields on new loan production.

Now, let's look at liabilities. Money market deposit costs this quarter declined 3 basis points which help drive a decrease of 1 basis point and our overall deposit cost to 48 basis points. Given our strong average deposit and capital growth average borrowings decreased $336 million to $2.59 billion or only 10.9% of our average balance sheet. During the quarter, we replaced short-term borrowings with deposits and modestly extended the duration of our fixed term borrowings. This led to a 11 basis point increase in average borrowing cost for the quarter.

And on to non-interest income and expense. Non-interest income for the 2014 second quarter was $12.4 million, an increase of $3.1 million when compared with the 2013 second quarter. The increase was driven by a $4.4 million gain on sale of an SBA interest loan and strip security. Non-interest expense for the 2014 second quarter was $73 million versus $61.4 million for the same period a year ago. The $11.5 million or 18.8% increase was principally due to the addition of new private client banking teams, the new asset-based lending team and our continued investment in Signature Financial. We anticipate these investments will lead to future growth.

Considering all the significant hiring over the last several years, the bank's efficiency ratio still improved to 35.4% for the 2014 second quarter compared with 37.5% for the 2013 second quarter.

And turning to capital, with another quarter of record earnings and the proceeds from the common stock offering in late June, our already strong capital levels were significantly enhanced positioning the bank for further growth. The banks tangible common equity ratio now stands at 9.34%, Tier-1 risk-based ratio of 15.65%, total risk-based ratio of 16.69% and leverage capital ratio of 9.55% as of the 2014 second quarter.

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

Joe DePaolo

Thanks, Eric. During the past several years, we have invested time, effort and capital to diligently and prudently broaden our offerings and capabilities, extend our geographic footprint and diversify our revenue stream through the addition of complementary businesses. We are proud of these ongoing accomplishments which are achieved through the efforts of our colleagues. We also continued to grow across all facets of Signature Bank as evidenced by our second quarter results with record deposit growth exceptional loan growth further team expansion, top line revenue growth and record earnings.

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

Question-and-Answer Session

Operator

The floor is now open for questions. (Operator Instructions) Our first question comes from the line of John Pancari with Evercore.

Rahul Patil - Evercore

Hi, this is Rahul Patil on behalf of John. Question on your loan growth, could you give us some color on where exactly are you seeing loan growth coming in. And how much – and what's the total balance for the SpecFin as of 2Q?

Eric Howell

What was the latter part of that question, I'm sorry.

Rahul Patil - Evercore

The specialty finance business, what's the balance as of second quarter?

Eric Howell

The specialty finance is just shy of 2.1 billion right now, it's $2.08 billion in outstanding, they had growth of about $275 million for the quarter. And most of our growth continues to be from the multi-family arena where we saw over $600 million in growth and from other CRE where we had over $300 million in growth.

Rahul Patil - Evercore

Okay. All right, thank you. And then question on your expenses, looking forward, I know looking beyond the hiring expenses beyond the expenses related to branch openings. How comfortable are you with the spend on regulatory related expenses going forward given the growth that you guys are seeing and as you fast approach that $50 billion mark, it almost seems like the regulators are pushing, are nudging companies to increase their spend on compliance on BSA, AML, how comfortable are you at that level?

Joe DePaolo

We have been keeping pace in times of the cost-related and what's necessary for BSA and AML. Our regulatory costs over the last several years have increased several million of dollars not nearly as much as some of the larger institutions for several reasons. One, we have simplicity versus competitive complexity. We are pretty straight forward to take deposits and lend to our clients bank. We have no trading operations. We don't have derivatives book. We have no global operations that are risky. We have no commodity operations, so we are pretty straight forward.

Having said all that, we have encouraged several millions of dollars because of the regulatory burdens that are cast upon institutions. As it relates coming closer to $50 billion being nearly 25 there are a few banks ahead of us that are closer and our belief is that we are not going to be the trailblazer; they will and we will learn from them and from the regulators as to what exactly needs to be done and what the cost or the burden of those cost involve. Certainly there will be additional costs, but probably not nearly as much as those that will be incurred today for bank costs of the $50 billion threshold because they are trailblazing it's not something that has happened. By the time we get there in a number of years the several have gone toward, will be the better [for] (ph).

Rahul Patil - Evercore

That's helpful. Thank you guys.

Joe DePaolo

Thank you.

Operator

Our next question comes from the line of Casey Haire with Jefferies.

Casey Haire - Jefferies

Hi, guys. Good morning.

Joe DePaolo

Hi, Casey. Good morning.

Casey Haire - Jefferies

Just following up on the expense question from earlier, so as you guys have been playing a little bit while fancier and billing out some new business lines, you have been – the expectation was high teens year-over-year comp. Just curious as we look forward to next year, can we – and you digest these sort of growth costs, can we expect the expenses, the expense growth to moderate to that sub-15% comp where it's been historically?

Eric Howell

Yes. I think that if you look next year over this year, we should get back down to that mid-teen range facing. It’s reasonable.

Casey Haire - Jefferies

Got you. Okay.

Joe DePaolo

And one thing, Casey, there is one thing you have to take into account should we be fortunate enough to hire 10, 12, 15, 18 teams, we are not going to be worried about where the expense growth is because the revenues will follow. So it's really an opportunistic thing for us, it could moderate as Eric said but you will know in advance because we will be announcing team hires.

Casey Haire - Jefferies

Understood, right. Okay. And then just on the loan pipeline, obviously pretty good quarter here, how we are shaping up headed into the third quarter which has been a seasonally challenged one for you guys historically?

Joe DePaolo

Well, I will go a little step further, I think it's better than pretty good growth, it's very good growth. We are seeing a robust pipeline for loans. I think the question is and I think you hit it on the head of the third quarter whether they close in the third quarter, or whether they close in the fourth quarter. Reason why I'm saying that is, on those transactions where there is a purchase and a sale involved in all likelihood they will close in the third quarter we will be the beneficiary of those that we have in the pipeline. Those that have refinance single way from other institutions into Signature, vacation time gets in the way and I don't mean vacation time on our end, I mean vacation time on the client end. So our belief there is that the pipeline is very robust whether it closes in the third or fourth quarter is the question.

Casey Haire - Jefferies

Got you. Okay. And just lastly NIM dynamics, can you just highlight any changes quarter-to-quarter where you are seeing pressure reinvestment yield et cetera?

Eric Howell

Well, certainly, I mean we are seeing reinvestment yields across the board being pressured. There is tremendous competition on the loan front and the pull back in the tenure was moving a pressure a little bit in securities portfolio. Ultimately we see margins being stable extra day count, we do have one more day in the third quarter versus the second so that will probably cost us another 2 basis points. But extra day count we expect to be stable to down a few basis points.

Casey Haire - Jefferies

Got you. Thank you.

Eric Howell

Thanks Casey.

Joe DePaolo

Thank you, Casey.

Operator

Our next question comes from the line of Bob Ramsey with FBR Capital Markets.

Travis Potts - FBR Capital Markets

Hey, good morning. This is actually Travis from Bob's team.

Eric Howell

Good morning.

Joe DePaolo

Good morning.

Travis Potts - FBR Capital Markets

I just had a quick question on the new SpecFin business lines sort of what's the goal there when can you start making funding your first loans and what sort of growth targets for those businesses?

Eric Howell

We really expect to be able to start funding loans relatively soon and we have the team on board in Signature Financial underwriting on operations side who have familiarity with these business lines. So it shouldn't really take us that long to just start to fund some transactions and hopefully that will happen in the third quarter. And ultimately we expect these business lines to add each business line to add $50 million to $100 million in growth per year.

Travis Potts - FBR Capital Markets

Okay. Thank you. And then what does typical loan sort of look like in those businesses as in terms of yield or charge-offs, average size?

Eric Howell

In yields you are looking at 3.5% to 4.5% in the franchise business and 4 plus in the commercial marine side. Average size can be 500,000 to a few million. As a set growth we are looking at $50 million to $100 million typically term is seven year fully amortizing for the franchise loans and seven year with tenure amortization on the commercial marine loans.

Travis Potts - FBR Capital Markets

All right. Great. Thanks a lot guys.

Joe DePaolo

Thank you.

Operator

Our next question comes from the line of Steven Alexopoulos with JPMorgan.

Steven Alexopoulos - JPMorgan

Hey, good morning everyone.

Eric Howell

Good morning Steve.

Joe DePaolo

Hey, Steve, how are you doing?

Steven Alexopoulos - JPMorgan

I wanted to first call upon your comments regarding regulatory cost and recognize a bunch of us are hitting you on this topic. I hear you that the model is simple and you will see others played out for others. With that said, simplicity did not (indiscernible) really at all that we are now seeing banks half your size announcing AML, BSA compliance issues. From our view, you are one of the most efficient banks which makes it hard to see the level of investment in compliance et cetera. So given your growth, one, are you seeing increased regulatory focus at all on your systems processes anything like that and should we be concerned at some point you have to ramp the regulatory spend here?

Joe DePaolo

We are ramping and we have been ramping, you are talking about someone here as the CEO who was an external auditor and an internal auditor. You are talking someone an Eric Howell who is an auditor as well. So we have a number of us that comes from the audit background that fully understand and I'm not saying if you don't come from the audit background you don't understand what we fully understand what it takes and how detrimental it could be for business, if something comes out for an institution that they have to sign some sort of memorandum of understanding.

So we are very – you can be rest assured we are very comfortable and our regulators are very comfortable with where we are. We take it very seriously, but on the other hand, you have to understand that we are not a retail institution. So we don't have clients coming in off the street. We don't have that situation whereby we don't know who we are bringing on board. For the most part we are out there trying to bring those clients in. They are not trying to come in and that helps knowing your clients. That helps hiring people that have a book of business.

But from the AML BSA standpoint, we are in a very good shape. We have been hiring – we have been hiring on the compliance side. We have been hiring on the internal audit side and we have been hiring on the operational side.

When Eric talks about the increase of non-interest expense and it's team related and what that does is drive our revenue businesses. It also – to drive your revenue businesses and if it were to be team related you have to add on and wire transfer and account opening areas. So we are very cognizant of the regulatory standpoint and I dare say that when you hear about others having issues you could put us at the top of the list of those that are not even close to having any issues.

Steven Alexopoulos - JPMorgan

That's helpful, Joe. I appreciate all that color. Secondly, an unrelated, you guys had good loan growth in the quarter, but with pre-payment penalties falling quite a bit actually from the prior quarter prior year, are you seeing less demand from investors to pull equity out of buildings?

Joe DePaolo

No. I don't think so. We had less because there was one thing I would like to remind you is that in the first quarter at the end of the quarter in the last week in March; we had a group of loans that totaling $77 million that prepay because they were getting over $100 million from another institution. And that led to $3.1 million prepayment penalty. So if that didn't happen in the first quarter then actually prepayment penalty income would have been slightly up.

Steven Alexopoulos - JPMorgan

Okay. That's actually a good data point. And final question, the taxi medallion business has been basically taking a beating with Huber and the Citi selling more medallions. What's your outlook for the business, are you tightening lending standards there slowing growth at all given what's going on with the collateral maybe you could just remind us what are the balance as loans against those type of collaterals? Thanks.

Eric Howell

We are certainly mindful of the environment and mindful of the competition we are taking that into account and our underwriting standards. We see New York has been a little bit more highly regulated, I mean Huber is regulated and we expect that Huber like institutions to be well-regulated here as well. So we see less risk in a New York area, but we are taking a step back in areas such as Chicago and waiting to see how regulations change there.

So we are taking a bit of a slowdown in certain other marketplaces. Overall taxi medallion business right now as a current book value about $717 million which is predominantly New York based. And we feel pretty comfortable with that New York business.

Steven Alexopoulos - JPMorgan

Okay. Thanks Eric. Thanks Joe. Appreciate all the color.

Joe DePaolo

Thank you, Steve.

Operator

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

Ken Zerbe - Morgan Stanley

Great. Thanks. Eric, you mentioned you extended the duration of your borrowings, the assured NIM guidance of flat to down a couple of basis points from here taking into account any additional changes to your liability structure?

Eric Howell

Yes. Maybe a little bit more extension there as borrowings come due we will look to continue to extend those Ken.

Ken Zerbe - Morgan Stanley

Got you. And when would you I guess is the vast majority of that done this year or just trying to get a sense of you say a slight extension, I guess sense of how much we are talking about?

Eric Howell

Well, I mean we have some coming due over the next couple of years and we are looking to go out, if they go out to 2, 3 years duration.

Ken Zerbe - Morgan Stanley

Okay. And have you guys seen any material change in the competitive environment just given where rates are, it seems just wondering if other banks are getting a little more competitive from here?

Joe DePaolo

Well, one of the things that we are seeing is a real competitive under pricing and that's one of the things that we are following very, very closely. We are seeing – we are doing to give you a data point, we are doing five year fixed multi-family at 3 and 3 eighths. And that we have held that pretty steady since ground, middle -- beginning to the middle of the first quarter.

And it's interesting that we are seeing some five year and some four year loans at some 3%. So we are doing 3 and 3 eighths and we are seeing some at sub-3%. We are seeing also some banks doing special as 4 years and even below 2 and 7 eighths. So you are seeing some under pricing there. We are also seeing more importantly dollars – more dollars, so on a refinance – we use the first quarter as an example where we are going to refinance a client out of group of loans in multiple buildings at $77 million in loans, we are going to refinance the amount at $89 million and they will refinance that at $100 million, which is pretty substantial difference between $189 million and $177 million which was refinanced out.

So we are seeing that as well and maybe the first time seem to be getting a little bit better standards are being a little more liberal. But, that's what we are seeing Ken.

Ken Zerbe - Morgan Stanley

All right. Great. Thank you.

Joe DePaolo

Thank you.

Operator

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

Timur Braziler - Deutsche Bank

Hi, good morning. This is actually Timur Braziler filling in for Dave. Sorry to keep beating a dead horse here but just following upon Casey's question on expenses, it looks like for the quarter was up 20% year-over-year, should we expect a similar run rate for the remainder of the year, would you expect to see that tick down a little bit?

Eric Howell

Yes, we expect it to be elevated for the remainder of this year and then take down in the following year.

Timur Braziler - Deutsche Bank

Okay, great. And then just switching over to the loan side, can you give us an update on the ABL team and just maybe what the total number of loans where at the end of the quarter?

Eric Howell

They had about $48 million in outstanding – I'm sorry in lines at the end of the quarter. So we are pleased with where they are given it's our first couple of quarters growth. And they have number of loans in the pipeline right now.

Timur Braziler - Deutsche Bank

Okay. What about outstanding balances?

Eric Howell

I don't have outstandings.

Timur Braziler - Deutsche Bank

Okay. And then just I guess a couple of modeling questions, securities premium amortization expense for the quarter, as they go to 16.2 last quarter, do you have that number?

Eric Howell

It was about the same this quarter.

Timur Braziler - Deutsche Bank

Okay. Okay. Thank you very much.

Eric Howell

Thank you.

Joe DePaolo

Great. Thank you.

Operator

Our next question comes from the line of Chris McGratty with KBW.

Chris McGratty - KBW

Good morning guys. Eric on the credit, you provided at a 20 basis point rate, I think last quarter was closer to 24, 25 obviously charge-offs were near zero, how shall we be thinking about the provisioning rate and kind of going forward given your growth outlook?

Eric Howell

I mean, we really like to maintain a fortress balance sheet, so we are going to continue to – I would expect to continue to over provide especially given the growth that we have had. But we have had some really exceptional credit quality and we are providing close to 1% on some very well-secured commercial real estate and multi-family lending. So ultimately, I would expect to see that the percentage – the allowance percentage to continue to trend down as we don't really foresee any credit issues on the horizon.

Chris McGratty - KBW

Okay. That's helpful. And one more on the prepayment penalty, I think you said it was 9 basis points in the quarter. If we kind of look out maybe over the next year or two, how should we be thinking about normalized level especially when kind of rates go up, obviously it will be some level of prepayments in a quarter, but are we going to go much lower than – 6, 7, 8 basis points, are this nothing about this right away?

Eric Howell

I mean I think ultimately we have been saying this for a while now Chris, we expect that prepayment penalty income is going to slow significantly. And if you haven't refi-ed by now must have your head in the sand. So but what we are seeing what's continued the prepayment is the fact that people are now prepaying to extend duration which is something that we didn't anticipate happening quite as much. So that way it will eventually end as well and as rates rise there will be little incentive to prepay other than to cash out which is always whereas owners improve the property values and improve the cash flows of their businesses. So that will continue, but it will lead to a far less number of prepay every quarter.

Chris McGratty - KBW

Understood. Just one last thing, I think in the back half of last year you had a couple of large transactions, can you talk about whether you are continuing to get looks on larger deals in the market and maybe how should be expect in the back half of the year do want to play out? Thanks.

Joe DePaolo

Yes. We are continuing to get some major looks at some deals and in fact during the second quarter we had a number of deals not nearly as large as the one from the other quarter. But let me give you an example.

We did a 14 loan package multiple buildings to $32 million. We did a 12 loan package multiple buildings, these were all multi-family by the way, its $39 million. We did a 12 loan multiple building package for $125 million and then we did 3 single loans each for 25, 53 and 35. So we are getting the opportunity and they were all multi-family accept 135 was an excuse.

We are coolly getting an opportunity to do more of not only single loans are being more than $25 million, but we are getting larger package opportunities more so than we had been let's say a year ago. I think that's testament to the group of commercial real estate team that is able to do it efficiently and get it done in an effective manner that allows the client to understand that they can get it closed within the timeframe that's necessary as this time of the essence.

So clearly that helps – we are still doing our standard $2 million and $3 million and $4 million loan closings and doing quite a bit of them, what's also driving the increase even further than where we have been of these opportunities to do larger deals.

Chris McGratty - KBW

Thanks a lot.

Operator

Our next question comes from the line of Matt Schultheis with Boenning & Scattergood.

Matt Schultheis - Boenning & Scattergood

Hi, guys.

Eric Howell

Good morning, Matt.

Joe DePaolo

Hey, Matt good morning.

Matt Schultheis - Boenning & Scattergood

I just wanted to get your take on the marine lending and see if this was driven mostly by the availability of the team or this was a function of – with macroeconomic developments and through the Ohio River region and traffic and the amount of traffic that's been done in this country right now, a combination of both and what your expansion plans are for that if there is some sort of competitive advantage that – with people say exiting the business is just going to be a line you can grow substantially?

Eric Howell

I mean really as is the case with most of our businesses this all starts with the people. And this again was that where we had an opportunity to bring on board gentleman who has 20 plus year experience in the commercial marine finance arena. So that's where really starting at a longstanding relationship with the people that are at the Signature Financial for us. And it really all started there. There is quite a bit of – I don't want to say appealable, but people coming in and going from that business it will create opportunities for us. But really all start with our opportunity to bring on board the gentleman who has the book of business and established representation.

Matt Schultheis - Boenning & Scattergood

Okay. Thank you.

Eric Howell

Thank you.

Joe DePaolo

Thanks Matt.

Operator

Our next question comes from the line of Peyton Green with Sterne, Agee.

Joe DePaolo

Peyton, good morning.

Peyton Green - Sterne, Agee

Good morning, Joe. I was wondering if you could talk a little bit about the moves that you are making from a balance sheet repricing perspective from the fourth quarter to the first quarter you became I guess you went from basically slightly liability sensitive to slightly asset sensitive. How does the interest rate risk profile look at the end of the second quarter?

Eric Howell

I think we are still slightly asset sensitive. We have shortened the duration a little bit on the securities portfolio. We have done more in Signature Finance which gives a shorter duration assets. We are really trying not to go out much more than five years on a commercial real estate and multifamily lending. So that's certainly helping. And we are raising core deposits which is really the key for us. And as always been the key but as we look to position for a rising rate environment we really want to be core deposit funded and we were able to do that again this quarter. So I think we are well-positioned for a rising rate environment, but we continue to look to extend the duration of our liabilities and our borrowings as they come due. And stay short on the asset side.

Peyton Green - Sterne, Agee

Okay. And then Joe, is there a point I mean the deposit growth certainly is extraordinary and has accelerated, is there a point in which you say okay, we are not going to play the repricing in term game that others have, I know you are not doing that now. But, is there a point in which the environment comes to problematic to play in the game and you just go back to kind of the old playbook and buy bonds with the excess deposit growth – extraordinary deposit growth that you are generating.

Joe DePaolo

Well, we have a lot of faith in our treasury group that should we have excess deposit and it's outgrowing the loan growth that we would have more opportunities to invest in bonds. But, we are trying to on the loan side with Eric just talking about the previous question about marine we are adding on – we added on the marine, we added on the franchise – Signature Financials is only here two and a half years, something Peyton that we talked about it in the past on the commercial real estate side doing some larger loans.

We actually from the first quarter through the second quarter on a comparative basis we have done five more loans in both $25 million. I think we have 32 loans above $25 million, we are getting opportunities to do larger loans and larger loan packages so that we hope that our lending and our deposit growth stay neck and neck with the differential being growth in the bond portfolio if need be. We always feel we need a certain amount of the investment portfolio to be there for liquidity purposes.

Peyton Green - Sterne, Agee

Sure. No, I guess and looking at the quarterly numbers mean, if we are modeling around a $1 billion for each category and certainly the loan number – the average loan number increased about $1.1 billion, the linked quarter of average deposit growth of $1.3 billion that just seems truly extraordinary but seems very well intended on your part. So I mean that could very much keep a very strong earning asset growth rate regardless of what the loan environment is like, is that fair enough? Thanks.

Joe DePaolo

That's fair. And it's also good to be lucky.

Peyton Green - Sterne, Agee

Okay, great. Maybe…

Joe DePaolo

If you look at it – it came out almost perfectly. And we look for it to happen every quarter and have that similar growth. In fact, if you look over the last four quarters, deposit growth and loan growth is almost exactly the same over the last four quarters. In fact, deposit growth was $4.5 billion over four quarters and loan growth was I believe $4.4 billion over four quarters. So it's hard to continue that match but we are certainly going to try.

Peyton Green - Sterne, Agee

Okay, great. And then kind of strategically, I mean do you see any other avenues certainly the growth in Signature Finance has been great. But, do you see anything that you are not doing today that maybe with the capital that you now have in pocket and kind of with the recognition that you have all gotten and your reputation. Has it opened you up to any more opportunities that could maybe keep the growth rate at this extraordinary rate easier than maybe what it would have seemed?

Joe DePaolo

Well, one area that we can do more business is in, x Signature Financial because that's included in the C&I and doing more C&I. I think that area it has – it's a little tougher because with the commercial real estate you have a number of players making it very competitive. With C&I you don't have just a number of competitors, you have all competitors. It seems like everyone is in the C&I business and that include all the too big to fail institutions that are driving the pricing there pretty low. When you talk about LIBOR based loans which will – that we participate part in and we will gladly take floaters and take – and sacrifice the NIM to have some slowness for asset liability purposes not when that LIBOR plus 100 or LIBOR plus 1 in a quarter or LIBOR plus 150. And that certainly is difficult to swallow. But the C&I area is one area where we have another avenue to growth.

Peyton Green - Sterne, Agee

Great. Thank you very much Joe.

Joe DePaolo

Thank you, Peyton.

Operator

There appear to be no further questions at this time. I would now like to turn the floor back over to Joe DePaolo for any additional or closing remarks.

Joe DePaolo

Well, 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. Jackie, I will turn it back to you.

Operator

This does conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID 70924569. 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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Source: Signature's (SBNY) CEO Joe DePaolo on Q2 2014 Results - Earnings Call Transcript
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