Signature Bank

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

Please go ahead, Susan.

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.

Forward-looking statements include information concerning our future results, interest rates, the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings and business strategy. These statements often include words such as may, believe, expect, anticipate, intend, plan, estimate and 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.

one, prevailing economic conditions; two, changes in interest rates, loan demand, real estate values and competition, any of which can materially affect origination levels and gain-on-sale results in our business, as well as other aspects of our financial performance including earnings on interest-bearing assets; three, the level of defaults, losses and prepayments on loans made by us, whether held in portfolio or sold in the whole loan secondary markets, which can materially affect charge-off levels and required credit-loss reserve levels; four, changes in the banking and other financial services regulatory environment; and five, competition for qualified personnel and desirable office location. Additional risks are described in our quarterly and annual report filed with the FDIC.

You should keep in mind that any forward-looking statements made by Signature Bank speak only on 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 call or elsewhere might not reflect actual results.

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

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 performance in greater detail.

Eric and I will address your questions at the end of our remarks.

We started 2012 on a solid note with record deposit growth, record loan growth and our 10th consecutive quarter of record net income while maintaining our strong credit quality position. Moreover, we're excited to have launched Signature Financial, which will diversify our revenue streams and broaden our asset deployment.

Let's discuss earnings. Net income for the 2012 first quarter reached a record $42.4 million, or $0.90 diluted earnings per share, an increase of $7.8 million or 22.5% compared with $34.6 million or $0.82 diluted earnings per share reported in the same period last year.

The considerable improvement in net income is mainly the result of an increase in net interest income driven by continued core deposit and loan growth. These factors were partially offset by a decrease in noninterest income from the 2011 first quarter gain on sale of an SBA interest-only strip security and an increase in noninterest expense.

Looking at deposits. Deposits increased a record $750 million to $12.5 billion this quarter.

In the past 12 months, since March 31, 2011, deposits have increased $2.3 billion or 23%. Average deposits in the first quarter were $12.3 billion, up $2.4 billion or 25% compared with $9.8 billion from the 2011 first quarter.

Noninterest-bearing deposits of $3.33 billion represented 27% of total deposits. With our considerable deposit growth, total assets reached $15.3 billion, an increase of $2.9 billion or 23% versus last year's first quarter.

Now let's take a look at loans. Loans during the 2012 first quarter reached $7.4 billion, up a record $512 million or 7.5%, representing 48% of total assets at quarter end.

In the past 12 months, loans have increased $1.7 billion or 31%. The increase in loans was mostly due to growth in commercial real estate in multifamily loans with continued conservative underwriting standards.

Non-accrual loans declined to $35.5 million, or 0.48% of total loans in the quarter compared with $42.2 million or 0.62% from the 2011 fourth quarter and $39 million or 0.69% for the 2011 first quarter.

The allowance for loan losses was 1.25% of the loans versus 1.26% in the 2011 fourth quarter and 1.30% from the 2011 first quarter. Additionally, the coverage ratio or the ratio of allowance for loan losses to non-accrual loans further improved to 259%.

The provision for loan losses for the 2012 first quarter was $10.7 million compared with $14.6 million for the 2011 fourth quarter and $12.3 million for the 2011 first quarter.

Net charge-offs for the first quarter of 2012 were $5 million or an annualized 29 basis points versus $11.9 million or 71 basis points for the 2011 fourth quarter and $6.5 million or 49 basis points for the 2011 first quarter.

Now turning to past due loans and the watchlist. During the 2012 first quarter, our 30 to 89-day past due loans remained stable at $57.1 million.

The 90-day-plus past due category increased $24.5 million to $34.8 million due to one client experiencing issues that owns 5 properties totaling $23.5 million. We are well secured in these loans and we expect the loans to be satisfied in the next several weeks.

Watchlist credit decreased this quarter by $5.8 million to $215.4 million or 2.92% of total loans.

While we are pleased our non-accrual and watchlist loans decreased this quarter and our credit metrics remained strong, we are mindful of the uncertainty in the economic environment and we again, conservatively reserved.

Just to review teams for a moment. Two private client banking teams and 3 group directors joined during the 2012 first quarter.

We also expanded one team during the quarter. One of the 2 new teams will be based in the soon-to-open Hauppauge office.

Similar to the hiring of our large successful commercial real estate banking team in the fourth quarter of 2007, we attracted another large group of financial professionals with primarily North Fork Bank roots. This group will lead our specialty finance initiatives with the launch of Signature Financial.

The management group possesses more than 175 years of combined experience in specialty finance and have worked together for nearly 25 years.

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

Thank you, Joe, and good morning, everyone. I'll start by reviewing net interest income and margin.

Net interest income for the first quarter reached $126.8 million, up $23.1 million or 22% when compared with the 2011 first quarter and an increase of 1% or $1.5 million from the 2011 fourth quarter.

Net interest margin was down 9 basis points in the quarter versus the comparable period a year ago and decreased 5 basis points on a linked-quarter basis to 3.5%. The linked-quarter decrease is mostly due to a $940,000 decrease in prepayment penalty income.

When you exclude prepayment penalty income from the 2011 fourth quarter and the 2012 first quarter, core net interest margin for the linked-quarter decreased 2 basis points to 3.44% compared to 3.46%. The decrease in core margins was mitigated by loan growth and a further reduction in our deposit costs.

Let's look at asset yields and funding costs for a moment. Overall, interest-earning asset yields declined 8 basis points this quarter to 4.3% due to the continued low interest rate environment and a decrease of $940,000 in prepayment penalty income on loans.

Given the continued low interest rate market and tighter spreads, coupled with strong loan growth, we were more selective in securities deployment. As a result, yields on investment securities declined 11 basis points to 3.5%, and that the ratio remains stable at 3.09 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages declined 16 basis points to 5.21% compared with the fourth quarter of 2011.

Excluding prepayment penalties from both quarters, yields would have declined 9 basis points.

Now looking at liabilities. Money market deposit costs this quarter further declined to 4 basis points to 94 basis points, as we again decreased deposit costs given the low interest rate environment.

This decrease, coupled with an increase of $230 million or 8% in average non-interest-bearing deposits helped lead to a decline of 4 basis points in our overall deposit costs.

Onto noninterest income and expense. Noninterest income for the 2012 first quarter was $9.1 million, a decrease of $6 million when compared with the 2011 first quarter.

The decrease was driven by $5.3 million gain on sale of an SBA interest-only strip security in the 2011 first quarter.

Noninterest expense for the first quarter of 2012 was $50.4 million versus $44.7 million for the same period a year ago. The $5.7 million or 13% increase was principally due to the addition of new private client banking teams.

The bank's efficiency ratio improved to 37.1% for the 2012 first quarter compared with 37.6% for the same quarter last year. Excluding the gain on sale of the SBA interest-only strip security in the 2011 first quarter, the efficiency ratio was 39.4%.

The improvement was primarily due to growth in net interest income, coupled with expense containment.

Turning to capital. Our capital levels remain strong with a tangible common equity ratio of 9.58%, Tier 1 risk-based of 16.86%, total risk-based ratio of 17.96% and leveraged capital ratio of 9.62%, as of the 2012 first quarter.

Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet.

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

Thanks, Eric. Signature Bank had another successful quarter, with record growth and record earnings.

We continue to position the bank for future success with a long-term view as evidenced by a substantial investment in the specialty finance arena, while striving to deliver steady quarterly improvements in our results. Now we are happy to answer any questions you might have.

Alicia, I'll turn it over to you.

I was hoping if you could first maybe talk about the -- with the new equipment finance group, the loan growth expectations or goals, just get some color around what you expect in terms of loan growth, once they're fully up and ramped? And then when that actually happens, will they be fully running in the second quarter here?

Or is it more of a back half of the year event?

Well, we like to see what happens over the first several quarters before we give you some guidance on the growth itself. But I will tell you already in the month of April through the 20th of April, so last Friday, we hit the ground running and we already have $20 million or so in loans outstanding.

So the team that came on board towards the end of March has already started to generate business.

Okay. And is that closed loans?

Or is that loans that are in the pipeline?

That's closed loans funded and outstanding.

Great. And then could you, sort of on the other side of that, talk about the expense expectations for this new team and how it maybe changes expense guidance you all have given in the past?

Yes, Bob, we had guided to 12% to 15% year-over-year growth and expenses. We expect with the additions of these new teams that, that'll jump up to 20% to 25% for the remainder of 2012.

And then we'll see that go back down to a 10% to 15% range in 2013.

This follows along the lines of our beliefs that it's always better to go out and seek and lift out the best management people and their personnel as opposed to going out and buying something. This is a cleaner.

This is cleaner for Signature Bank. It's cleaner for our investors to look at the situation.

There's no goodwill. There's no intangible asset.

We look at it as no different than what we've been doing for 11 years which is really going out and finding teams. This is just a little bit more in terms of size than what we would normally do for a team.

But looking back in 2009, when we hired 13 teams, that was spread out throughout the year. This is concentrated in one fell swoop.

So again, it's not any different than what we've been doing for the last 11 years.

Okay. And with those hires and the increase in expenses, is that all fully going to be in the second quarter?

Or does the timing of hires -- I mean, you see some of it in the second and some in the third?

Yes. We expect to have people joining throughout the course of the year.

But most of them have been brought on board the second quarter, first, the last part of the first and second quarter.

And then could you remind me how many people in total you anticipate this group adds?

Probably close to 50 in total.

I wanted to start, with the earning asset yields down around 30 basis points over the past year, is this a good proxy of what we should expect looking forward over the next year?

Yes, if you assume the interest rate environment is going to stay where it has, which is a pretty fair assumption. I would expect it to be similar trends.

Eric, when we think about core margin, are there any offsets of that, that we should be thinking about? Or should we just be bracing for core margin pressure through the rest of the year?

Listen, our ability to generate loans, it's certainly beneficial for us, as well as our ability to continue to lower deposit costs. And certainly the recent initiatives in lending are going to be helpful to the margin.

But I would expect, given the low interest rate environment that we'll be able to maintain or see a similar couple of basis point decline over the next several quarters.

Yes. To add to that, I think a couple of things.

One, on the cost of deposits, on the interest-bearing money market side, we continue to decrease that every quarter. In the fourth quarter, it was 98 basis points.

In the first quarter, it was 94 basis points. If you had to characterize that, we're disappointed that we didn't get that lower to maybe 5 or 6 basis points, as opposed to a 4-basis-point decrease, but the expectation is that, that 94 basis points in the second quarter will be under 90 basis points.

And then in the third quarter, an additional drop. So one of the offsets is clearly our ability to slowly or gradually decrease the cost of deposits.

And then on the asset side, our balance sheet is 48% in loans. With what's going on, on the C&I side, where we have activity, and by adding on an additional team, by bringing on the Signature Financial group and the continued excellent job done in the commercial real estate area, that 48% is going to 49%, 50%, 51% and 52%.

So I think that growth, the transformation of the balance sheet and our ability to drop interest rates where some of our competitors, who are already at rock-bottom with their interest rates, are -- bodes well for us to at least, if not increase margin, but certainly temper any of the compression that will continue to happen.

That's helpful. I wanted to follow-up on the teams.

Eric, given the 20%, 25% expense build this year, does that mean you would put additional team hires essentially on hold through 2013?

Well, one interesting thing is, we kind of never put things on hold. If an opportunity presents itself, usually when it presents itself, you get one chance.

And you don't miss that chance because you won't get it again. So what's happened in the last several years, we've actually had teams looking for us, where in the past, it was us looking for teams.

So we will certainly capitalize on the opportunity. And if anybody's out there listening, they have a great team, we'd certainly want to bring them on board.

But Steve, if we didn't hire another team this year, we would be fine with all the potential we have, not only with the existing teams that we have, but also with the new business that we've brought on board.

Okay. Joe, I just want to follow-up on that.

Given how many teams you've hired over the past 3 years, is there any way to separate out the number of teams that are running at full capacity versus maybe the number that are still ramping?

That's a great question. I don't have it off my fingertips.

But we do look at the teams by, this sounds funny, by vintage, by year, 2001 to 2011. And I can tell you that most of the teams that we brought on in 2011 clearly are in a mode of just starting up.

And so, there's an opportunity with those 7 teams. In 2010 and prior, I would say most of those teams are running fairly evenly.

So I don't know, I guess maybe 10 or so, let's say, probably in the early stages.

My first question was a follow-up to Bob's. And I appreciate that it's too early to give us better guidance, and I also appreciate that there's a timing and magnitude issue in terms of bringing this book over.

But could you give us a sense of how big the book of business was of the specialty finance team that's going to comprise this Signature Financial at their old employer?

Sure. When they left their previous employer, their outstandings were slightly above $4.5 billion.

Got it. And how does the yield on the specialty finance book compare relative to your -- the yields on your core business?

I would say that they are about 4.25 or so with terms around 3 or 3-plus years, 3 or 4 years I would say on average. That's what we're seeing.

I mean, it could be a wide range on the taxi medallion business. We'll see yields at about 3.75.

And then we'll see them go up to high 4s or low 5s. So this is a good mix because you have commercial real estate at 5-year fixed.

You have the C&I business, which is primarily floating rate, and then you have this business, which is fixed, but with a much shorter term. So there's are a lot of cash flow that comes off.

And the term is amortized. For most of the loans, the term is amortized over that short period.

So if you have a 5-year fixed in commercial real estate, you're amortizing in over 25 years. If you have a 5-year or 4-year fixed in the specialty finance, you're amortizing it over the 4-year or 5-year term.

Got it. And I'm probably going to butcher the name of the town, but in terms of your new office in Hauppauge, is that a team that reassigned that you already had within the organization or is that a new team that you hired?

Well, that's -- we hired 2 new teams in -- one in Manhattan and one from Long Island in the first quarter. And the team that we hired in Long Island is working temporarily in our Melville office, and they will be the team that heads up the office in the Hauppauge.

It's a new team. It's a fairly large middle market team that we hired from HSBC.

And in terms of their book of business at their old employers, could you give us a sense of the size of that as well?

It was -- that's a little bit harder, but it was fairly substantial. It was, let's just say it was in the hundreds of millions.

Can you just quickly update us on the pricing trends of multifamily and CRE and just give some color on any changes you're seeing in the competitive landscape there?

Sure. On the 5-year fixed, in the fourth quarter, we were at 4 1/2%.

In the first quarter and currently on 5-year fixed we're at 4 1/4%. And we also have, and what we call a step-up loan, where it's fixed for 3 years, then the second tranche is fixed for a higher 3-years, for a higher rate for the second 3 years, and then for the third 3 years at a higher rate.

That initial rate is 4%, and then it goes up to let's say 4 5/8%, so 4 3/4%, and then 5 1/4% or 5 3/8%. That's a step up, so the initial rate is 4%.

If a client wants to get out of that, there's prepayment penalties associated with it, and then 4 1/4% on the standard 5-year fixed. Now that may sound higher than our competitors than it has been.

We've heard competitors add sub-4% and even one competitor at the mid-3s, which is simply not doing those at that pricing. And our pipeline for the first quarter was fairly strong, and it continues into the second quarter.

Great. And then CRE, I guess, would be 50 bps wider than that 4 1/4%?

Yes, approximately 50 bps. Yes, that's good range.

And you talked about money market rates dropping to potentially below 90 basis points. So do you have a sense for where they are now in April and where the competition is?

I guess, Cap One is -- has always been one of the more aggressive pricers in that arena? Maybe talk about some of the trends you're seeing there, too?

We're seeing that with the larger -- it's hard, because when you look at the larger banks, you see a cost of deposit that's far lower than ours. But yet, they have a significant retail component, and that retail component really drives down the rates because a client or a customer, let's say, that deposits $1,000 is different from a client who deposits $3 million and commands a higher rate.

So we're seeing that you can probably bring in deposits and we're trying to get that down to somewhere in the 75 to 85 basis point range at some point. But that's what we're seeing on the larger competitors, that they're paying 75 or so basis points.

You just don't see that come through in their statistics cause they have so many in the retail world. But I always argue this, we don't have a retail business.

But that means we don't have the cost of advertising. We don't have the cost of marketing, and we don't have the heavy cost of retail branches.

So some of the cost that we have is in the interest rate but it brings in a higher level of client, and hence, our efficiency ratio is lower than most of our competitors, far lower.

So I mean it sounds like though, if competitors with 75 basis points. You still have a lot of room to move those down even if you're going to price a little bit higher than that, right?

Yes. That's why I believe in the next quarter, we should be able to get it below 90, and then in the third quarter.

So there's still room in the next several quarters to continue to bring that down.

Just a couple of questions on the loan growth. Obviously, it sounds pretty constructive, but you guys are coming off a pretty strong quarter with 7% loan growth.

So I'm just wondering, how does the pipeline stand today relative to year end? And how much of C&I was a contribution this quarter?

The C&I was flat from the first quarter. But the pipeline that we're seeing in C&I is strong.

The pipeline that we're seeing in CRE is similar to the first quarter. And then we have this other leg now that was 0 in the first quarter, which is the specialty finance.

So although we're not giving you numbers, we're giving you some guidance that there's some strong loan growth in the pipeline.

Okay. And then just switching to credit, obviously, a much better result this quarter, provision down, charge-offs down.

As we look forward, the metrics look pretty pristine. How sustainable is this going forward?

It's kind of hard to say that non-accruals will get any lower. But I would say from the provision perspective, somewhere in the $10 million range is what we're looking at on a quarterly basis.

Particularly if what I said just a few moments ago about the pipeline of loans, although they'll be strong rated credit loans, you will build your provision as your loan growth increases. So the projection that you could use for the provision is probably somewhere with what we had this quarter, is in the first quarter.

Charge-offs is -- it's harder -- more harder to predict.

Okay. I mean in the past, I know you guys talked about charge-offs being driven a lot by the -- some of the later vintages within C&I.

Are you starting to see that sort of ease off? Is that why we had this pretty good quarter?

I would say that I would use your term. Yes, I would say ease off is probably a great way to characterize it.

If I go back to my notes from these calls 3, 4 years ago, a big theme was the Bank of Americas, Citigroups of the world losing money, question marks over capital, and Signature was really able to highlight the strength of their balance sheet quarter-after-quarter of grow market share. And at least on paper today, the big banks are making money.

There's less concerns over capital. And I'm just wondering how does that impact your ability to grow and really differentiate Signature from the larger banks because you're really focused maybe more on service versus strength of the balance sheet?

And how do you -- or are you facing situations where certain customers now are maybe willing to leave Signature to go back to those big banks simply because they're looking at those banks differently today?

I will tell you for our benefit and all the benefit of everybody that works here in Signature, whether the banks have -- the bigger banks have a stronger balance sheet or as you said several years ago, they were in worse off position, they still have a diminution in service. And so they haven't changed their stripes so to speak.

We certainly are keeping our capital levels high so that we can compete at least from a balance sheet perspective. If that goes away, the fact that there are trillion-dollar institutions, at $15 billion we're well-capitalized to take that off the table.

Our nimbleness in our ability to service the client are -- far exceeds what they're doing. So we haven't seen a slowdown in business because of that.

I think what you do is you look at the circumstances and you work with those circumstances. And the fact that we can't say that the big banks are having problems.

They're still focused on some of their problems because they still don't know what's all happening with how much do they truly have in problem key locks [ph]. How many more lawsuits can they endure?

So there's still some of that even though they are much stronger than they were several years ago. We need a little of that to our advantage, but it's really gone from a balance sheet story to more of a servicing story.

And although the servicing has always been our niche, we're playing that up a little bit more now.

Eric, you mentioned that you're becoming more selective on securities. Can you give some color on what you're adding to the balance sheet and what yields those are providing and what you're avoiding?

The yields that we've been adding are in the low 3s. We've really been adding government CMOs, CMBS, AAA rated CMBS, and corporate debt.

Okay, great. And one question on compensation expenses in the quarter, which were maybe a touch higher than expected.

I'm guessing some of that's related to seasonality. But were there any comp costs related to the specialty finance built out in Q1?

Yes, there were comp cost related to the new groups.

Can you articulate how much that was?

It was approximately a penny, to a penny and half in expense.

Should we expect to see any fee income growth related to the new lending products?

We should, David, but we'll get more of the income coming down the line a couple of years out. But there will be some fee income growth early.

Okay. And then your market rates for the multifamily and CRE products are 75 to maybe 100 basis points in some cases below where you are.

Given that you got the diversified opportunity going forward, should we see some of that CRE growth slow? Are you less likely to lower your rates from where they are today?

We love the product. I think that what differentiates us is several things.

One, we keep the loans on our books, and that is a big competitive advantage where they know that we will not sell the loan. The only time we sell the loan is if there's an issue with the client and we find someone out there who wants the property, and in all likelihood buys the loan at par.

That's a big competitive advantage in that they know we won't sell. Another one is, and it plays off this, is that we close our loans in 45 days.

If we give you a rate in the term sheet and you sign it. That's the rate, so you don't have to worry about, is the rate going to change 5 days prior to closing or 5 business days prior to closing?

They know that one, the rate stays and two, that we will close in 45 days, so there is an efficiency aspect to it. The third, which is again plays off the first part, is the fact that we keep the loan.

They know that when they improve the cash flow or there's an issue that they'll be speaking to the team that actually made the loan. And if they want to refinance, and they keep the loan with us, they know that there's bit of likelihood that there'll be a discount on the prepayment penalty.

Now that allows us a competitive advantage. I think some of the differential, let's say 75 to 100 basis points, is that there's a player out there, a bank out there that is just -- has priced themselves irrationally, and we certainly don't worry about them because they're going to have their own issues when rates change, when they have loans that are just 50 or so basis points below where they should be, and they're building volume.

The one thing that our clients worry about is, is that bank going to be around because they need somebody to speak to. And they don't need to have their loans purchased by someone that they don't want to speak to.

So I think there's a lot of advantages for us. And so because of that, as the differential in rates, because of this one particular bank has grown, our pipeline still is as strong as it's ever been.

I think you all alluded to this earlier, but with -- it would seem to me that you could possibly ratchet down your cost of money market funds, maybe use a little wholesale borrowing and offset all the dilution associated with the teams that you hired early in 2Q. Does that become more of a potential reality given the lack of leverage on your balance sheet?

Absolutely. I mean, we don't stop the teams from growing their deposit business.

But the deposit growth slowed down a bit and the loan side continued to grow as we have had in the first quarter. That would certainly bode well for the margin.

Although we don't prevent our teams from bringing on new relationships, but with the new relationships, they're going to be brought on at rates at least 10 or to 15 basis points less than where they are today. So if it's a new relationship, they're not going to be getting something at the 90 basis point level.

They're going to be getting something of the 75-basis-point level. If they don't bring in the 75-basis-point level, they won't have the short-term borrowings to support the growth on the loan side.

Okay. And then I guess, I mean that's still a pretty solid premium, I guess, versus the industry cost of deposits, which I know is not necessarily comparable for the types of business that you go after.

But just wondered if there was -- it just might strategically make a little more sense to lay off the deposit growth a little bit on the interest-bearing side in the short run and fund it overnight and get the leverage sooner rather than later?

You don't get many chances to bring over quality clients, premium clients, and the fact that they may be getting today 85 basis points or 75 basis points at another institution, and you have a chance to bring over their operating accounts. Remember, our total cost of deposits will be below 70 basis points for the second quarter.

You don't pass up that opportunity. We're building for the future.

It's our franchise. What you're seeing more so, Peyton, is that if we had a retail franchise and said, okay, let's stop marketing for the next month.

Let's stop advertising. Don't put signs in the window for CD rates.

You can kind of turn off that spigot. But with the teams and the quality clients and our franchise building as they do, you're going to always season up to them [ph] to bring on those quality clients, albeit though as I said, we'll bring them on at a 75 basis points or so.

We're not going to be paying the 90 basis points that they will be getting today on the money market, and again, that will be driven down. So that's the difference.

Okay. And then last question.

I mean, there are -- this was the strongest dollar volume growth quarter for Signature in terms of deposits and loans. And just wondering maybe if you could characterize.

I mean, how you feel about the future? Because it's -- I mean, certainly the hiring has been fairly consistent, but it just seems like it keeps getting better and better?

I don't know how you cannot be excited about the future. One, we have 80 great teams.

We have incredible employees that support those 80 great teams. We added another leg to our stool on the asset side of lending.

We continue to be able to attract some of the best bankers out there. And the teams that joined us in 2001 and all the way through have continued to produce.

And then you have the support areas and the operating areas that we're very -- we just came off of a full-scope Safety & Soundness exam. And you see no difference in our results for this quarter as a result of that.

So things bode well. It's very, very exciting to be at Signature Bank.

I just kind of want to get a sense for sort of the dynamics here with the new specialty finance buildout. I know you guys upped the expense guidance number, but I assume there should be some revenue offset there as well.

It's not just going to be sort of all the expenses come on and then we get a benefit sometime in '13. There should be some associated revenue benefit as the year progresses as well, correct?

from the asset growth?

Well, you know how we are, Tom. We always talk about the most conservative viewpoint is absolutely going to be revenue.

We expect the breakeven for the 18 months. In fact, I alluded to earlier, we've already had $20 million in loan outstandings through April 20.

So that's certainly starting to generate revenue. So yes, there will be a revenue component.

And clearly Eric was giving the -- we were giving the expense side of it. We didn't give you the revenue side, but it bodes well for everyone to build in some revenue.

It's kind of hard to tell -- for us to tell you what that should be right at the moment, but we expect in an 18-month period to be at breakeven.

Okay. Now that makes sense.

Okay. So then if I'm thinking about it sort of across a little bit of pressure on the efficiency ratio as these teams come on, but then it should start to work its way back down middle of next year, is that a fair way to think about it being conservative?

Yes, Tom.

But then, without all the headaches of doing the acquisition.

The next person is from the line of Lana Chan with BMO Capital Markets.

Just one question on the comment you made about, Joe, about the pipeline on the C&I side being strong going into the second quarter. Could you give us more color on that?

Are you seeing increased confidence from your small businesses in terms of investing?

Well, I said it because of the number of deals we've been seeing. I mean, I'm using real evidence of opportunities that we have gotten, not only from the new team that we brought on, which has a number of term sheets out there and deals that will be done, but from the existing teams.

We've had some opportunities over the last several months. And so the pipeline itself is actually strong.

When that -- when those deals close, whether it's the second or third quarter, sometimes it's hard to say. But we feel pretty good about what we're seeing.

I'm not characterizing it whether there's more confidence in the small businesses or not. It's just the actual deals that we're seeing going on.

And the pricing on those types of deals?

Not as much as we would like. We're trying hard on -- to do prime based.

But you know what, there are some LIBOR-based with spreads that are somewhat reasonable. Particularly, since we're seeing 3 and 4 rating credits.

We understand that on the floaters in the short term, the spreads are not going to be where you want them to be because of where LIBOR is today. But it's good for asset liability and good for us to have more loans and to have some floaters to offset some of the fixed that we have on the books.

Okay. And just one more question as you're going into some of the specialty finance businesses.

I know that there's been some other banks that have bought portfolios that have been up for sale. Is that something that you guys will look at, too if the opportunity came up?

I think we'll participate in some things, but we don't necessarily look at them to being -- to buying portfolios. We just, the team that we brought on board is going to bring on their own quality loans and we'll do some participations possibly with capital markets, but we don't see us buying anything.

On that specialty finance loan yield you gave at their former shop, the 4.25 yield, can you give us a little bit of color? Are you seeing some pricing pressure there that you would expect as these loans come on?

I'm just trying to get an idea of what you're seeing in terms of where these yields can come in at? Clearly a lot of other banks are pushing in spec lending right now pretty aggressively.

So in addition to bringing people over and bringing these relationships over, I got to assume that you're also seeing -- you're going to see some core loan pricing pressure on that new portfolio as well?

The yields that I had given were yields on the loans that we're doing today. And we suspect that we, although there may be some pressure, what I had been giving is actually not what they had at their previous institution.

It was based upon the $20 million or so that we closed already.

Okay. All right.

And then do you have what the -- I guess, what the -- you gave the balance of what it was at the former institution, but I guess you wouldn't have -- in terms of what it was yielding? Or just trying to get an idea about the pricing of the impact of these loans coming over to your books?

No, that would be hard to do. We just knew what they had outstanding based upon some of the public information that was out there.

And we try to shy away from looking, getting into anything that's confidential from the previous employer. We really looked at the type of business that they do, the type of the clients that they had.

We actually spoke to some investment bankers out there about -- that we wanted to get into this business, who are the best ones out there that we should be speaking to. We did our due diligence.

And from there, we found someone that found us as well.

Okay, great. That's helpful.

And then on C&I again, can you quantify what the -- what your line utilization was for the quarter?

Yes. Utilization actually went down a little bit during the quarter, John, to 46% at -- during March.

And is that a function of the denominator?

Probably not, I mean because we're pretty flat.

Commitments were flat?

Right.

Just a question on the finance business. You guys obviously in the history of the company have tended to focus on, call it deposit-rich verticals.

What's your kind of sense of that customer base? I would think it'd be more just generally asset driven than liability driven?

Is that fair?

That's a fair assessment. With some of the business that we'll do in New York, particularly on medallion and taxi business, there'll be some opportunities to bring in deposits.

We have talked to Signature Financial group and said that we would be active if there's an opportunity to bring in deposits on any of their clients, but it's -- you have a correct assessment, it's more credit driven or has been.

Yes. So how do you incent those folks again, versus vis-a-vis traditional businesses where you guys have incented obviously heavily on the deposit side?

It won't be any different than the way we have it today. The today's models of -- are really driven by a P&L.

And this will be driven by a P&L, which includes credit quality because if there's a deterioration in the credit and there is any charge-offs, that's part of the P&L model. So fundamentally, it's not very different.

Yes, okay. And any -- I didn't see it in the press release, I don't think, other than you guys calling out the taxi and medallion business, can you just give us some sense of the big buckets of types of stuff they do?

Yes, they do indirect vehicle, indirect equipment, direct equipment and then the taxi business.

Great. Now thank you for joining us today.

We appreciate your interest in Signature Bank. As always, we look forward to keeping you apprised of our developments.

And Alicia, I'll turn it back to you to close it up.