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Signature misses on taxi provisioning, ramps up hiring for CRE, $50B compliance


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Signature misses on taxi provisioning, ramps up hiring for CRE, $50B compliance

faced of questions surrounding itstaxi medallion portfolioafter a provision for Chicago taxi loans led the company's second-quarter earningsto miss several analysts' estimates.

Signature'sprovision for loan losses for the quarter was $33.3 million, compared to$19.8 million for the prior quarter and $9.0 million for the same quarter a yearago. The increase was primarily due to $37 million in additional reserves for Chicagotaxi medallion loans, bringing the total reserves to $46.6 million for that book,or 30% of its Chicago taxi medallion loans.

In New York, the company increased its reserves on taxi medallionloans by $7 million. These increases were offset by lower provisions in the multifamilyand commercial real estate areas.

"The Chicago taxi portfolio has been a risk for a whilenow, but we remain cognizant of its small size," Raymond James analyst DavidLong wrote in a note before the call, adding that the portfolio represented lessthan 1% of Signature's loans.

The provision was based on updated models put in place duringthe company's stress-testing process, said Eric Howell, head of corporate development,on the company's earnings call.

But the book is not up for sale, despite the significant reserve."No, we don't think it's at a point where we could sell it," Presidentand CEO Joseph DePaolo said.

The NewYork-based bank reported second-quarter net income of $102.2 million, or$1.90 per share, up 13% from $90.5 million, or $1.77 per share, in the second quarterof 2015. Its net interest margin of 3.19% was 8 basis points lower than in the secondquarter of 2015, on a tax-equivalent basis.

On the expense front, DePaolo said Signature expects an increasein overall expenses of 10% to 15% in the third and fourth quarters over the prior-yearperiods. One cause is an increase in risk-management personnel regarding Signature'stypically high concentration of CRE loans and the possibility of breaching the $50billion asset mark in the next several years, both of which cause heightened regulatoryscrutiny on banks.

"We have the people in place, which is supplementing whatwe're already doing," DePaolo said. "So, think of it that way — that wehave a portfolio management practice that was supplemented and that they're askingfor extra safeguards, which we agree with. As you have a higher CRE concentration,we have a responsibility to have extra safeguards."

The bank'sstock declined more than 7% during early morning trading. As of 12:33 p.m. ET, itwas down 4.77% to $123.75.