Q3 2020 Signature Bank Earnings Call
Welcome to signature bank's Twentytwenty third quarter results conference call host.
Hosting the call today from signature Bank are Joseph J., Depaolo, President and Chief Executive Officer, and Eric or how old senior Executive Vice President corporate and business development to date.
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It is now my pleasure to turn the floor over to Joseph J., Depaolo, President and Chief Executive Officer, you may begin.
Thank you Stephanie.
Good morning, and thank you for joining us today for the signature bank 2023rd quarter results Conference call.
Before I begin my formal remarks, Susan Lewis will read the forward looking disclaimer.
Please go ahead Sir.
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 <unk>.
Operations and business environment, all of which are difficult to predict and maybe beyond our control forward.
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 business strategy and the impact of the COVID-19 pandemic on each of the four going in on our business overall.
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.
Thank you Susan I will provide some overview into the quarterly results and then Eric how senior executive Vice President of corporate and business development.
Banks financial performance in greater detail.
And I will address your questions at the end about remarks.
Signature bank continues to experience extraordinary growth.
On the contrary, we tried to do in challenging recovery from the COVID-19 pandemic.
Our business philosophy on my client centric single point of contact model.
By expanding school directors continues to distinguish us, particularly in times of stress.
We've been too many challenging times, including the great recession and more challenges we're expecting to call.
We did not know when we're in what form what we.
No it was important to be better diversified.
As expected the performance of our staff, whose teams coupled with a new initiatives are performing remarkably well and will enable us to continue to deliver solid results going during these unsettling times.
Deposit growth, which we.
Which was up 1.1 billion in the quarter.
The gang my boss and driven by all our deposit gathering in Michigan.
Also we had another quarter of strong loan growth, which increased by 1 billion and the banks pre tax.
It would be an earnings grew by 44 million or 21%.
And with the 2019 going quarter, but.
Additionally, we were able to dramatically reduce loans into fall from a peak of 11.1 billion or 25% of total loans.
2.3 billion or 5% total loans.
So now with people who would be learnings.
The tax pre provision earnings in 2023rd quarter with 252.4 million compared with 208.4, 2013, 2019 third quarter excuse me.
The increase of 44 million or 21% was gone.
Predominantly driven by substantial asset growth of 40.4 million.
Well upset by the investments, we made and business initiatives, including our West coast expansion.
Net income for the 2023rd quarter was 130.6 million or $2.62 food and earnings per share compared with 140.1 million.
Dollars and 74 cents diluted earnings per share.
Last years third quarter.
The decrease in net income was driven by a third quarter provision.
Losses would be 2.7 million, which was predominantly attributable to cope is 19.
Looking at deposits.
All right philosophy.
This was the second best quarter.
Positive growth, we ever reported following last quarter's record performance.
Deposits increased 4.1 billion or 8.2% to 54.3 billion these costs.
This quarter <unk> average deposits grew by 1.2 billion.
Moreover, this is now the fifth consecutive quarter.
Eating 1 billion in both.
Oh, an average deposit costs.
Non interest bearing deposits of 60.3 billion.
He's got a high 30% total.
Total deposits.
Since the third quarter of last year deposit and loan growth coupled with earnings retention.
<unk> total assets bye bye.
14.1 billion well over 29%.
Now, let's take a look at all lending business.
Well its going to 2023rd quarter increased 1 billion to 46.2 billion.
For the prior 12 months core loans loans, excluding PPP grew 6.3 billion increase.
The increase in loans this quarter was again driven primarily by new.
Non banking capital call facilities.
This is the eighth consecutive quarter with senior Guy I'll pay you already grown probably doing the rapid transformation of the balance sheet to include more floating rate assets as we continue to diversify diversify our portfolio.
Non accrual loans or 81 million or 18 basis points, compared with 47 million or 10 basis points for the second in 2022nd quarter.
Our 30 to 89 day past due loans decreased to 148.8 million.
It is important to know.
80 million of the 30 to 89 day past dues were caused by processing and documentation delays given cold with 19 circumstances and I now current.
Just think for this.
89 days, he is well within the normal range.
68.5 million.
A 90 day plus past due loans remain low at 10.6 million.
Net charge offs for the 2023rd quarter with 10.5 million or nine basis points.
Compared with 4.6 million from 2022nd core.
The provision for credit losses.
2023rd quarter was 52.7 million compared with 93 million for the 2022nd quarter. Despite.
To support the bank's allowance for credit losses to 1.05%.
The coverage ratio stands at a healthy 596% nearly six times.
As I mentioned earlier the increase in the provision was predominantly attributable to colby's 19.
Turning to loan defaults.
Deferrals peaked at 11.1 billion.
As of October 15 year, 2.3 billion, the deferrals or 5% of mobile so we've made a dramatic improvement on this front.
We fully anticipate that we will have increased non accrual loans.
Hi, Jordan in the coming quarters do you expect to hold it.
Given the level of our allowance for loan losses, where we have added 235 million since the adoption of C.. So I don't strong earnings power.
Adequately compensate for what for what May call.
Now onto the team fraud.
And the 2023rd quarter the bank Onboarded three private client banking teams.
One thing and you walk into one the greater Los Angeles marketplace.
Together with our San Francisco Office. The Bank now has a total of 22 private client banking.
Banking teams on the West coast.
When I turn the call over the 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 third quarter reached 389 million up 61 million or 19% when compared with the 2019 third quarter, an increase of 1.6 million from the 2022nd quarter.
Net interest margin for the quarter was 2.55 per cent compared to 2.77% for the 2022nd quarter. The net interest margin for this quarter was primarily affected by two items.
First prepayment penalty income was down 5.9 million, causing four basis points of margin compression and second excess cash from the significant deposit flows impacted margin by 21 basis points.
Let's look at asset yields and funding costs for a moment.
Interest, earning asset yields decreased 78 basis points from a year ago, and 20 basis points from linked quarter to 3.16%.
The decrease in overall asset yields was driven by lower reinvestment rates in all of our asset classes. Additionally, excess cash and P.P.P. loans continued to significantly affect average yields.
Yields on the securities portfolio decreased 90 basis points linked quarter to 2.59% given a much lower market for reinvestment compressed spreads and elevated CPR speeds the pool.
The portfolio duration remained low at 2.4 years given market pressures.
Turning to our loan portfolio.
Yields on average commercial loans and commercial mortgages declined 25 basis points to 3.66% compared with the 2022nd quarter, excluding prepayment penalties from both core quarters yields decreased 18 basis points.
Prepayment penalties for the 2023rd quarter were 5.8 million down 5.9 million compared to 2022nd quarter as the client and the level of transactions in the market led to lower prepayment activity.
Now looking at liabilities.
Our overall deposit cost this quarter decreased by five basis points from 56 to 51 basis points due to low interest rate environment. We anticipate that we will continue to meaningfully reduce our deposit costs in coming quarters.
During the quarter borrowings decreased 1 billion to 3 billion or 4.7% of our balance sheet. The entire decrease was due to prepayment of borrowings which resulted in a penalty expense of 6.8 million.
The average borrowing cost increased five basis points from the prior quarter. The 2.22% the increase was due to the pay down of lower cost borrowings and.
And overall the cost of funds for the linked quarter decreased seven basis points to 66 basis points.
And now I will turn to noninterest income and expense.
Noninterest income for the 2023rd quarter was 24.2 million, an increase of 9.5 million or 64.5% when compared with the 2019 third quarter the growth.
The growth was primarily due to increases in fees and service charges and gains on sales of securities and loans.
Noninterest expense for the 2023rd quarter's 160.6 million versus 134.3 million for the same period a year ago.
The $26 million or 19.6% increase was due to the significant hiring a private client banking teams on the west coast, where we have hired 17 teams thus far in the year. Additionally, we incurred 6.8 million and prepayment penalty fees on the 1 billion and borrowings that we read that we prepaid.
Excluding the penalty fees the expense increase would have been 14.5% when compared with the same period a year ago.
And despite the significant hiring for the west coast and the drag on margin from excess cash the bank's efficiency ratio remained low at 38.9% for the 2023rd quarter versus 38% for the 2022nd quarter and 39.2% for the 2000.
And my team third quarter.
And turning to capital in the third quarter in the third quarter of 2020, the bank paid a cash dividend of 56 cents per share the dividend had a minor effect on capital ratios, which all remain well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet as evidenced by it.
Tier one leverage ratio of 8.56% in total risk based ratio of 11.98% as of the 2023rd quarter.
And on October six 2020, the bank completed a public offering of 375 million and subordinated debt, which qualifies as tier two capital and now I will turn the call back to Joe. Thank you. Thanks.
Thanks, Eric I'd like to thank my colleagues, who have demonstrated their dedication to our clients.
Their needs during his tenure.
Times like these our clients truly value the level of care and advice that my colleagues provide and our year to date performance reflects their extraordinary efforts.
The strength of our franchise as we continue to execute on many fronts both.
Thus far in 2020.
One we did 18 teams, including 17 teams as part of our West Coast expansion.
We delivered on believable deposit growth.
14 billion three.
Three robust core loan growth of 5.1 billion.
For the banks pre tax pre provision earnings grew by 91 million or 15%.
First nine months of the year.
Five we had a strong automotive we have 10%.
Bite of the heavy amount of provision.
Lastly, I'm six we have been able to dramatically reduce loans into fall from a high of 11.1 billion or 25% of total loans 2.3 billion or 5% as of October 15th.
During the fourth quarter were deploying the excess cash and securities and loans.
Continuing decrease deposit interest rates, we should be in the low 40 basis points to 30 basis points by the end to you now.
Now we are happy to answer any questions you might have Stephanie I'll turn it back to you.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered they remove yourself from queue by pressing the pound key again, we do ask that while you pose your question they pick up the handset to provide optimal sound quality.
Thank you. Our first question comes from Mark Fitzgibbon with Piper Sandler.
Hey, guys. Good morning, good morning.
Good morning, Mark.
Hey, Joe I Wonder if you could share with us what the split of the $4 billion of deposits that you had this quarter between sort of the east coast and West Coast. What was the mix of that and also if you could share with us total loan and deposit balances out west.
Well I can tell you we are these deposits.
Broken down some somewhat.
The teams in New York, We had 19.
It seems that have been around for quite a bit nineteens grew more than $75 million.
An open mind seven of the nine teams grew more than 110 million.
We had more specialized mortgage servicing.
That grew about a half a billion.
We had ventured capital nearly 200 million phone banking, you'll be 100 million.
The West Coast.
100 million.
And did you know who is on the.
So Chris really across the board.
Sure enough and then secondly, I guess I'm curious I know that you've mentioned you have quite a few teams in the pipeline mostly out west from a practical standpoint, how many of those do you think you could bring on maybe in the fourth quarter and all of next year.
Oh, it's unlikely we'll bring on any team in the fourth quarter.
When the timing of when they will get their bonuses.
But we were actually.
Planning right now for 2021, so it's hard to say how many teams we can bring on but it could be why.
A wide range of.
Our team in terms of numbers.
Okay.
And then I wondered if you could help us think about your outlook for the net interest margin in Fourq you.
Oh I'm not everything that would be question. Yeah. Thanks, Joe appreciate that [laughter] I mean at this point, the nems pretty impossible to predict Mark 'em, we feel unbelievably comfortable that we're going to drive net interest income significantly higher this quarter.
It had a lot of loan growth that came on at the end of the third quarter EPS. In fact, most of our late loan growth came on at the end of the third quarter.
The third quarter, so that'll that'll flow in nicely into the fourth quarter, we have some nice loan growth already in the fourth quarter, which will be beneficial we are investing in the securities portfolio. Although we continue to be selective given the elections that are coming up and the potential for a spike in rates.
So were being a little selective until after the elections on the securities portfolio, but we're putting a lot of cash to use right now so we feel very comfortable about driving.
An IOC as it relates to the NIM, it's really hard to predict because we continue to have very robust deposit flows.
We've had some significant DTA deposits come in that we know will leave in short order.
But the the normal deposit growth continues.
You know already into this quarter, so weve got even more cash to put to use but we feel very good about growth.
Okay, Great and then last question based on the growth that you see do you anticipate needing to raise equity capital over say the next several quarters.
God now.
Oh, we taught earnings earnings power.
Plus didnt move.
More normalized provision.
Our balance sheet to grow.
With the earnings six to 8 billion.
Annually.
We don't expect a $14 billion growth that we've had the first nine months.
This year, although the fourth quarter as Eric mentioned, it's been pretty substantial.
So what our earnings power, we could go.
We didn't know since basically we don't anticipate that the Florida deposits that we have will continue.
Our earnings are going to be accretive to growth, we're comfortable with the capital ratios.
We don't plan on no anytime soon doing any equity capital raises and all.
Thank you.
Thank you Mark.
Your next question comes from Dave Rochester, with Compass point.
Hey, good morning, guys wanted.
I wanted to take a good morning.
Good to see those deferrals continued to move lower and the credit metrics there were a nice add to the release as well.
I was just wondering if you could give an update on how you're thinking about the loss content in those buckets at this point given you've had more time to work with these guys and then if you have any updated trends on the collections.
For any of those buckets would be great.
Sure I mean and talking to our clients very broadly they.
They are continuing to work with us.
We're trying to find solutions for them.
To meet the challenges that they have.
Our conversations have been positive.
They want to hold onto their properties they want to run their properties. They want to run their businesses they want to own their pieces of equipment that generate revenues. So given all that we feel quite comfortable that we are more than adequately reserved for what's to come.
Right and as Joe talked about our earnings power is significant.
And we feel that that between our provisions and our earnings power that we're we're well.
We will be able to fight through this environment, we do not see a significant loss content coming out of these wells, but there will be losses, let's not kid ourselves.
And we'll have non accruals go up.
But we feel it's it'll be at a level that we can easily play through.
As for collections, we continue.
We continue to see I'd say broadly positive trends there the ranges on the collections are still in the same range that we've seen before.
But most are coming in at the higher end of the range.
We feel good that our clients you know now that it's been many months into this had been able to work with with their tenants and and getting the collections. So so that continues to trend positively and if.
And if I may add utilizing the.
The care.
Oh, we're taking appropriate actions to keep quiet.
Clients in the businesses that is the main goal that was the goal of the carriers that and that's the goal for us to keep clients in the businesses that doing and hopefully the timing issue of all more stimulus and vaccine will let them survive.
All right great. Thanks.
Then switching to the NIM I appreciated the color on where the deposit costs can go and how soon it was just wondering how much more flexibility you have to retire more those borrowings near term given you've got a lot of deposit growth continuing to come in here. If you can do.
If you can just keeps chipping away at those what you did this quarter.
Yeah, we'll continue to do that we're looking at about $250 million of borrowings now to see if it makes sense for us to prepare those would probably will give the amount of cash that we're sitting on.
It will it will most likely cost us a similar amount to what we saw this quarter, that's $6 million to $7 million ranch in prepayment.
Pets, but what we what what would be we have we have a pretty substantial deposit I'm, sorry, a pretty substantial long pipeline.
Particularly in foreign banking.
The fourth quarter.
Usually their best quarter, so we could see well over a billion in growth there. So.
Signature financial equipment financing and leasing.
This quarter, we use the fourth quarter. So the pipeline is pretty pretty soon.
Significant.
And and we'd be buying in a well step up the buying of securities. Once the election is over and we get a sense of.
Where the yield curve will be.
Yep.
Yes, no it could definitely change at that point was just curious where you're seeing those yields today. If they are still like in a low ones range.
For what you're buying correct.
Correct. They are in the low ones.
And then what was securities premium amortization expense this quarter versus last quarter was trying to figure out what the impact was there.
It was it was a pretty significant weight is up 2.4 million. This.
This quarter compared to the prior quarter.
Okay.
And then maybe just switching to new loan yields.
I figure it sort of mid twos on capital call lines previously and then.
We just get an update on the multifamily commercial real estate for what.
For what you guys are a refinancing there would be great.
Multifamily five year fix is about three and a half vessel.
That's what we've been speaking with Andy.
And the capital call loans.
Mid twos.
So to some degree some low threes, but primarily mid twos.
Great all right. Thanks, guys appreciate it.
Thank you Dave.
Your next question is from Matthew Breese with Stephens, Inc.
Hey, good morning, Larry.
Joe you mentioned, a normalized or getting to a more normalized provision you also mentioned that you feel like you're pretty adequately reserved.
With these comments in mind could you just talk a little bit about the provision outlook over the next few quarters or the cadence supervision.
Cash provided range.
It's really hard to predict with with see some modeling these days, Matt where it's going to go I don't I don't think we're going to get back to a truly normalized provision level, where its five.
$5 million to $10 million. So it will probably be elevated from there for a little while but we'd have to see.
What we have to see what the what the Moody's models come out with over over the next few quarters and that's difficult for us to predict.
Okay.
And then just thinking about you know total asset growth over the last year has been you know way beyond what.
Oh wait beyond what any of us thought a year ago as you.
As you think about the next 12 months is that six to 8 billion is that a good range of where you expect the balance sheet to grow by or could you provide some outlook there.
Well, we're trying to stay with the three to 5 billion Oh, We had 14 thing goes for nine months.
I'm almost afraid to tell you how much of the growth has been so far in the fourth quarter.
Bingo boss, although half of that growth is due to ask.
Escrow accounts from class actions that will be leaving over a period of a few weeks.
We don't see that happening in 2021.
We'll be initiatives kicking in.
Some of the clients, we tell them that.
Captain a certain dollar level.
That's when it pretty substantial and some of them will go off balance sheet.
And we have to we have to see where the old where the yield curve goes that could be.
That could bring alternative investments back into the mix I mean, let's face it everybody has been moving from off balance sheet onto the balance sheets of banks.
We certainly have been benefiting from that no question. So if we see rates rise, we could certainly see the opposite happen to work.
The the deposits will move to off balance sheet.
Investments.
Could you just give us some sense for the the kind of liquidity you might hold on the balance sheet over the next six months and how much of that 21 basis point drag.
Is recoverable back to the topline NIM.
Well, we're probably going to keep liquidity under normal circumstances is about 2 billion.
No I don't see us going below that.
Got launched.
So is that to say the 6 billion in cash you had this quarter can go to to next quarter and you can get the majority of that 21 basis point drag back that's what that's what we would hope and we doubt it Oh, we have lot although in the loan pipeline is going to be strong.
Uh huh.
Hi, Treasurer is already tied to his seat.
For 24 hours, we don't let them out.
You to buy investments 40, holding off somewhat because of the election.
Yes, but realistically it will take us several quarters to deploy that cash.
[music].
Next I'll give you an idea.
This quarter.
Rough seven thing.
We're only into 20 a day now.
Now turning to have none of that is going to lead rather quickly it can D.A.
Quote we'd have to take that.
That's really being more in cash that we have to deploy so we're just going to take us several quarters.
Great. That's all I had I appreciate taking my questions. Thank you. Thank you.
Your next question is from Casey Haire with Jefferies.
Yeah. Thanks, good morning, guys.
Okay.
So question on the timing of charge offs as well as you know the deferral strategy into 2021 with the frozen.
With the frozen 5% right now you.
He cares act does allow you to take those into 2021, if you so choose.
Can you just talk us through how you guys are thinking about that and and how that how that might impact our charge offs and the trajectory there.
Well we.
We've identified.
A series of loans.
First of all.
The loans that a partisan deferrals.
Now between now and the entity or just a few options when they come off into frozen start paying that P. Eni.
They come off of the phones and they thought just paying interest only.
Or they come on.
Come off.
I'm off into proposals.
No that then they go on to that is the ones that stay on deferrals.
They would be entrepreneurs to six months and then 12 months interest only so this is a few different options that we can do but the one thing I will tell you wins.
They have to have a sense of collection that will.
The long.
We I think if it comes off the formal and interest only that its a collectible along at a good spot paying principal and interest in that.
That's not the case.
We will charge you off a piece of it.
And try to negotiate from there to sell the long.
We will do that immediately in the fourth quarter for those loans that onto the carriers that will not make it.
If we believe that the cash flow is that for the long to make it and we.
And we will then be anywhere from six to really 12 to 18 months.
If not longer.
The goal is to take the actions to keep the clients in their businesses.
A good example would be Broadway.
Good way they said he's not opening up until the first weekend in June.
That's how that's incredibly optimistic more likely after labor day.
Then after memorial day, and then we.
And then we still don't know New York State they still haven't given.
An ideal what.
What number of seats that they could allow people to Susan Mcgee.
Good example is the Beacon theater has 2800 feet they can't.
They can't sign contract because they can't tell you whether you have 20 128 hospital 1400.
So that's an example of this the Beacon theater, there not a coin, but if they want to acquire bars, we would have to give them a long period of time.
So again the goal is to keep the clients in the businesses will be charge offs in the fourth quarter that we tried to most probably for the first quarter to the fourth quarter of 2021, but I think the key aspect is that we feel very comfortable with our provisioning and all along.
Alan.
Where we are today.
For the portfolio that we have.
Okay understood.
Given all the discussions that we're having with our clients as well, we just don't see it meaningfully.
High level of charge offs at this point.
Okay and you're in the release.
In the release you guys put out you know the conservative underwriting a lot of LTV is under 60%.
And I know, it's tough you know given the lack of transactions to see where that is today, but you know given your confidence in the reserve build where it is today.
What kind of what kind of.
Price degree that degree degradation are you guys baking into your forecast and then on the on the debt service coverage ratio front.
Presumably you should have some visibility into that where are those.
Whereas the debt service coverage on multifamily office retail at these collection rates.
I'd say on the multifamily its a little north of one time that service coverage now I put it its really property dependent.
All over the board.
As we get into retail and probably slipped under under one time.
But again, it's a broad range, there as well and same for the office.
You know the operators of the of the properties multi generational multi.
Oh.
Million dollar family.
I'm, not saying that they're going to rescue any of the properties that ultimately we have to be charged off.
But they are stepping up our.
On the properties, where there is some some decent cash flow and they have to fill.
Uh huh.
Financial because they want to keep the properties, we've certainly seen that.
As long as we make.
Negotiate.
Fairly and they negotiate family they can get an interest only for a period of time that will allow them to get.
Dan Dan.
Great. Thank you.
Thank you education.
Your next question is from Ken Zerbe with Morgan Stanley.
Great. Thanks, just in terms of loan yields obviously, we just had a really big drop it was down 25 basis points sequentially is that all due to the capital calls coming on at much lower yields or is there sort of any I know.
I know you said there wasn't really a lot of acceleration or prepays on the multifamily side I'm just trying to get my head around why loan yields fell as much as they did and is that something we should continue to expect.
Yeah, I mean, some of its certainly we're seeing a credits come on at lower yields right given the interest rate environment. We also have PPP in there for full quarter.
Right. So on average it was 2 billion for the third quarter was 1.2 billion for the second quarter. So that was about eight basis points of the compression as well, but generally we are seeing all of our asset classes come in lower that lower yields.
Okay got it I just.
I just want to EPS with the capital call loans.
We made a decision a couple of years ago that we needed to transform the balance sheet have floating rate.
And it was important for us to.
I have a floating rate.
Generation of loans and that's what that's what's happening with the capital call facilities now.
Other thing is that the reserve.
Such that we didn't count the capital call facilities.
In the reserve.
It would be 1.34, yes.
1.34 as opposed to 1.05.
That's pretty significant because it's fairly stable and feel we are highly rated loans so well.
We're sacrificing a little bit to have floating rate loans.
In the era of life would be.
Why would be 15 basis points.
But it does transform our balance sheet to something that's a little bit more neutral than where we were with fixed rate loans a dominate.
Dominating the whole balance sheet several years ago.
Got it understood and.
And then in terms of the 5% loans that are still on deferral. How many of those were actually six months deferrals to start with versus.
Basically asking for a second round deferral there.
They're all 90 days second round deferrals.
Got it okay.
And then I guess just last question and then in terms of the debt prepayment you guys Ted.
How much of the benefit is in this quarter versus anything that may come in fourth quarter. This not being recognized yet.
I'd be I'd be guessing at that number I want to say it's about.
Million and a half per quarter.
Thanks.
Oh, no it's about a million per month actually so its about 3 million per quarter.
It will be paid back in five to six months.
Okay, all right great. Thanks.
Thank you.
Your next question is from Ebrahim Poonawala with Bank of America.
Hey, good morning, guys.
Good morning first of all the follow up on credit I mean.
The stock is wages, it's because of credit I don't think <unk> growth and and I is the issue you're like when you pick up on that the photos of the auto CRT book added to your point I understand the FIFO a challenge in terms of forecasting provisioning, but is it safe to assume that unless something.
Lastly goes wrong in Oh from a whack macro perspective, you would expect provisions to be.
At or below peak levels. If it's if you look forward based on the analysis you've done on this loan book loan book.
That seems reasonable.
Got it and then when we think about the next update on does deferred book the 2.3 billion maybe its December maybe it's Jan.
What do you do the expectation at all or.
The percentage of this book that actually goes into the 12 month extended deferral was that comes back to paying I'm, assuming you have a good sense of which bought or like Joe mentioned some of the Broadway customers may need additional time, what's your expectation and this level of confidence that all knowing what percentage of this book needs.
Extra help.
Yeah.
Yeah, It's it's still a little early to predict that certainly that there will be a percentage that'll go back the pending.
We think the majority will go to paying interest only.
And then and then we'll have a smaller amount that will need.
Six month.
Further PNR deferral and then go to interest on me and when we do that we're looking to get the enhancements to the credit ultimately, though we think that.
The vast majority will get back to position, where they're paying us something.
Having said something very key there where he said.
Ladies and enhancements to quit.
Liquids for the long term.
Situations with trying to get 12 months of cash.
12 months of interest I mean.
Putting an account Uh huh.
Guarantee.
Something.
And we should get from giving them a longer period of time to get back to where they need to be.
Got it and just one last question to that Joel.
How worried are you about the New York City economy right. A lot of this is just given on peoples perspective on what New York City will look like 369 months or 12 months out given your sense of talking to business owners landlords.
What is your expectation read the New York City economy will be six months out as we look into next year well.
Well not only is our portfolio recently in New York City is in New York City in the Metropolitan area is incredibly resilient.
If you take the population.
Of the area.
Take the economy of the I mean, it was a country being.
Being top.
It would be more than 50% bigger.
And all that.
All the countries in the world.
It's got broad way, you know Chicago, London, Los Angeles that plays but they're not Broadway you want Seaboard, where you come from New York, you want to see museums, you constantly or what.
I want to see Central Paul you have to come to New York City pair.
The patch its 50 I mean, there's just so many things here.
It's very easy to use the fact that people are.
Temporarily had moved away or they if they own the deployment they haven't given up on.
Maybe they found out that the suburbs were nice when there's nothing that compares to New York City. So we're very very bullish on.
On the New York City, we really do believe it's a timing issue.
Yes.
Whether its weather which January.
2021 January 2021 is going to be a vaccine.
It wasn't a Democrat to Republican during the government is going to be stimulus.
Uh huh.
Very bullish on the city and we're very bullish on our portfolio.
Got it thanks for taking my questions.
Thank you.
Your next question is from Steven Alexopoulos with JP Morgan.
Hey, good morning, everybody I was wondering if.
So first regarding the commentary that you expect to see increased non accruals had net charge offs in coming quarters, which portfolio do you see driving your near term charge offs.
Yeah, I'd say the area that we're most mostly focuses on is the retail it's really the destination retail where you really need this new York City and Manhattan in particular to open up so we've got about 250 million that we circle that we're keeping a close eye on that's in those destination areas.
Of Manhattan that that I'd say would be the focal point Steve.
It's helpful. And then you bolt that actually a couple of times that you felt adequately covered for the credit challenge ahead, but do you mean from an existing reserve standpoint, or do you mean from a pre tax pre provision you can add more to the reserve standpoint.
We mean, both really I mean from from existing we obviously feel adequately reserved.
But what gives us a higher level of comfort is the fact that we generate a significant amount of earnings we had a winter 11% or are we while providing $50 million in provisions.
No there's not many banks that have that led.
At that level of earnings power that we haven't talked about our net interest income we expect it to go up significantly this quarter. So we've got a lot of earnings power in front of us and that should allow us to overcome any of it.
Any of the challenges that we have coming ahead, let's.
Let's say unforeseen challenges.
The large part will gives us the confidence is we have well we can work both there's lot of liability and the asset side you can bring down.
A liability costs from where they are today 51.
The low fours low 40, hi.
Hi duties and then ever talked about all the cash we have that we can deploy it so.
So we're fairly I should say fairly confident very confident on the.
The increase that will happen in the fourth quarter.
Okay.
That's helpful and then I mean outside of maybe some NIM pressure this quarter clearly the biggest overhang on the stock is in New York City commercial real estate exposure and most investors I talk to they are pretty comfortable with the multifamily. It's the remaining 10 billion.
Investors are concerned with you guys talk about you know what stress testing have you done in that $10 billion and what segments do you do you see as most risk of seeing losses.
I mean, we talked about it's really the retail destination retail in Soho times square, that's mostly what we're focused on right now and what's what's good about the retail portfolio, what we've seen from it as the neighborhood retail as the outer boroughs have opened up and the economies have opened up in Westchester and long island and elsewhere.
We've seen that neighborhood retail really spring back up pretty rapidly. So we need New York to open up we need Manhattan to open up.
And I think we'll we'll we'll be in good shape, there, but that's really the area that we're most focused on as destination retail, yes, which would I would assume would be in the mixed use the 1.1 billion. So Eric what are the specific reserves now in that portfolio.
[noise] bear with me one second here, Steve sorry, Okay. So on.
So on the sea area, we have 1.75% and re.
In reserves with another 6% on our 80 see loans and 76 basis points on our multifamily.
Okay.
You don't have the retail the part you're most concerned about you don't have that by chance do you.
I don't have it broken out of the sea area, but its retail and office yeah. Okay. Okay.
Okay very good thanks for all the color. Thank you. Thank you Steve.
Your next question is from Brock Vandervliet would you be yes.
Oh, Thanks, I'm, just kind of a variant on some of the other some adequate.
Smadar questions since most of the stuff has been asked you know it.
It seems like we get one day of pretty positive credit results and outlook from from you guys add.
And this.
Endless stream of negative news on New York, and New York Real estate.
From you know various news and wire services and.
It's very hard to separate.
Separate to fundamentals from that overhang, which may also be fundamental when you. When you think about New York and you think about your portfolio.
What would that it makes you more confident than some of these more macro stories, which make good points about how potentially severe the situation is just to try to give investors more comfort.
Well I wouldn't like to story if it wasn't.
They couldn't say something terribly wrong with that.
With the situation did not writing many good stories because people are not attracted to that.
But having said that we're not we're not on Madison Avenue, we're not on 57th Street.
We're in the.
The type buildings and on the streets not any avenues.
We are we have some destination retail, but most of the retailers neighborhood retail where.
Way too.
It's on Fordham road in the Bronx.
Uh huh.
What's just the revenue in the Bronx, Northern Boulevard in Queens.
Those are the places.
Places that we have some of the retail and.
And we're very confident having worked in London.
City.
About it.
How robust it is.
And we're also confident in the clients themselves.
I think that's important we always say a one of a former colleague used to say that on the jockey.
Not on the horse and we've been on the jockey here and we've had clients step off because they're multi generational multi millionaire.
Ah well experience.
Handlers of real estate and.
And.
That gives us a lot of comfort.
We believe it's a timing issue.
When I say timing issue.
If we can keep some of these clients in their businesses.
New York will come back.
I don't think it's it's a death sentence what's.
What's going on.
I think it's the mayor and the Governor cooperative with each other we being a bit better than a city.
Got a situation.
We're very much looking forward in this institution that I'm sitting at night now signature bank.
Would it be change in administration.
Oh Wow of New York City.
So that's a decent deposits I know there are a number of negatives, but we believe the positives outweigh the negatives and I think one of the things that drives us.
That that's the type of clients that we have.
Got it okay. Thank you.
Thank you.
Your next question comes from Chris Mcgratty with KBW.
Great Good morning.
Eric I want to make sure I want to make sure I heard the expense comment you talked about 14% year on year, excluding the charge this quarter could you.
Could you just repeat kind of expectations for Q4, and then I think on prior calls Youve said, hey that that number is going to glide down to low double digits I just want to.
See that's still the case, depending on the pace of investments.
Yes, it's a well you know I would have expected that we'd see expense growth in the fourth quarter be around 14%, but we did again talk about the potential for prepaying. Some borrowings so I might pop back up to an 18 19.
Percent range, so ex the prepayment borrowings we should be at around 14%.
But as Joe alluded to earlier, we have significant opportunities on the west coast still.
You know, we're not sure which opportunities we're going to capture but there's a lot of them.
Out there so we could see expense expenses pop back up in the first quarter, but it's a little too early to tell Chris.
Okay. Okay.
And last one obviously, there's a lot with the stimulus being proposed with tax increases I know you guys have so little bit of noise with the fee income in the tax line anything differently structurally with your tax strategies.
Strategies that you know the similar math from promote after the 16 election wouldn't be the opposite to similar magnitude. This this time around forget touching Chris.
Yeah, we believe that it is a change in the Ministry tax is going to go up banks taxes.
Really.
But in terms of the sensitivity I think what's being proposed is going to 28 from 21. I mean this is the math is a proportional math is the same as though when you guys received the benefit after 16, we taxes that it should be it should be Chris I mean, there's a lot of moving pieces when calculating okay.
It should be similar got.
Got it and then all right. Thank you are with a lot of actuals, we fire a file our actual taxes.
In September so we had no tax to accrual differ.
Differences that we have the true up so ex any change in administration and change in the tax rates and tax code, we should be at that 24%, 20% sorry.
Tax rate moving forward.
Understood.
We're pretty confident in a new administration says that this finding in January.
The day after the inauguration.
Got it okay. Thank you.
Thank you.
Your next question comes from Jared Shaw with Wells Fargo.
Hi, good morning.
HM.
Yeah, maybe just asking that the credit on a different level you know it sounds like we should then expect maybe a this quarter is the high watermark for the sales as a percentage of loans, just given a future growth.
Coming from that capital call business and the comfort that that you you reserve for the worst of the credit is that a good way to look at it.
Barring any macroeconomic change that's a fair way to look at it okay.
Okay, Great and then Joe you had mentioned a $1 billion of digital deposit growth can you give a little color on that and sad tied at all to a two.
To signaled at all or any update there.
Yeah, I would think parties.
It's a.
Because the signet in some of the enhancements we've made to see net.
And somebody a quick.
Clients that were bringing on board.
You know probably hesitant a couple of years ago, they wanted to see that.
That we were in the business and we're going to stay in business and now we have the capability and as a result, we're doing quite a bit of business now.
Youre dealing C C.
Talking about.
Banks holding the dollars support stable coins.
No, let's just say, we're starting to do that.
And that's that's going to drive some of the deposit growth in the digital world.
Great. Thanks.
Thank you.
Your next question is from Christopher keep with D.A. Davidson.
Hi, guys. So.
So I was just looking at the looking at the average yield on loans.
The commercial loans was 366, you put in multifamily loans on at 350 can you just give me a sense of.
Of the the amount of CRT and multifamily loans that are set to reprice, maybe in Fourq you 20, and then maybe over the course of 21.
Yeah, we have approximately 1 billion per quarter Thats repricing.
Okay.
And then.
Great and then just I guess, assuming a modestly steepening curve getting too you know maybe the 90 basis point range by 2021 can you just talk.
On the impact on both your commercial and residential mortgage yields.
That assumption.
I don't think that will meaningfully change our commercial more.
Mortgage yields will still be in that mid 350, 375 range, we're not a revenue lender at all so as though.
There.
Got it okay. Thanks, guys.
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