Q4 2020 Signature Bank Earnings Call
Welcome to signature bank's 2024th quarter and fiscal year end results conference call hosting the call today from signature Bank are Joseph J, Depaolo, President and Chief Executive Officer, and Eric R. Howell Senior and 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. If you would like to ask a question at that time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
We ask that you please pickup your handset to allow optimal sound quality.
Lastly, if you should require operator assistance. Please press star zero and it's now my pleasure to turn the floor over to Joseph J, Depaolo, President and Chief Executive Officer, you may begin.
Thank you Laurie good morning, and thank you for joining us today for the signature bank 2024th quarter.
And year end 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 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 different to predict and may be 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 business strategy and the impact of the COVID-19 pandemic on.
Each of the foregoing and on our business overall as you consider forward looking statements you should understand that these statements are not guarantees of performance and results. They involve risks uncertainties and assumptions that could cause actual results to differ materially from those and 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 and annual results and then Eric how are singing and VP of corporate and business development will review the.
Thanks.
<unk> performance in greater detail, Eric and I will address your questions at the end of our remarks.
Signature bank continues to experience and extraordinary growth during the country's protracted and challenging and recovery from the COVID-19 pandemic.
Our business philosophy of acquired centric single point of contact model led by experienced group directors continues to distinguish us for.
Particularly in times of distress.
Additionally, the bank has and accelerating multifaceted growth profile with traditional private client banking teams, leading the charge and New York.
San Francisco and Los Angeles.
Further fortifying the bank market position or a multitude of national businesses, including signature financial.
Asset based lending.
Fund banking venture banking digital banking, including Cigna and specialized mortgage banking solution.
The collective strength of our franchise led to an unbelievable quarter.
Record deposit growth.
Record loan growth record pre tax pre provision earnings and record net income.
We look forward to a healthier 2021 as recovery from the COVID-19 pandemic commences.
Now, let's take a look at earnings let's take a closer look at earnings pretax pre provision earnings for the 2024th quarter with $261 5 million and increase of $45 million or 21% compared with $216 3 million for the 2019.
And fourth quarter.
Net income for the 2024th quarter was a record 173 million or $3.26 diluted earnings per share.
Compared with $147 6 million or $2 and 76 dilutive earnings per share.
And the same period.
Last year.
The increase in income was predominantly driven by substantial asset growth.
$23 3 billion.
All set by the investments, we made and new businesses, including our West coast expansion.
Looking at deposits deposits increased a record 9 billion or 16, 5% to $63 3 billion. This quarter, while average deposits grew a record.
$10 4 billion.
For the year.
This increased a record $22 9 billion and average deposits increased a record $12 5 billion.
Non interest bearing deposits of $18 8 billion represent a high 30% of total deposits.
Our deposit and loan growth led to a record increase of $23 3 billion or 46% and total assets for the year, which reached nearly 74 billion.
Now, let's take a look at our lending businesses core loans or loans, excluding P. P. P. During the 2024th quarter increased a record $2 7 billion was six 2% to 47 billion.
For the year core loans grew a record seven 8 billion or 20%.
The increase in loans. This quarter was again, driven primarily by new fund banking capital call facilities.
This is the ninth consecutive quarter, where C&I outpaced CRE growth further and the rapid transformation of the balance sheet to include more floating rate assets.
As we continue to diversify our portfolio.
Non accrual loans were $120 million or 25 basis points of total loans compared with $81 million of 18 basis points for the 2020.
Third quarter.
Our day 30 to 80 90 day past due loans increased to $234 9 million.
It is important to note that $88 3 million of the 30 to 89 day past dues were caused by processing and documentation delays given COVID-19 circumstances and.
And we are now current.
Our 90 day plus past due loans remained very low at $5 8 million.
Net charge offs for the 2024th quarter were $11 4 million or 10 basis points compared with $10 5 million.
For the 2023rd quarter.
The provision for credit losses for the 2024th quarter was $35.6 million compared with $52 7 million for the 2023rd quarter.
As for the bank allowance for credit losses for <unk>.
And 1.04% and the coverage ratio stands at a healthy 423%.
I would like to point out.
And if we took if we look excuse me at the ACL ratio.
Excluding very well secured and fund banking loans and.
And government guaranteed PPP loans, it would be much higher at 141%.
Turning to modifications as of December 31, 2020 Bank does that feed into COVID-19, principal and interest modifications of one 3 billion or two 7%.
Of that balance 107 million remain a short term modifications.
We fully anticipate that we will have increased non accrual loans and charge offs and the coming quarters due to the effect of COVID-19 given the level of our allowance for credit losses, where we prudently doubled the allowance and 258 million since the adoption of Cisco we built.
We've we are adequately covered for what may come.
Now onto the greatly expanding team front, where we had much success.
And 2020, we had a total of 20 private client banking team.
And New York, five and San Francisco.
And 13, and the greater Los Angeles area, marking our entry into the southern California marketplace.
The bank now has a total of 116 private client banking teams of which 23 are located on the west coast.
At this point I'll turn the call over to Eric and he will review the quarters 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 fourth quarter reached $395 million and increase of $6 3 million from the 2023rd quarter.
Net interest margin for the quarter declined 32 basis points to two 3% compared with $2 five 5% for the 2023rd quarter. The entire decrease and then some was due to excess cash balances from significant deposit flows which impacted margin.
The 46 basis points.
Let's look at asset yields and funding costs for a moment interest, earning asset yields for the 2024th quarter decreased 41 basis points from the linked quarter to 275% the.
The decrease in overall asset yields was again driven by the excess average cash balances, which grew from $5 6 billion to $12 5 billion.
During the quarter.
Asset yields continue to be affected by lower reinvestment rates and all of our asset classes.
Yields on the securities portfolio decreased 46 basis points linked quarter to two 3% due to the decline in market rates as well as the bank investing and floating rate securities and our portfolio duration remains low at two two years.
Turning to our loan portfolio yields and average commercial loans and commercial mortgages decreased six basis points to three 6% compared with the 2023rd quarter. This was mostly due to lower origination yields and.
Excluding prepayment penalties from both quarters yields decreased by four basis points.
Now looking at liabilities.
And our overall deposit cost this quarter decreased nine basis points to 42 basis points due to the low interest rate environment. We anticipate this downward trend to continue in 2021.
During the quarter average borrowing balances decreased by $744 million to $3 billion.
The overall cost of funds for the quarter decreased nine basis points to 57 basis points driven by the reduction in deposit costs and decreased average borrowings, which was slightly offset by the addition of subordinated debt with a 4% coupon.
And to non interest income and expense noninterest income for the 2024th quarter was $24 2 million and increase of $8 2 million or 51% when compared with the 2019 and fourth quarter. The increase is mostly due to a rise of $5 $5 million and fees and service charges.
And as well as an increase of $2 4 million and trading income.
Noninterest expense for the 2024th quarter was $157 7 million versus $138 million for the same period a year ago.
The $19 6 million or 14% increase was principally due to the addition of new private client banking teams.
And despite our significant team hirings and margin compression from significant cash balances.
<unk> actually gained operating leverage and as a result, our efficiency ratio improved to 37, 6% for the 2024th quarter versus 39% for the comparable period last year and 38, 9% for the 2023rd quarter.
And turning to capital during the quarter the bank successfully raised $730 million and non cumulative perpetual series, a preferred stock, which qualifies as tier one capital. Additionally, the bank issued $375 million and subordinated debt, which qualifies as tier two capital.
All capital ratios remained well in excess of regulatory requirements and augment the relatively low risk profile and the balance sheet as evidenced by a tier one leverage ratio of 855% and a total risk based ratio of 13, 5% to 4% as of the 2024th quarter and.
Finally, the bank paid a cash dividend of <unk> 56 per share common stock and now I'll turn the call back to Joe. Thank you.
Thanks, Eric I'd.
I'd like to thank my colleagues, a number who are listening on the call today, who have demonstrated their dedication to our clients.
And their needs during this pandemic.
Times like these our clients truly value and the level of care and advice that my colleagues provide and our performance for the year reflects the extraordinary efforts and the strength of our franchise as we continue to execute on many many fronts.
2020 was truly a remarkable year of growth.
And achievement for signature bank under.
And the deposit front, which is a key metric we delivered unbelievable record deposit growth of 23 billion or 57%.
And we've reduced the cost of deposits from a high of 121 basis points and Q3 2019 to 42 basis points, a year and with room for further reduction.
Demand deposits increased a record $5 $7 million excuse me $5 7 billion for the year and we made it a high 30% of total deposits and.
And most importantly, our deposit growth came across the board from our existing teams for all of our new businesses and we're literally 26 traditional banking teams and New York that grew over $100 million each.
Our newly established teams on the West Coast grew over $1 billion. The specialized mortgage banking solutions team grew over three 5 billion. The venture banking group grew nearly $1 billion and our digital banking team.
And <unk>.
Over $8 billion and deposits.
We are clearly distinguished ourselves.
The predominant bank and the digital space.
Tony to loans, we had record core loan growth of nearly $8 billion driven by another of our new businesses The fund banking Division.
Which delivered nearly 7 billion and loan growth. Additionally.
Additionally, signature financial had another strong year and surpassed 5 billion and outstanding loans the ranks as the 15th largest bank lender in this space.
Really remarkable accomplishment for that team congratulations guys.
Furthermore, as planned we held our commercial real estate loan balances flat over the last few years and made great strides and reducing our CRE and CRE concentration to 376% from 551% at year end 2018.
Looking at earnings the bank's pretax pre provision earnings grew by $136 million was 16% for the year and we had a strong although we have 10, 75% despite a <unk>.
Heavy amount of provisioning and margin compression due to excess cash balances.
And the income our noninterest income grew by 22% with $13 5 million for the year and several of our fee income initiatives.
Just starting.
To take hold.
Additionally, we improved our already best in class efficiency ratio during the year to 37, 6%.
On the capital front, we meaningfully improved our capital position by over $1 billion with the issuance of $375 million and subordinated debt and $730 million and preferred stock.
Moreover, we maintained our dividend while turning off our buyback program to support the tremendous <unk>.
Level of growth.
And most importantly.
We set the stage for future growth with the hiring of two private client banking teams and.
The opening of five new offices, and the Los Angeles marketplace.
Everything we said we would do this year we did.
Everything we said we would do this year we did.
And our growth for 2020 was equivalent to acquiring the top 50 bank.
While we did it organically and without expanding shareholder value.
Signature bank and since 2020, as a strong financial institution and we very much look forward.
Two years to come.
Now we are happy to answer any questions you might have Laurie I will turn it back to you.
Thank you. The floor is now opened for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone.
At any point. Your question has been answered you may remove yourself from the queue by pressing the pound key again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality. Our first question comes from the line of Ken Zerbe of Morgan Stanley.
Great. Thanks, good morning.
Good morning, Ken.
Fantastic deposit growth this quarter and just start.
Alright and stunning.
But I guess my question on the deposit growth are you guys, earning a positive spread on the new deposits coming in.
No.
That's the issue we have been deployed and we have to deploy it quickly so.
And the new deposits coming and even though they're coming in.
And at a much lower cost and we had is free.
Recently, we're still not making a spread.
And that's clearly affecting our net interest margin.
This is a trade off that will take every time.
We've been through cycles before we've been through rising rate environments before and when rates rise, we will see the deposit growth moderate.
But what we'll also see as continued loan growth and we'll have we have the deposits now to farm and substantial loan growth that we have and the future.
So we're loaded for bear and this is the very high class problem for us to Heska.
Ken we are taking market.
Market share like for instance, with the mortgage servicing specialized mortgage servicing team.
And they grew by 25 billion this year.
And that's market share that they are taking and we're getting and opportunity to bring that business in.
So we'll take it all day and deploy it later.
Yes, I guess.
Like I said.
The quarter was very awesome, and my view, but I guess I guess with the.
This negative spread and Youre getting I mean, it just like I could see how you would gain share by paying a much higher rate and the market is currently paying so the question is just like do you feel that you have to keep Hank this elevated yield on your new deposits. It seems like there might be some room to lower.
And your new deposits.
<unk> that you're offering and still definitely more than support your loan growth.
Yes, we do.
We had 42 basis points cost and the quarter for the fourth quarter.
The month of December was down to 41 basis points and and January thus far we're at 37 basis points. So we're continuing to bring the the the.
And the rate down.
And we'll be probably in the mid to low thirties.
By the end of the quarter. So we bought it down nine basis points for the fourth quarter. There's no reason why they can't bring it down nine basis points for more and.
And the first quarter of 2021.
Got it Okay, and then maybe switching gears a little bit.
Joe I think you mentioned that you do expect higher net charge offs over time, which is a very reasonable expectation, but one of the concerns around signature has just been the potential for significant loss content and.
The CRE portfolio can you guys help quantify when you say higher charge offs like what exactly are you thinking when you say that thank you.
Well, we're not seeing what we're saying and.
And what was happening is not necessarily meeting I'll tell you what I mean by that.
We're not seeing.
Charge offs.
And right now coming through we.
Expect it to be more than it had been and the last couple of years, which was pretty negligible.
With our clients and just not handing back the keys.
And we've had some charge offs and the last two quarters and they've.
And then some CRE retail, but with the court with the cares Act.
A lot of the clients are saying I have and opportunity.
To get by during the pandemic and then start paying again.
And that's why we're not seeing a lot of charge offs, but we expect it to be higher than it had been in 2018, 2019, which I said was pretty negligible.
In fact, we've challenged our team to get ahead of us to find the bad credits now to identify and deal with them and quite frankly, we're just not for any of them.
Our clients see their properties their businesses and as their livelihood and in the future they're not at a point, where they want to give them up.
And with the vaccines.
<unk> and vaccines more vaccines on the horizon.
Potential stimulus that will come from the new administration.
It gives them a lot of positive.
Yes.
Things to look forward through and the future and it's just giving them less reason to want to give up.
And so as much as we're looking for the charge offs.
And we're anticipating we'll have them, they're just not coming to fruition.
Doubled our allowance for over half a billion during this year. So we are certainly well prepared for it.
Alright, thats good to hear alright. Thank you very much. Thank you. Thank you Ken.
Your next question comes from the line of Dave Rochester of Compass point.
Hey, good morning, guys and good morning day.
On the NIM or the NII outlook, whichever I guess, it's easier to talk about.
I was wondering what your thoughts were there just following the curve Steepening and we've seen recently and then your outlook on the deposit cost there that you mentioned being in the low to mid thirties at some point and then maybe as a part of that outlook you guys, obviously have a ton of cash and the balance sheet.
I was just curious to hear your thoughts on how fast you're willing to deploy that into securities and then how much more and the way of borrowings you could pay down for this year.
Yes, there's a little bit more I'll take the latter part for us, there's a little bit more and borrowers to pay but not a substantial amount.
So we won't see too much of a savings.
Dave.
We do as Joe pointed out we hope to get to the deposit cost down and another nine basis points or so and we'll be in the mid to low <unk>.
Quarter end.
Certainly we have.
Our ability to deploy on the asset side.
And really put 1% to $2 billion per quarter to work and the securities portfolio and another $1 billion to $2 billion per quarter to work on the loan side. So we're going to have two to 4 billion and.
And asset growth and that's that's a little bit easier for us to predict the hard part of the deposit flows.
And thus far this quarter and slow down a little bit, but we still have growth and we certainly don't anticipate $8 billion worth of deposits flows.
And this coming quarter, but we expect it to continue to happen which is great.
And.
So all that being said the NII will be up and that.
And that much we can predict.
And it should be up pretty pretty nicely. The NIM is impossible at this point to predict because of the.
And nature of the deposit flows and it's hard to say.
And more are going to come in and we will be able to make a meaningful impact for all the cash that we're sitting on what we should have a pretty substantial NII growth.
That makes sense, so when youre talking about $1 billion to $2 billion and securities growth, a quarter and $1 billion to $2 billion and loan growth for quarters that rate.
And getting $2 billion to $4 billion and asset growth a quarter are you cap that at $3 billion for capital and concerns or what are your thoughts.
No I mean, we're not concerned about capital we have ample ability.
To drive capital generation through earnings.
And it's 13, 5% return on cash on cash.
Common equity this quarter. So for earnings is there we get to a normalized provision and I think where we're going to get there relatively soon because its even more earnings power and like I said I don't think that deposit growth is going to be quite as robust as it was all of last year or so so we'll have a little bit less growth. There. So so earnings should really be supportive.
Of our of our growth and we feel very comfortable where we are on the capital from.
Great and then where are you seeing as the price today, just on securities and I know you said, you're still doing some of those floaters, which are.
And sometimes lower yielding and then on the capital call lines, where those pricing these days.
And the capital call lines.
And the pricing has come a little tighter.
It's LIBOR base.
And will it become tighter was on the on the the floor because.
Because we like to have it for <unk>.
And 50 basis points, or thereabouts, and thats, becoming tighter, but at the price and is anywhere from LIBOR 115 for Libre $2 25.
And from Securities on the security side, no floating rate securities that we're putting on and are anywhere from 40 to 60 basis points and.
And then other investments are and.
Hi ones I'd say, so blended will probably come in and a little bit over 1%.
And security reinvestment were still being selective.
Long slide.
As we do anticipate rates will continue to rise at least on the longer backend of the curve.
And for the first quarter, we're going to have the PPP loans.
Thus far for the last two days.
We have a little bit more than 2000 applications and exceeding $600 million.
So we have we have deployed a significant number of personnel to be ready to get.
Get the applications and into the system and have the SBA gives us the SBA numbers.
Processes done.
And we hope to get up to $1 billion.
If not more.
Yeah.
Sounds good and maybe just one last one real quick on the deposits I know you guys bank crypto currency firms and I'm. Just wondering if you could talk about what you do for these guys and I know you mentioned and the strong deposit growth and digital.
That's a nice positive to the story I was just curious how big of a chunk of that is coming from crypto customers and and what's your outlook is for growth and that segment.
Yeah.
Well.
There is a number of different types of clients, whether it's stable coin or OTC for us or digital asset exchanges.
Block chain type tech companies and others that we bank and that space. So.
We have approach and I think we're just crossed over $10 billion and deposits with the digital assets team. So it's bad.
Very solid area of growth, we've clearly become the pre eminent player and that space. So we're very excited about what's happening there.
And although it's obvious that debt.
Digital assets and crypto currencies, you are not going away and there is something in the future. We're not sure who the winners and losers are going to be but we're very happy that were.
Bank.
For all those various firms.
And with help stem and the signature platform that we are.
And we are.
Announced on January 1st 2019.
It's very exciting.
24 by seven by 365, and the team that handles that does continuous enhancement.
And there's a world beyond crypto currencies.
And where we can have no debt.
Other ecosystem using.
And the platform. So it's very exciting it's one of the areas one of the few areas, where we're staying ahead of the pack and.
And that being a follow up for being a leader.
Technologically wise.
Great. Thanks, guys appreciate the color.
Thank you Dave.
Your next question comes from the line of Ebrahim Kona Wala of Bank of America Securities.
Good morning.
Good morning and van.
I guess, so and it.
And just in terms of expense outlook, you previously talked about just expense growth.
Sure.
And generally in terms of.
Quarterly basis.
King out maybe early part of the so give us some color around expense growth and how that translates into operating leverage and efficiency and issue based on what you would see for the year.
Yes, we anticipate hiring a reasonable number of teams early on and the year of probably 10 to 15 teams, but not for 'twenty teams that we hired.
In 2020, so we should see our expenses really start out and that 14, maybe 15% range for hopefully to keep at the 14% and then trend down slowly over the course of the year.
We gained operating leverage this year right, even though we had a declining.
And we are sitting on it on a ton of cash we hired 2000 teams.
So we have a very.
Powerful model that can really drive.
Net income right.
And we have some leverage yet and our infrastructure. So we should see positive operating leverage, especially as we put the cash to work and how.
More on the earning side and I think we'll be able to keep expenses and check and gain efficiencies.
Got it and on the cash going back to just the negative K $12 $5 billion and the fourth quarter from what I have I think you said previously that you see that number should be maybe about $2 billion to $3 billion wait and see the cash position should be adequate.
So is it fair to assume that there's about $9 billion to $10 billion that you will be deployed towards loans and securities over the next few quarters.
Do you think about that.
I think it's going to take us a little bit more than a few quarters, but yes, absolutely we should have $10 billion flowing into into interest earning assets over the course of this year at least and that number doesn't stay static because more deposits is going to continue to come in.
Right right and.
I'm not sure if you'll be able to disclose but going back to the earlier question around.
Bringing in deposits of maybe marginally higher rates than what the market offers like I'm, assuming the new deposits that are coming in are fairly much lower then.
Low to mid teens rate, we expect the total cost of deposits going through any any color around that and just talk to us I think in terms of.
Why it is worth paying up for these deposits and told US what franchise value the bad in the near term and over time for signature, but and.
For example, the mortgage servicing.
<unk> mortgage servicing team.
Putting in on a daily basis, a tremendous number of accounts of DDA noninterest bearing and then some of the some of the S gross debt.
And our big dollars at stake and flow and and now much less frequently.
Paying right now and the 30% 30 basis point range.
But when you combine the 230 and then the DDA.
Coming down below 30.
Uh huh.
I think everyone focuses on NIM.
Got.
We will place the focuses on the efficiency because we're a lot more efficient and bringing these deposits and.
And then retail group and retail group will have a much lower deposit costs, but they will have high real estate costs high marketing and high advertising and costs, but we don't have that stat that bodes well for the efficiency ratio.
But when you have a lot of room, but like I said earlier.
Earlier, we brought the cost down at 37 basis points from 41 basis points in December to January now so that day and one month were down four basis points and we continue to drive the count further.
We don't have that retail component.
So we don't have the expense, but we also don't have the retail component, where we can drop the rate.
As quickly as you would for the large clients that we have and our portfolio.
Well that has been taken just one quick one Eric.
The outlook for tax rate for the year.
And used 28% we had some one time state tax true ups as we filed those returns and so.
And that brought our rate down and we're a little bit higher than we probably should have been earlier and the year. So we should get back to a 22, 8% effective tax rate for next year barring any changes obviously.
<unk>.
Thank you.
Thank you.
Your next question comes from the line of Jared Shaw of Wells Fargo.
Hey, good morning, guys.
Good morning, Sharon.
And maybe first going back to signet and the growth and digital and you know that's that's great deposit growth can you can you share with us how else what other ways can you monetize those relationships.
Yes.
Looking at the fee income line as well and you know up almost 40%. This quarter is that a is that a level. We can see growth from and is that dependent upon or or conditioned upon cigna as well or how should we be thinking about other ways of monetizing the guidance just deposit balances well the digital clients.
Right now.
Generating very little fee income.
We are improving our foreign exchange system for the point that the digital clients will be using foreign exchange quite a bit. So the team that handles that is waiting for the improvements to happen.
FX system, and we can drive some foreign exchange, there, but assuming that drives really deposits.
Right now, we're not charging fees and getting the new ecosystems on.
And we will probably won't.
Spud fee income on signature for some time until we get a large amount of huh.
Ecosystem is on there so the fee income that's being driven right now.
And our institution is non digital.
And we certainly were pleased with the growth that we've seen and.
And the fee income a lot of that is coming from the new teams that we brought onboard whether its on the mortgage banking team, which is pretty free intensive or adventure for the fund banking team, which generates a lot of unutilized fees.
Joe talked about foreign exchange.
And we're putting a new system in place.
That should help us to really bolster profits there.
And.
All the new groups that we've added and and particularly the west coast will really benefit from a better foreign exchange capabilities. So that's that's a way for us to continue to drive fee income, we're working on a new credit card for us the issue will need that for the west coast as well as our venture team. So that hopefully will come out and mid year and we'll start to see some revenues.
<unk>.
Generated from that and our trade finance group and continue to build that out.
And starting to see some nice traction game there.
And really we're talking to our bankers more and telling them that we provide.
And unbelievable level of service to our clients.
And we certainly saw that played out and this current environment, where other some of our clients with costs I Couldnt, even get a bank around the phone at Xyz bank rate, what we need to be paid for that right. The fact that we've got a team that is there all the time for their clients' needs, we need to get paid for that.
So we're focusing on that with our banking teams and that also will hopefully drive revenues.
Okay. That's great color, Thanks, and then I guess shifting to credit.
You know, obviously, you sound optimistic when youre talking about the loss content and the potential losses and the and the loans that you are working with the borrowers on here. Maybe you can you can you share with US you know as you've gone through year end and you you did the modifications and the second round of deferrals.
And I guess why do you feel that that confidence whether its in the loan to value or debt service coverage ratios or or vacancies.
Yeah, and maybe just give us an update on on sort of the strength of that underlying portfolio and where you're getting that confidence from its somewhat everything you said, but added on and on top of that is that and the commercial real estate World. We deal with these multi generational hi.
High net worth families.
And that deals with other partners that are multi generational high yield high earning families and.
And they want to keep the buildings, particularly the multifamily and their portfolios and.
And they stepped up when they've had too and.
And that gives us the confidence that the type of clients that we have not for.
A client that has one building that the lives on that one building for their livelihood.
We have.
Most of these large clients that have multiple buildings.
Suddenly be hurting for most of the non <unk>.
And they're able to take care of what gives US confidence also is that on the deferrals.
The fact that they are not paying us.
On a net principal and interest deferral, they still have operating costs.
And the cost to operate the building and still paying taxes paying insurance, so that gives us confidence that when the pandemic starts to subside.
And they'll have the cash flow when rates start moving up.
And to paint and pay the interest only piece and then pay the principal and interest piece for the third.
And of the AR business apparel.
Just don't want to give up on.
Keeping our properties.
Properties, I think whats different now than.
And then any of the cycles from the past is that we had the cares act and the banks can be more flexible for them and it's more of a timing issue than it is a cycle.
And then that's great color, Thanks, and then I guess.
When you look at that second round of PPP.
Are you going to be really able to targeted to those to those borrowers that may need it the most or I guess, how important is that second round of PPP to the.
For the loans that are already and deferral or for modification.
Thanks, Dave and really not it really separately.
And.
I think the PPP is going to help them, but it's not going to help them pay there are low.
Loans, it's going to help and.
Pay the employees.
So that debt.
<unk> survived.
While the pandemic is going on I think it's more humanistic piece and it is paying for the rent.
Great. Thanks, a lot.
Thank you.
Your next question comes from the line of Matthew Breese with Stephens, Inc.
Good morning.
40 minutes and then.
And following up on the credit question. So the six 6% of loans that Werent full P&I deferrals could.
Could you just provide us with the composition the ltvs and the types of modification and being provided there and what was that balance last quarter.
For sure the balance was last quarter, but.
It's those are predominantly interest only loans for where we modified into and industrial and infrastructure.
And mind, you know with what our Ltvs were on the entire portfolio and our mission.
And in LTV, one 125 to 145 and a debt service coverage.
Who knows.
And those loans were really not concerned about clients are paying us interest all later interest only plus partial principles and so.
Hum.
And not overly concerned.
Okay, and net debt service coverage for that as of most recent or at the time of underwriting.
At the time of underwriting.
Understood.
The second question was just on loan growth for this year and.
2020 fund banking was the primary driver and I recognize the team and it's still very fairly new I'm just curious how much of the growth. This year was driven by the team's recapturing old customers versus general private equity market tailwind and then looking ahead, how much do you think the fund banking division and will contribute for loan growth.
And 2021, what are the verticals will grow.
And I think the fund banking team will still lead.
And we'll have a signature financial which is past five day, and an outstanding probably somewhere between four and $500 million.
For $500 million and growth.
The venture group could probably have somewhere and it well.
And $1 million to $400 million.
We have then.
And the teams and Los Angeles, and San Francisco really purely.
Traditional C&I teams and we expect several hundred million dollars and growth there.
For the P. P. P loans growth will discount because we don't know how long they will stay on for.
And banking division could do probably anywhere between $2 billion 2 billion and a half.
Quarter.
And then we have two.
Initiatives that we're discussing right now to bring on two verticals.
<unk>.
And asset generators, we haven't disclosed what they are.
We're still free.
And bringing them on board, but they'll contribute and the second half of the year on the asset side.
Okay understood and just to be clear the signature financial and 400 to 500 da Vinci.
That's all on a quarterly basis not for the year correct.
Alex for your assets for.
The year, Okay with fund banking doing $1 billion to 1 billion and a half a quarter.
Yeah.
Okay.
Financial income.
So a lot more short term so they have to overcome a lot of the amortization.
And they could be doing several billion dollars, but it's net $4 million to $500 million.
Okay.
Yeah.
And.
Okay.
I'm sorry, the last one was just on.
And on digital and and Cigna banking deposits and.
And as you wind back the tape and you look at when you first hired the digital banking team.
You mentioned catering to the institutional investors playing in that space. It was a different time for crypto back then I think folks for much more skeptical can you just talk a little bit about how sentiment adoption investing and equip our crypto how appetite and interest from the institutional investors changed over the past couple of years, but really over and over this year.
And what the growth opportunity for this line of business you could be.
Well, it's growing by leaps and bounds.
We are doing we're only taking institutional deposits and this space and in fact, that's pretty much what we're doing.
But for the exchanges.
I don't want to top five exchanges, we have as clients.
<unk> for some retail.
Funds flow.
And we're doing enhanced compliance now these exchanges have been given licenses by the state for the.
Regulators and starting to regulate the business and we're only drilling with five.
Retail, but for the most part and we're still institutional and they just keeps on growing by leaps and bounds I think what drove it.
And part is the pandemic.
Yeah.
Right and with that did you see enhanced or.
Outside's growth on the back half for the year than the first half.
Yes, its likely yeah, I would agree with that we would agree with assets.
Okay I'll stop there I appreciate it guys. Thank you. Thank you for that.
Your next question comes from the line of Steven Alexopoulos of J P. Morgan.
Hey, good morning, everybody, we're and Allison.
Alice I mean, Steve and good morning.
Just to start so the six 6% of loans that are COVID-19 modified its still not clear to me.
What's exactly in that bucket are those loans on deferral or are they not on deferral.
Those are loans that were modified.
Predominantly modified so and an interest only structure.
So there is loans that are on full payment deferral of the P&I full payment deferrals and that's the one 3 billion that we disclosed and the table and then theres other loans that were modified to and interest only structure.
Okay. So essentially there are being deferred rate I mean at least for principal payments being deferred right for.
For instance, the FERC, that's right principles and be the part and and Eric What's the term of these like how long are the are you providing these deferrals for.
And we have any.
Way between six and 12 months.
Okay.
Got you.
And well take what and when is the ones that paint and we've got a pad.
And interest only are paying and insurance debt paying them and again operating costs and net paying the taxes.
And we're giving them a little relief yeah.
The only for Joseph it could possibly be it maybe it would be a PDR.
So instead of it being a PDR.
And interest only modifications right. So Joe for you think about it from a big picture view the Npls are relatively low.
Still have relatively high deferrals and the cares Act modifications also seem relatively high but if you thought either of those two buckets, we're not going to pay you at the end of this deferral term they would have to be and NPL today correct.
Oh, and equaling them 10 P M.
We would not postpone them.
If we believe someone's up and have passed and will be moved to nonperforming.
If we believe somebody who's not going to pass and we will also take a charge.
Specific well, we put a specific reserve on it.
Yep.
As an example, I won't give any amounts that haynesville decline is but we have one situation where declines pain.
But we don't believe that.
It's going to end up being good.
And that has a specific reserve on it.
Congo.
Okay. That's helpful and then and then to shift directions to the growth side.
So we used to talk not that long ago. I think it was actually 2020 of $3 billion to $5 billion per year with the asset growth target.
And you did 23 billion and 2020.
What is a reasonable target now as we think about signature bank and its current for them.
Well you know what we've talked about Steve is that we have.
<unk> gross securities $1 billion to $2 billion, a quarter the ability to grow loans $1 billion to $2 billion a quarter. So that basically sets up to three years to four affiliate and asset growth per quarter. So you're looking at anywhere from 8 billion for 16 billion and grew.
Growth.
And we've put in place some very meaningful businesses over the last couple of years that will really allow us to.
To drive future growth.
And we brought on a reason and new initiatives, which are now full fledged businesses and we didn't know.
How quickly they would come to fruition.
So the three to five for the year, we didn't realize it was going to be three to five for court.
Yeah Yeah.
I guess, what I'm trying to drill down to also so you grew deposits 23 billion for loans grew by 10 billion and 2020 and when we think about this mix.
And I know you said there might be new teams coming on the asset side, but should we expect the loan to deposit ratio, which I think was like 77% ish range.
Is there enough on the asset side to absorb and deposit <unk>.
Verticals, all contributing or do you think the loan to deposit ratio from here just continues to trend lower through the year.
Thanks.
And it'll probably trend a little lower and.
Initially.
We are going ahead, and we think these two new verticals on the back end of the second half a day.
So that that will mean that we'll see much more asset generation and the second half then we wouldn't necessarily Samsung yeah that debt.
And they should be.
Come down slightly.
Hey.
Thanks for elective.
And we've been through cycles, right and we've seen when rates rise right deposits tend to find other uses whether it's people building their business or investing and off balance sheet.
Investments that can earn them more and we've seen deposit growth then slowdown.
And that's when we will ultimately be able to take the current deposits that we have really deploy them and maximize our earnings potential.
But the important thing.
And I think people are losing sight of this a little bit we grew.
By about $10 billion this quarter and we returned 13, 5% returned to common equity shareholders.
One other bank is doing that.
Yeah, So now imagine putting the cash to use and.
And what does that do for earnings.
Oh.
Tremendous amount of earnings power and our balance sheet right now and we're continuing to drive down the cost of deposits.
And I said, we went from 42% for the quarter to 41 and December 37, thus far in January.
So we have we have a little more room.
To drive that and.
Create more orderly.
Yeah got you.
Thanks for all the color guys.
Thank you.
Your next question comes from the line of Chris Mcgratty at K B W.
Great Good morning Manav.
But most of the questions and.
Answered just a couple of nitpicky ones.
Joe can you remind us for Eric can you remind us the remaining triple P fees that are scheduled to come through.
The next couple of quarters.
We haven't really for given that much so.
Little bit of a guess, but it's got to be around 50 50 million is still that we have to come through 50, okay.
Yeah.
And then on the.
The noninterest income just going back to that for a moment.
A couple of quarters back you used to have.
Amortization line that ran through it.
And there was an offset on the tax line that seemingly has gone away.
It's being masked by some other items.
Items, but.
How do we think about that other other non interest income on and we reclassified that at the beginning of the year. So.
And we took that out of the expense out of the.
Non interest income line. It was a negative non interest income component and we moved that down and to taxes. So that's why our tax rate our effective rate bump up at the time from 25% to 28%, but we also took out the previous year. So when we do it one way, saying about the growth that growth is.
Apples to apples, because we'd be class previous years as well.
Okay, but if I'm just looking at that fee that fee line was call. It 24 million Bucks this quarter little over 'twenty. If you back out the bond gains last quarter, but these are kind of a stepped up run rate, that's sustainable and what you're messaging correct that's right.
Okay. Thanks.
Thank you and Chris.
Your next question comes from the line of Mark Fitzgibbon of Piper Sandler.
Hey, guys good morning.
And Mark just.
Follow ups to prior questions I guess I'm curious do you have any plans for new lending business is to sort of help sop up some of the liquidity.
Yes, we actually have two initiatives.
That.
We're in the midst of discussions, but we should have them on board.
Sometime in the next.
And certainly this quarter.
And and then we'll start seeing the fruits and their labor and the second half for the year and then both initiatives of both assets and devices.
And they're scalable right away.
It'll it'll take them three to six months to get up and running.
For sure one is a bit more scalable and then the other but.
Realistically, we will have some impact to the for the fourth quarter numbers and expect with the.
More so really in 2022, where they'll really be able to ratchet it up and not.
Trying to be coy about it it's just that we haven't brought him onboard yet.
Fair enough.
<unk>.
And Joe Correct me, if I'm wrong, but I thought you had said and the paths and some of the large deposits coming in and the second half of 2020 might not be that sticky that there were some that maybe were temporarily parked do you see.
Sometime during 2021 some of those flowing back out.
Well there is some flow there's always been there's always been some fluff.
We had some very large deposits.
During the year.
That world Class action deposits were three believe it or not we had $3 7 billion nearly $4 billion of dipped.
And you don't see in the a and B.
And.
And in the third quarter ended the fourth quarter because it came in the beginning of the fourth and left during the month of December.
And another $3 7 billion and deposits.
But it was all DDA.
And so we saw about 4 billion and flow out.
We expect that there'll be some fluff and in fact, we expect that and when rates rise.
Some of that money will go off balance sheet to money market mutual funds.
And we're okay with that because we don't use capital and.
And we get a feeling for putting it off balance sheet and fee.
It wasn't too long ago, when we get $333 million and 250000 a quarter.
And today, we're getting less and 200000 a quarter.
On fee income from off balance sheet. So we expect some of that to flow out.
It won't it won't be versus the growth.
And it just slows it down a little.
Thank you.
Thank you.
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