Q3 2021 Signature Bank Earnings Call
Welcome to signature Bank's 2021 third quarter results conference call.
Hosting the call today from signature Bank are Joe Depaolo, President and Chief Executive Officer, and Eric <unk> Senior Executive Vice President and Chief operating Officer.
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It is now my pleasure to turn the call over to Joe Depaolo, President and Chief Executive Officer, you may begin.
Thank.
Okay.
Good morning, and thank you for joining us today for the signature Bank 2021 third quarter results Conference call.
Before I begin my formal remarks.
Susan Lewis movie to forward looking disclaimer. Please go ahead Susan.
Thank you Joe This conference call and all statements made from time to time by a representative.
Of 1995, you should not place undue reliance on those statements because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and maybe beyond our control.
Forward looking statements include information concerning our expectations regarding future results interest rates in 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 in on our business overall.
Forward looking statements often includes words, such as May believe expect anticipate intend potential opportunity could project seek target goals should will would plan estimate or other similar expression.
As you consider forward looking statements you should understand that these statements are not guarantees of performance of results. They involve risks uncertainties and assumptions that could cause actual results to differ materially from those in the forward looking statements and can changes of of many.
Possible events or factors not all of which are known to us or in our control. These factors include those described you know quarterly and annual reports filed with the F. D. I C, 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 over you into the quarterly results and then my colleague hurt how Lord Chief Operating Officer will leave you look nice furniture performance in greater detail everything I will address your questions at the end of our remarks.
Mhm to banks dramatic growth would surpass the milestone of 100 billion innocence.
Was driven by the collective success as a legacy banking to the New York.
Change isn't.
Great Blotching.
Grace payments platform pseudonym and the many Lois current charges, which now comprise all the organization.
Deposit growth of 10 billion.
And the third quarter continued to be widespread with notable contributions from a digital asset baggy T including growth on the Signet platform.
Specialized mortgage banking solutions to the New York legacy banking teams.
Core grow all core Lone Grove.
Driven by our phone banking division, which grew a record $5 billion is outstanding.
Although some of these businesses have only recently come to fruition our approach remain consistent since the day, we opened our doors.
We've always adhered to our client centric single point of contact model, which invariably the tracks top bankers from across the industry as well as their clients.
Now, let's take a look at earnings pretax Preprovision earnings for the 2021.
Third quarter, where a record $331 million, an increase of 78.6 million with 31% compared with $252.4 million with 2023rd quarter.
Net income cause of 2021 third quarter increased 102.9 million.
Was 74.2%.
Cool record.
Hundred and 41.4 million with $3.88 diluted earnings per share.
Paired with 138.6 million or $2 and 62 diluted earnings per share for last year.
The increase in income was predominantly.
Driven by substantial asset growth of 44.1 billion over the last 12 months.
As well as well as the decrease in the provision who credit losses, which was substantially impacted by COVID-19, and the third quarter of 2020.
Looking at deposits deposits increased 10 billion.
Or 11.7% to 95 6 billion this quarter, while average deposits also grew Tanzania.
This quarter's growth was driven by the digital asset banking team, which grew deposits 5.1 billion, including $2.7 billion.
Growth on the Signet platform.
Actually the specialized mortgage banking solutions. He grew 2.3 billion or venture banking group increased 200 million West Coast banking teams grew 235 me in a New York Bank and teams grew 1.9 billion.
This includes eight New York teams that exceeding 100 million and grow.
Since the end of 2023rd quarter.
Deposits increased the remarkable 41.2 billion or 76% now.
Image deposits increased $33.4 billion furthering the reduction in a long to deposit ratio, which now stands at 61% down from 85%.
One year ago.
During the quarter.
Non interest bearing deposits increased 573.
That's what I'm, saying twice non interest bearing deposits increased 5.7 billion.
30, 443, which represents a high 36% of total deposits with.
Tremendous growth in GDA can largely be attributed to the adoption of a signet platform, which as I stated earlier go through grew by 2.7 billion. This court.
A substantial organic deposit for virtually an increase of 44.1 billion was 69.2% of the total assets.
Third quarter of last year, that's the equivalent of acquiring the top 50 U S Bank.
But we did it completely organically.
We believe this is by far the most efficient use of capital.
Now, let's take a look at it online doing business.
Core loan or loans excluded P. P. P. During the 2021 third quarter increase the record $5 billion or 9.6% to 57.2 billion.
So the prior 12 months call loans grew 13 billion or 29.4%.
Kris and loans this quarter was again driven primarily by the fund banking capital call facilities.
Existing teams are well positioned to capitalize on opportunities.
We also welcome Ah corporate mortgage finance business.
Warehouse mortgaging.
And our SBA originations platform, which will help to further outgrowths and diversification.
Now turning to credit quality, a portfolio continues to perform well.
Let me first point out the banks COVID-19 related non payment modifications.
Can you to trend positively.
As a view and 2020.
With 1.3 billion.
At April 15th it was 983 million at.
July 15th there were 309 million and as of October 10th There now at 254 billion before the end of 2020. When it was 1.3 billion now down to 254 million or 43 basis points of total loans, such a non payment model.
Vacations.
Nonaccrual loans $165.4 million 28 basis points of total loans.
With 136.1 million with 25 basis points.
For the 2021 second quarter.
Well within our expectations.
The ability to 89 day pass through loans are well within normal range at $98.1 million, a 90 day plus pasty loans were $81.2 million. However, they were two loans Ah renewals that were delayed and have subsequently clothes, but just need for this Ah 90 days plus past us what.
Bill within the normal range of seven point at 7.9 million.
The charges for the quota of two net charges for the 2021 third quarter with 17.3 million or 12 basis points of average loans compared with $15 for millions of 2021 second quarter again, well within our expectations.
Vision for credit losses since 2021, the quota decreased to 4 million.
Eight two minutes to 2021 second quarter.
Support the banks allowance for credit losses, 85 basis points and the coverage ratio continues to stand that a healthy 303%.
I would like to point out that excluding very well secured fun banking cough Becky.
Capital call facility and government guaranteed P. P P long.
As for credit losses will be much higher 136 point.
Now.
Until you expand access and the 2021 third quarter.
Panic onboard as one large private client banking too in New York.
The spring two total.
Hi, as to eight for the year two in New York for on the West Coast as well as the corporate mortgage finance team.
P a originate 15.
At this point in the call I'll turn it over to Eric and he will review the corners financial results in greater detail.
Thank you John good morning, everyone.
I'll start by reviewing that interested in coming margin.
Mhm.
The third quarter, it reached $480.9 million, an increase of 23 point.
Two $7 million or 5.2% from the 20th 21 second quarter.
An increase of $225 million or 20% from 2023rd quarter.
That is just margin declined 14 basis points to 1.88% compared with 2.02.
Percent for the 2021 second quarter.
Decrease was due to massive excess cash balances from signet impacted margin by 59 basis points again or.
Our focus is on net interest income growth.
Let's look at ask that yields and funding costs for a moment.
Interest starting as it yields for the 2021 third quarter decreased 19 basis points from the linked quarter to $2 100%.
And driven by the massive excess average cash balances, which grew 5.4 billion.
For the quarter.
Yeah. It was on the securities portfolio decreased 23 basis points right cool.
214, 9% due to lower reinvestment rates as well as the bank investment in floating rate securities.
Especially in our portfolio duration.
We anticipated that it was going to be a better environment for investors.
And your security is unfortunately.
However, we were opportunistic throughout the quarter as we saw a limited windows in which to invest.
And therefore, we bid increase the security, which includes $1 billion in purchases that settled literally on the last day of the quarter.
Turning to our loan portfolio yields on average commercial loans and commercial mortgages decreased 30 basis points to 345% compared to the 2021 second quarter exclude COVID-19.
Prepayment penalties from both wars yields decreased by 10 basis points.
Now looking at liabilities are overall deposit cautious quarter to two basis points due to the low interest rate environment as we gradually lower our relationship based.
Deposit rates.
We anticipate this downward trend to continue in the coming quarters, albeit at a slower pace.
Uhm balances decreased by $146 million and the cost of borrowings decreased rebate.
This is points to 2.8% all cost of funds for the quarter decreased.
Six basis points.
32 basis points, driven by the reduction and deposit cost.
And I'd like to point out the dramatic shifts in our interest rate risk profile, where our balance sheet has moved to significantly asset sensitive for mildly liability sensitive overlooks focus on growing floating rate loans, which now comprise 45% up from 10% of our loan portfolio.
Coupled with our core deposit funding base makes us extremely well positioned to take advantage of a rising rate environment.
And then I want to non interest income and expense with our plan to grow noninterest income, we achieved growth of $7.2 million or $34 million when compared with the 2023rd quarter increases.
It's mostly due to rising fees and service charges, which was driven by an increase in both unused commitment fees and treasury management fees.
Noninterest expense for the 2021 third quarter was 181.2 million versus $166 million for the same period a year ago.
The 27.
Million dollars or 12.9% increase was principally due to the addition of new private client bellport to meet the banks growing needs.
And despite our significant team hiring and margin compression from substantial.
Dash balances.
<unk> continued as a result of our efficiency ratio improved to 35, 4%.
For the 2021 third quarter versus $38, 90% from the comparable period last year.
And Ah quickly turning the taxes this quarter, we benefited from multiple one time tax items, which totaled seven $4 million and included $4.3 million in solar tax credits.
The slower for the quarter, excluding these benefits the effective tax rate for the quarter would've been 28.
25%.
And turning the capital the.
The bank raised $655 million common equity through a public offering during the quarter as a result, all capital ratios strengthened and remain well in excess of regulatory Lois profile of the balance sheet as evidenced by common equity tier one risks.
Space ratio of 10 44, 9%.
In total risk based ratio of $12, 96% as of the 2021 director Joe. Thank you.
Thanks, Eric the collective strength of our French.
Guys.
That's yet another quarter of strong deposit growth.
Record co.
Oh God.
Record pretax preprovision, earning.
Bottom line, we delivered another strong quarter.
We are well positioned for the future given the robust deposit quote from across the boy.
Has led to a significant level of excess cash on our balance sheet.
We will continue to prudently put the cash to use.
And our securities portfolio as well as our loan portfolio to both are new and existing lending businesses.
A steadfast deployment will ultimately drive earnings higher for our shareholders.
Our approach to organic growth.
Coupled with our industry, leading efficient C continues to be the best method for capital deployment.
Signature, thanks traffic and confirm that investing in people is paramount and the optimal path is to avoid all of the cultural and organizational disruptions that stemmed from M&A, which are often underestimate.
Looking ahead of colleagues, who dedication has brought us to this next chapter.
It has always been and will continue.
He'd come.
Signature panel.
Thank you.
We look forward to.
To a bright future ahead quest.
Questions, you might have but before when I check before I turn the call over to the operator I just want to encourage everyone.
Please get vaccinated.
Now I'll turn it over to hammer. Thank you.
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Our first question comes from Ken's there'll be with Morgan Stanley.
Alright, great. Thanks, Good morning, guys.
Are you able to provide any data in terms of how much payment volume is is flowing through sickness and how that may have changed over the last couple of quarters.
Yeah.
We can provide some statistics drive.
[noise] are transferred volumes for the quarter were 100 and.
8 million.
Okay. So I'm sorry go ahead.
Down slightly from the prior core quarter of 140.
Gotcha, and then where was that maybe I don't know if say first quarter a year ago I was trying to get a sense of how.
Oh, that's wrapped up Mcdonald.
Was not relevant so.
We're up about four times, if we look at all of 2020 112 billion and volume.
Year to date, where at 365, so will be four times more.
This year.
More than four times.
Got it okay, perfect and then second question.
Yeah.
She just elaborate just a little bit more.
Alright, I think Joe you mentioned that you are not in the spring deposit growth was was really that platform.
I know you have to digital Banshee came to pace, some very small amount of interest.
Stop the deposit was coming in peculiar break that out or help us understand.
How much like well, how do Ya delineates, where you're paying interest on those crypto deposits versus where you're not paying interest on those if that makes sense. Thanks.
Well, we don't pay interest on the operating accounts.
I would say on average about 30.
Deposits and non interest bearing in the in the digital T.
Okay, and about 70% of interest bearing but that the cost of.
Funds Tibet for that team is about five basis point, we have for all the other teams.
So they've been driving the cost.
Digital deposits.
Down.
Gotcha, Okay, alright. So it's helpful. And then my last question I can squeeze on that did you do any bitcoin backed loans.
This quarter.
We did we did one long.
Sure.
Sure It is a $25 million right.
That's all we've done for the for the third quarter, thus far.
Three year.
We expect alrighty, who won one or two others.
Awesome, Okay, great. Thank you very much.
Our next question comes from Matthew Please with Steven.
Mhm.
[noise] [noise] hey, good morning.
Good morning, maybe turning to loan growth you know this quarter's performance was well ahead of guidance.
You know just curious what happened throughout the course of the quarter that you weren't expecting and and maybe you could use recalibrate your expectations on loan growth going forward.
Well in in the.
Fun banking capital call group.
I had a number of prior to the third quarter.
Drawdowns Lauren.
So.
Another pieces that it was a I'll call it the perfect storm.
A lot of fr.
Opportunities.
Both large and small.
Did you direct loans as well.
So it wasn't.
It wasn't anything any one thing that drove it.
Just.
Something that we wouldn't recalibrate the fourth quarter based on on the third quarter because so many good things have fourth quarter tends to be a bit choppier for us is harder to predict.
We do kind of see clients paydown lines, often in the quarter. So we're looking at.
And a half to 2 billion.
And while growth guidance for the fourth quarter.
Great. Okay. Alex sheet is is through 100.
Billion.
Should we expect any changes on the regulatory front or the stress tests run or you know you guys operate without a holding company.
Does that exclude you from you know any of the you know the Dot Frank Act stress test could you just maybe talk a little bit about that.
Yeah.
Most of those would come into play that 250 billion dollar market can be considered systemically important between 103 hundred $50 billion I don't think we're doing anything that way.
Render us and to be systemically important our banking models pretty straightforward and simple so I highly doubt that the regulators would go there.
But you know the one thing that will have to do is.
Submit resolution plan.
We've got some time to do that so so we feel very comfortable about our ability to do that again.
Simple.
Banking.
Model.
Structure.
Or so it really shouldn't be difficult for us to put together resolution plan.
And that resolution plan will be.
Expected it sooner than later would be expected in 2023.
So does that make sense.
We certainly have time.
Right Okay.
Last one for me. It was just I was hoping you could talk a little bit about it you know, there's obviously a ton of cash on the balance sheet 29 billion, we start to see an inflection.
We can actually she cash balances start to turn and go lower and and could you maybe just talk a little bit about what you think the normalized cash position of the bank is a lot of the stable point issuers are mandating that certain reserved.
The reserve deposits need to be in certain asset classes.
Should we expect a signature as a as a participant in that just needs to hold onto more cash than your average bank. That's all I have to ask you difficulty in answering the first part of the question is because.
Cause it flow.
Oh.
It's hard to tell me, what the deposit slows a bit out there, both new and and.
Legacy that Ah Ah continuing to drawing.
Clients, particularly if you think about the west coast.
Under a pandemic the whole time, they've been here so as they start to play more of the deposits and it's hard to to deploy that quickly. So it really depends on on the deposits pause it flows.
But one of the good things that we had.
Showing on the asset side is that we have.
New verticals.
He has a warehouse lending bsba lending and we have another vertical that will be coming on board.
Either this quarter or next.
First quarter of 2022.
So that deployment will will will help us we.
We expect that commercial real estate will.
What will start coming on not like they did in the early part of.
Can get here, but certainly in a positive way.
Whatever cash we get we have we're pretty confident that we can deploy it.
Two levels that little hot much higher than they've been in the past.
And we certainly have a secure environment, but we can invest in today.
As much improve.
Improved from what it was for most of last quarter.
So we'll be able to deploy there as well.
Normalized cash balances tough to predict because we're growing the overall balance sheet, but.
I'd say, we're probably in a kind of $15 billion cash hold now so we've got a significant amount of cash that we need to deploy.
In the future and we'll be able to do so.
We've seen it's hard to say, what Joe said, it's very hard to predict deposit growth for us because of all the engine that we have in place to drive the future deposit growth we have been through a couple of rising rate environment now.
In our history and although we've only had one quarter of negative deposit growth.
And all of our history, we see that deposit growth moderate alright, So we do anticipate as interest rates rise.
We will see the growth moderates near impossible to think that we're going to grow $10 billion a quarter in perpetuity and when that happens then wood.
That should signal a stronger.
Communist deeper yield curve, which will give us plenty of asset classes to deploy into and that's where we really monetize these cash balances.
Something Eric said early on.
The deployment is that we have.
Very bright.
For the fourth quarter.
Mmk pointed out that we had $1 billion.
Investment Securities at settled on the last day so.
Didn't contribute to net interest income and now we add 1.4 billion in loans.
Federal a fund in the last 15 days of the quota. So net interest income looks very bright.
The us in the fourth quarter.
Great. Thank you.
We'll take our next question is from at the haven't put in a while with bank of America.
Good morning.
I guess, maybe just a quick follow up on that statement joined there it got onto Securities book, the tree or two five year part of the color of his any way at 30 40 basis points above yoda start of there just if you could size up attic in terms of the.
Incremental securities you could put shows during the quarter is 2 billion is it 5 billion would appreciate any color on that.
It's somewhere in that range.
It could be $3 billion it could be as much as 5 billion, it's probably pushing it a little bit because.
Because we do have a lot of pay off Sir.
But we have to see how long yield curve stays similarly, situated as it is now Abraham so but.
But if we if we have.
Five year tenure position, where it is now we can deploy a fair amount of of cash into the portfolio. It would definitely be a record well with an investment securities in the fourth quarter based on where we are today.
Understood and just.
On on Capitol solve if you did the equity there has been and then you have a lot of risk weighted capital when you look a tier one leverage.
Essentially that you were in the second quarter, just remind US again, how are you thinking about capital management potential for another growth equity. It is it is it would be a good thing, but give us some context I don't how you are thinking about this.
We're in good position today with the ratio.
Early last quarter so.
We feel good about where our capital levels are but look.
If we see an extended period of outsize growth, we're not going to be shy about raising capital and that's that's our answer and that's what it's gonna continue to be our answer.
Understood and then just a quick follow take on the task of Williams, you mentioned, you have a down quarter over quarter, Oh should we read into that it seems like the backdrop, obviously bitcoin places not totally correlated with that I get it but activities increasing I'm, assuming you're adding clients just talk to us in terms of if that's the metric.
We are looking at all we should think about the sequential job and if you can give us an update on the social partnership vetting stand what's the outlet there.
Look at work early on.
So in this ecosystem.
I don't think one quarter of volume decline as a trend by any means we added near 100 clients in the quarter.
So that's positive anywhere up to 5 billion in deposits are over $5 billion in deposits in the quarter. So that's the key driver for us as Joe pointed out. This is a lower cost deposit play for us than we have at the rest of the back so.
On average.
Just think of it just because we're in the early innings and we've got we've got a ways to go yet.
Think of it that were four times ahead of the last year.
Oh, Okay, no understood and any update you on the spot.
And like how that partnerships growing.
We have a great relationship with circle will continue to do business. They opened up many operating accounts and then now doing a tremendous amount of business on signet.
With their operating accounts.
The partnership is going well and we continue to see a flourish.
Got it thank you on V Q.
Thank you.
We'll take our next question from Brock of the end of the Lady with you B S.
Oh, Thanks, good morning.
Go back to Ken's question on the 20.
25 million securities lending relationship.
You've been very thoughtful and how you've been approaching the market and building that business that seems like.
Going particularly slowly there is there a key.
No regulatory some regulatory clarity, you're you're waiting and if so what what is it [noise].
We just we just think it's best to go to go slowly.
He is wanting to test it out which we did it's not it's not gonna be a vertical like.
Like others, where we're gonna depend on it but a great deployment, we're going to do it for the best clients.
We're going to underwrite the loans is this day to Craig.
Worthiness of the underlying borrower.
We we're not just going to take a big coin and accepted as collateral, which we will accept as collateral, but we've also want to underwrite at the bottle can actually payback without worrying about the collateral.
Where where I just wouldn't depend on it being if we do 100 million a quarter, let's say.
It's not going to drive.
Pointing to any great levels.
It's just not something we're going to do for everyone.
So I would really depend on it.
I'm calling forward.
Okay and shifting over to the digital deposits. How much are are stable coin and could you talk about a specific regulatory changes there that may be coming whether it.
Ah fed regulated bank or.
You know treating them as money market funds and how do you think that a shake out.
First we have.
And stable coin.
Dollars deposits, we have 5.2 billion at.
Said Ron deserves.
Then we have also another billion that for a stable coin.
Clients, but not in the reserves and they may operating accounts.
The strict interest bearing serves as five 2 billion and the total digital deposits of 22 point will call of 23.
23 day in in total deposits in digital.
Of which.
Which stable coin is 5.2.
And how do you see regulatory issues playing out there in terms of.
Is there a risk of a change in the template.
From what we hear.
Well, we understand is that they wanted in.
Deposits on.
FDIC insured banks.
And Orange treasuries.
So if they want to buy if they want to put it in treasury. They can put it in treasuries.
Or.
And bank deposits money market deposit.
That's all discussions with the clients that we've had.
I'd had a stable coin.
I mean, but you know bright there's a lot. There's a lot that has to be done in the U S. As it relates to regulations around.
Financial technology.
Certainly appreciate that and understand that we are we are already highly regulated.
And then ultimately expect that impacts and others will need regulation as well and we welcome that.
For us the D F S. New York Dfs's have been really strong supporters.
And you know they they have a team that 12 verse encrypt, though when they work really well with Boston hopefully I'll continue to do that with all of those as well.
And a stable cooling clients have actually welcoming.
The regulation because I'm in a position that regulation will actually eliminate a number of competitors will be small and eliminate some of the competition because they are ready and willing and able to to live under new regulatory guidance right.
Got it okay. Appreciate caller. Thank you.
You are.
Our next question comes in case, he Harold Jeffreys.
Yeah. Thanks, good morning, guys.
Want a follow up on the security spelled specifically the the reinvestment rates what what was the what was the rates that you've got on that that billion at the end of the quarter and then and then wears that today.
Mhm.
Low to mid one range wanted I have 130, though 150 somewhere in there.
Now I think we're over the 150.
Mark and what will reinvest again.
Okay and is there is there any change Eric in in the composition or you're doing a mix of floaters and then and then you know regular pass through type Securities. Just just some color on on what you are biased.
I mean, you know we're still.
It's the same type of securities that we've been buying for a long time.
Sense of buys and the agency Cmo's Agency Mus pools Callboy Agency debentures, you know we've got some opportunistic put is that we've done in regional banks, some debt and such but it's it's more of the same.
Really.
Okay understood and from from a capital management perspective, what you know as you as you rotate from cash into these types of securities what what is the the risk waiting.
For the for the risk weighted ratios.
I think it's zero to 20% right.
I think it's in the 20% bucket most of us.
Okay very good.
And then the the new lawn vertical any any color you can provide in terms of what this can can add to the loan growth guide per quarter. You know yield expenses, just just trying to get a sense of of what's what's coming under this quarter or next year.
Yeah, and the mortgage warehouse lending team.
They've got.
Well.
Well actually I was talking about the other the the new the team that you're going to that not not a mortgage warehouse raspy I.
<unk>.
A little early to say I mean there.
We're probably looking at.
Fully ramped billions of $2 billion per year in growth.
Okay, and and in a similar type yelled as as as.
As a you know a capital call mortgage warehouse.
Uh-huh.
I would say similar hopefully a little higher probably a little bit more spread in that business.
Okay.
Very good thank you.
Thank you.
We'll take our next question is from Jared Charlotte Wells Fargo Securities.
Hey, good morning.
Morning, Janet.
[noise] just sick circling back on cigarette what's the average transaction size done is that has that been moving around or you know what.
So what we've seen in the past.
[noise] I don't have actual size transactions charger or magnitude is getting bigger or smaller or just.
The longer than larger than.
Ah the Ah.
Institutional only.
And very little retail will be kept with high level. So institutional level is going to be pretty high.
Okay.
And then I guess, it's shifting to the commercial real estate Society. When you look at CRE multifamily the balances Arab and stable for awhile.
As you've grown capital and the the market has stabilized so that any thoughts on.
Sensually reengaging, there and seeing growth or are you happy keeping keeping balances stable here.
What was that it for the engagement.
The balance.
Throwing a little.
Alright, and then on an annual basis.
We think it's a strong asset to add.
We were still dealing with the multi generation.
Uh-huh.
Your experience years of experience with the pandemic crazy.
And the pandemic, we've been able to deal with the jockey.
That's what you have to bet on and so right now we're coming through the pandemic and very.
They will go away and that has led us to believe that we should continue to the.
No the portfolio, albeit not what we did in the years past that.
To grow it at a level that would look comfortable with the keep it in line disengage wise.
With the rest of the organization.
Great. Thanks very much.
Thank you I'll go next to Steven Alexopoulos with J P. Morgan.
Hey, good morning, everyone.
Good morning.
I wanted to start from the digital asset business, we've seen some smaller banks announced that they are either the exchanges are holding stable find a pipe.
Are you guys, saying, many new entrants into the space and how difficult would it be for one of them to replicate sickness.
Well some of them are entering the space to use.
Signet type product to other ecosystems not necessary.
Oh.
Ooh.
Well, let's put it this way three years ago when.
Or they would not survive within five years, that's two years left to go.
And.
We expect that there'll be thanks, coming on the block chain and a number of announcements emerges and we think that's because of the day.
They want to avoid Ah.
Blockchain technology on their own.
So so you're talking about.
Any particular bank well.
Well, we feed you like customers Bancorp said that they're now in the business small and there's been a couple of other small banks, saying there now holding more.
Deposits from stable coin companies. So we're just hearing rumblings or does it just really wondering how proprietary a signet and can these.
Your entrance use off the shelf fintechs to basically replicate with you guys offer today.
Well, we were surprised that it took this long actually.
Expected that it would have occurred sooner.
Particularly with customers Bank, we're actually excited.
They are.
They're on board well cause we have a piece of ownership a meaningful peace of ownership and.
And we have a board seat on task.
So we want we want them to do well.
But I think with the customers.
They are looking to do things.
Without the ecosystems, because it's hard to get into the digital space. If you don't have a team.
Like we have a team that handle signet, Indiana team that handled the digital kline years of experience.
That bodes well for us.
Not have bankers.
And I have experienced in the space.
And with other products will continue to see Nathan enhancement.
And we'll probably announce my upcoming.
Coming quarters into the phone first.
First quarter.
And.
That's been said some of the new things that will be.
Is doing we're not we're not we're not concerned at all.
Because we were first out there.
And.
I think being first album.
Thanks goes a long way for us.
And it's a massive growing ecosystem room for others to play.
[noise] Eric to follow up on that you know the.
And then the earlier commentary that volume had slowed a bit.
A third quarter is your throat at this stage more about simply adding more institutions to the platform or is it more about seeing those bonds lamps accelerates. So institutions hold more deposits with you like <unk>, which is the bigger driver here.
I must say I'm not sure the volumes drive it it's really how much they keep in.
In Sydney.
And the transactions are pretty large I, although I don't have the averages.
So what we were concerned.
Okay added compared to what we've done in the past.
Uh-huh.
Right right right yeah.
Right.
[noise] that's helpful and just one final in Georgia.
Greece and M P L just corner.
29 million.
We.
Really fully expect that our nonaccruals are gonna increase as we're still dealing with the effects of the Pandemics do so it's not a surprise that are nonaccruals went off a little bit.
Most of the loans that are that are coming out of nonpay are cheering, but.
Clearly some are going to go into non accrual I think the.
The branch bright spot if you want to call. It that is really that charge officer or well contained and under.
Under the new Cecil modeling you were able to put up with some pretty substantial provisions, which appeared to be able to easily absorb any losses that we have coming out of it but it's no surprise to us that we saw our nonaccruals climb I think you're going to see that continue for several quarters as we.
Went through the last.
[noise] of Covid.
Thanks for taking my questions.
Thank you. Thank you.
We'll take our next question from David Bishop was he part research.
Yeah.
<unk>.
And at this point.
But I think Eric you started touching upon it but the remind us in terms of the the new vertical as the mortgage for our house and SBA, maybe what the expectations are targets for for growth there.
Yeah, we have we did our first SBA five O four origination in the fourth quarter. So early on it was quarter, that's gonna be a much slower growth more granular type loans, which which we love.
I think.
If we can do 10 to 20 million in originations in the <unk>.
Fourth quarter, that'd be great and hopefully.
Next year, it's 20 to $30 and 30 to 40 40, 50, so you're looking when that businesses mature several years out from there.
Being a two to 500 million I'm Gonna give you a fairly wide range.
Two to 500 miles.
A year and growth.
And the mortgage warehouse finance business, they've got you know.
Almost $2 billion right now in the pipeline.
We expect.
Let's say anywhere from 200.
Maybe even as much as 800 million, but that would really be on the high end of lines. The clothes. You know draws you roughly 50% of that so we could see a couple of hundred million dollars of growth.
Out of that vertical in the in the fourth quarter and that should be good.
Going into 2 billion in growth per year.
Going forward.
Okay.
We'll go next to Chris Mecate, that's K B W.
Great morning, I Wonder if air cause he could provide an update on the the expense run right in the the fee income trajectory given the given the momentum.
[noise], yeah on the expense front.
Had some one time items in the fourth quarter of last year.
That led to a low level of expenses, so probably pop back up till 14% to 16% growth in the fourth quarter.
This year compared to last year.
And then for next year, we really no Christian I think it's gonna be a higher growth expense number similar to what we've seen in prior years will start out in that 14 and 16 range.
Stay there for a few quarters down and then hopefully trend down when.
When we get into the into the third and fourth quarters.
We've brought on some massive business lines.
And undertaking a number of initiatives and we need to invest in our people and our operations.
And our technology, so we're going to still have a hefty level to spend.
Next year for sure all that being said.
The revenue growth is there.
We should continue to see efficiencies begin.
Efficiency ratio go down even with the the level of expensive, we're talking about putting on.
That's great and then maybe it was a couple of housekeeping the remaining P. P. P. P. S. And then what was earned in the third quarter and then also at 28 and a half tax rate is that's kind of where your guidance.
Yeah on the taxes is probably going to be closer to 28%.
Are seeing some ongoing benefit so I'd say the effective rate of 28% going forward.
In the third quarter on the P. P P vs recognize $15.6 million.
And we've got 32.9 million remaining to be recognized which should happen over the next two to three quarters.
Thank you.
Okay. Thank you Chris.
She'll go next to David long with Raymond James.
Yes, good morning.
Good morning.
Yeah, just you know.
The the West Coast you guys have done some pretty good expansion there and I know it's late in the year, but just curious what your <unk> White is there to add additional bankers on the west coast is that something like that.
You guys can look to continue to build and and is that more likely to see that you know maybe in the first half of next year versus anything the rest of this year.
Yeah.
I think we might add a banker here and there to existing teams this year, but mostly at this point.
And the year, we're setting the stage for for next year, we do have a number of teams in the pipeline.
For California, so anywhere.
Anywhere from four to eight teams.
Pipeline.
So that's part of the growth guidance and the expenses as well.
Got it thanks, all my questions other questions have been answered.
Thank you David.
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Mmm.
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