This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Welcome to Signature Bank's 2019 Fourth Quarter and Year-End Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DiPaolo, President and Chief Executive Officer, and Eric R. Howell, 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 open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone 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 pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the floor over to Joseph J. DiPaolo, President and Chief Executive Officer. You may begin.
spk04: Thank you, Christy. Good morning and thank you for joining us today for the Signature Bank 2019 Fourth Quarter and Year-End Results Conference Call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer.
spk00: 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 difficult to predict and may be beyond our control. Forward-looking statements include information concerning our 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, new products, and future dividends and share repurchases. 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 maturely 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 banks speak only as of the date on which they were made. Now, I'd like to turn the call back to Joe.
spk04: Thank you, Susan. I will provide some overview into the quarterly and annual results, and then Eric Howell, our EVP of Corporate and Business Development, will review the bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks. 2019 was a strong year for Signature Bank. We grew deposits by a solid $4 billion, which significantly improved our liquidity position, and we executed better than planned on our diversification strategy while maintaining credit quality and delivering a 17% increase in net income. Moreover, we have laid the necessary groundwork for future balanced and robust growth with the launch of SIGNET, our blockchain-based payments platform, the official opening of our full-service private client banking office in San Francisco, the hiring of our venture banking group, the onboarding of the specialized mortgage servicing banking team, and further advancement of both our digital asset banking team and fund banking division. Furthermore, we ended the year with a really strong fourth quarter. Now, let's take a close look at earnings. Net income for the 2019 fourth quarter was $148.2 million, or $2.78 diluted earnings per share, compared with $160.8 million, or $2.94 diluted earnings per share reported in the same period last year. The decrease in net income is mainly the results. of a decrease in loan prepayment penalty income, as well as a rise in non-interest expense from the significant investment in new private client banking teams. Looking at deposits, deposits increased $1.3 billion to $40.4 billion this quarter, while average deposits grew by $1.4 billion. For the year, deposits increased $4 billion and average deposits increased $2.9 billion. Non-interest-bearing deposits of $13 billion represented 32.2% of total deposits and grew $1 billion or over 8% for the year. Our deposit and loan growth led to an increase of $3.3 billion or 7% in total assets for the year, which crossed $50 billion. Now let's take a look at our lending businesses. Loans during the 2019 fourth quarter increased nearly $1.2 billion, or 3.1%, and for the year, loans grew $2.7 billion, or 7.4%. Continuing our diversification strategy, the increase in loans this quarter was driven by growth in all commercial and industrial lending categories, including specialty finance, ABL, traditional C&I, and fund banking. The total CNI increase of the quarter was $1.7 billion, or 16.2 percent. Conversely, we further reduced CRE loans this quarter by $428 million, bringing our CRE concentration level down to 480 percent from a peak of 593 percent. Furthermore, floating rate loans are now 20.3 percent of total loans, which is a dramatic improvement from 12.1% a year ago. And our loan to deposit ratio decreased again this quarter to 96.8%. Turning to credit quality, our portfolio continues to perform well. Non-accrual loans of 57.4 million or 15 basis points of total loans compared with 32.5 million or nine basis points for the 2019 third quarter. Our past due loans were at the lower end of our normal range with 30 to 89 days past due loans at 31 million, while 90 day past due loans remain low at only 2.3 million. For the 2019 fourth quarter, we had net charge loss of 2.5 million or three basis points compared with 2.9 million for the 2019 third quarter. The provision for loan loss for the 2019 fourth quarter were $9.8 million compared with $1.2 million for the 2019 third quarter and $6.4 million for the 2018 fourth quarter. The allowance for loan losses remained stable at 64 basis points of loans, while our coverage ratio stands at a healthy 436 percent. And finally, on this topic, looking at the future under CECL, We have completed the implementation of various models and upon adoption in the first quarter, we anticipate an increase of 15 to 20 percent in our allowance for loan losses. As for the provision moving forward, we expect greater volatility and it is difficult to project given a heavy reliance on macroeconomics variables, loan portfolio composition, and the product mix. Now on to the team front. In 2019, we added four private client banking teams, including the 28-person venture banking group and the 15-member specialized mortgage servicing banking team. We've become more focused on specialty niche business lines that truly helped us distinguish, that truly helped us to distinguish us in the marketplace. At this point, I'll turn the call over to Eric, and he will review the quarter's financial results in greater detail.
spk12: Thank you, Joe, and good morning, everyone. I'll start by reviewing the net interest income and margin. Net interest income for the fourth quarter reached $338.3 million, an increase of 3.1% or $10.3 million from the 2019 third quarter. Net interest margin on a linked quarter basis improved four basis points to 2.72%. excluding prepayment penalty income, core net interest margins for the linked quarter increased one basis point to 2.67%. Let's look at asset yields and funding costs for a moment. Interest-earning asset yields for the 2019 fourth quarter decreased seven basis points from the linked quarter to 3.87%. The decrease in overall asset yields was due to significantly higher cash balances and lower reinvestment rates in all our primary asset classes from the lower rate environment. Yields on the securities portfolio decreased 13 basis points linked quarter to 3.05 percent due to the decline in market rates, and our portfolio duration remained low at 2.6 years. And turning to our loan portfolio, yields on average commercial loans and commercial mortgages decreased two basis points to 4.18 percent compared with the 2019 third quarter. This is mostly due to lower origination yields, which was offset by a rise in prepayment penalty income. Excluding prepayment penalties from both quarters, yields decreased by seven basis points. And now looking at liabilities, our overall deposit costs this quarter decreased 13 basis points to 108 basis points, driven by a significant increase in average non-interest-bearing deposits of $483 million and a decrease of 20 basis points in the cost of interest-bearing deposits. Average borrowings, excluding subordinated debt, decreased $752 million to $4.5 billion, or 8.9 percent of our average balance sheet. The average borrowing cost decreased one basis point from the linked quarter to 2.58 percent. The overall cost of funds for the quarter decreased 14 basis points to 1.26 percent, driven by both reduction in deposit costs as well as paying down higher-cost borrowings. And on to non-interest income and expense. Non-interest income for the 2019 fourth quarter was 7.3 million, an increase of 1.4 million when compared with the 2018 fourth quarter. The increase was mostly due to a rise of 1.3 million in fees and service charges as well as an increase of $2.5 million in trading income. The increase was partially offset by a rise in tax credit investment amortization of $1.5 million. Non-interest expense for the 2019 fourth quarter was $138 million versus $119 million for the same period a year ago. The $19 million, or 16% increase, was principally due to the addition of new private client banking teams including the Venture Banking Group and the Specialized Mortgage Servicing Banking Team. The bank's efficiency ratio was 39.9 percent for the 2019 fourth quarter versus 34.9 percent for the comparable period last year and 40.2 percent for the 2019 third quarter. In turning to capital, in the fourth quarter of 2019, the bank paid a cash dividend of 56 cents per share and repurchased 722,000 shares of common stock for a total of $89 million. Additionally, the bank raised $200 million in subordinated debt in a public offering. The dividend and share buybacks had a negligible effect on capital ratios, which all remained well in excess of regulatory requirements and augment the relatively low-risk profile of the balance sheet. As evidenced by a Tier 1 leverage ratio of 9.6%, in total risk-based ratio of 13.32% as of the 2019 fourth quarter. And now I'll turn the call back to Joe. Thank you.
spk04: Thanks, Eric. 2019 was a very solid year for us, where we executed better than planned in transforming the balance sheet to significant growth in floating rate commercial and industrial loans of $3.6 billion, and by reducing our exposure in fixed-rate commercial real estate loans by $1.1 billion. Our CRE concentration level is now down to 480 percent from a peak of 593. Furthermore, we demonstrated the capability of our franchise through robust deposit growth of $4 billion, including an increase of $1 billion in noninterest-bearing deposits. This led to a rise in net income of $83.6 million, or 17 percent, and a 12.8% return on equity despite the significant investments made in several new initiatives. Additionally, we optimized our capital position through the repurchase of common stock and issuance of low-cost subordinated debt while also maintaining our dividend. We organically grew the bank as opposed to expanding through M&A. It is a better utilization of capital to hire teams or lines of businesses than to acquire a bank. On that note, we built for the future with significant team hirings, including the Venture Banking Group and the Specialized Mortgage Servicing Banking Team, as well as with the opening of our full-service San Francisco office. These new teams, as well as our existing franchise, position us well for future expansion, and we look forward to their contribution. And lastly, I would be remiss if I did not mention the bank reached a milestone worth recognizing. In less than 19 years, Signature Bank has grown from $50 million to $50 billion in total assets, purely organically, a feat we believe no other bank has accomplished. We have a culture of growing organically by serving our clients and not by buying them. Now we are happy to answer any questions you might have. Christy, I'll turn it back to you.
spk01: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 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. Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality. Thank you. Our first question is coming from Ken Zerbe of Morgan Stanley.
spk03: Great. Thanks. Good morning. Good morning, Ken. Maybe to start off, in terms of the CNI growth, Joey, I know you said that the growth is coming from all categories in CNI. Could you dive into that just a little bit more? Like, where are you seeing the strongest growth in the quarter? Basically, just outline it by sort of subcategory. It would be very helpful.
spk04: Well, I'll start with fund banking. They had the strongest growth. Eric, you have the numbers, right?
spk12: Yeah, fund banking was up almost $1.2 billion for the quarter. We also saw growth in our traditional C&I business that was up $143 million for the quarter. Asset-based lending was up $87 million. And Signature Financial, again, had a very strong fourth quarter with $233 million. Fourth quarter tends to be their strongest quarter, and it was again this year. And then Venture Capital came in at just shy of $40 million in growth. So it was really... across the board growth in all of our CNI lending areas.
spk04: And it's what we expected. We expected that when we were reducing the growth in commercial real estate that that would be taken up by CNI.
spk03: Got you. Understood. No, no, very good results there. I guess switching over to multifamily or CRE just in general, I guess the $400 million runoff seems a little high. I know you were elevated last quarter for very specific reasons in terms of CRE runoff. Are you seeing additional customers that you're sort of gently pushing out of the bank? Is that the reason for the decline, or are there other reasons for the $400 million? And is this a good number going forward? Thanks.
spk04: Well, in part, it was a continuation of the previous quarter. where we had some run over. We weren't able to get all those clients that were not relationship driven out in the third quarter. So in part, that was a fourth quarter reduction. And then there were just some additional prepayments. The pipeline is pretty significant now. It takes a while when you're in a mode of reducing the portfolio to every, to the marketplace to understand that you're back in business. But now we've seen the pipeline pretty strong.
spk12: Yeah, we anticipate going forward that we'll be relatively stable on that front. We could be down a couple hundred million. We could be up a couple hundred million. But we're looking for that portfolio to remain at least flat over the course of the year.
spk03: Okay, perfect. And then just last question for you. The increase in non-accrual loans, I know it's still fairly low, all things considered, but Was there anything in particular that drove that higher?
spk04: Nothing systemic or global. It was one credit that was, as an abundance of caution, it was put on non-accrual. It was 50 days past due, so it wasn't 90, but 50 days. It was a retail plus office building. There's a guarantor, and we're working with the guarantor, the owner. it's pretty well secured. We did not put a reserve on it. There was no multifamily increase in non-accruals.
spk03: All right, perfect. Thank you very much.
spk04: Thank you, Ken.
spk01: Thank you. Your next question is from Casey Hare of Jefferies.
spk08: Thanks. Good morning, guys. Good morning, Casey. I was wondering if you could If you guys could touch on the NIM outlook specifically, where are new money loan yields quarter to date, and do you expect to get more help on the deposit side of things?
spk12: Yeah, I mean, we certainly anticipate that we'll continue to have strong deposit growth, especially given all the new lines that we put in place, and they really have just started to kick in. So that should be beneficial to our overall margin Generally, we anticipate in the short term, the next quarter or two, that we'll be flat with an upward bias. After that, it's going to be dependent on many factors, the shape of the yield curve, what the Fed does, what our deposit growth is, what our DDA growth is, and what ultimately our loan growth and the mix of that loan growth that's coming in. Right now, on the yields, I'd say fund banking is coming in a 360 to 370 range on their new loans. Signature financials in the low fours, the high threes. Traditional CNIs is in the low fours. Ventures in the high fives.
spk04: Since we have a number of our bankers listening, it would be good to tell you that we expect that they'll be able to get the cost of deposits down further. I can't tell you how much that will be, but there is an expectation that we have some room, at least in the first quarter.
spk08: Very good. And on the liquidity, obviously you had good results on the deposit side, so the liquidity built up. Do you expect to work that down in short order? And if so, to what end? Would it be paying down borrowings or just funding loan growth?
spk12: Yeah, we funded a significant amount of loan growth in the last two weeks of the fourth quarter, so we've really worked down that liquidity already. So it was mostly with funding loans, but we did also pay down some high-cost borrowings. We continue to have some higher-cost borrowings that we'll be able to pay down over the course of the next several quarters. That will certainly be beneficial to the margins.
spk08: Okay, and just last one for me. The deposit growth momentum is is is pretty strong you this is two quarters in a row or you're basically running at a billion and a half per quarter which if this were to continue would sustain you know well above your three to five billion of asset growth per annum um just was wondering if you could give some updated thoughts on that and then you know the cano woods like as best i understand you're not getting any contribution from that team you know, why wouldn't the contribution from Canada Woods accelerate this deposit growth pace we've seen over the last two quarters?
spk04: Well, that team has opened up a significant number of accounts that have not yet been funded. They are contributing. The big deposits, like the half a billion or so, come with time. It takes some time to get them over. But but just by the number of accounts that they've opened, we're fairly confident. And we would be disappointed for the whole year of 2020 if we didn't end up on the higher end of the $3 to $5 billion.
spk08: Very good. Thank you. Thanks.
spk01: Thank you. Your next question is from Ibrahim Poonawalla of Bank of America Securities.
spk06: Good morning, guys. Good morning, Ibrahim. I guess, Eric, I just wanted to follow up on the margin. I guess you mentioned you expected to be flat to maybe slightly higher over the coming quarters. Just talk to us in terms of if the rate environment doesn't change, what drives meaningful margin expansion? It feels like your balance sheet growth should be neutral to incrementally accretive to the 270 margin, give or take. Is there potential to see any meaningful expansion in the margin in the current rate backdrop? What needs to happen for us to get there?
spk12: I think if you're looking at the current rate backdrop, we would need a significant amount of DDA growth or low-cost deposit growth to really drive anything meaningful. It's still a pretty flat yield curve that we're operating under. If we got some steepness to the curve, that could also lead to us you know, widening margins a bit. But in this current rate environment, it would have to be the positive flows that would drive it.
spk06: And on deposits, has the customer appetite or the customer demand for rates, have you seen that subside over the last few months where incrementally do you, like, I'm just wondering what's the incremental cost of deposit? Is it sub-100 basis points? Is it around 100 basis points today?
spk04: I would say that the competition is slightly different down a little from where it was over the last several quarters or last couple of years. That's what I would say just on deposit rates.
spk06: Understood. And just moving to expenses, 16%, do we still expect 10% to 12% growth next year? And if any updates around hiring plans, I know you're always looking for opportunities to hire, but any update would be helpful.
spk12: We ended up at 16% for the fourth quarter, which is right in line with what we guided. We project next year that we'll be in like a 15% to 12% range, starting at the high end of the range and going down in a somewhat linear fashion over the course of the year. So when we look at the first quarter, it's probably a 15% growth and then 14%, 13%, and 12%. You know, we're working on a number of initiatives on the team front, nothing that we really want to disclose at this time, but we do have a number of things in the pipeline.
spk04: Go ahead. It relates to your first question. I think it's really all about net interest income. If the margins stay stable and we continue to grow, our efficiency ratio will stay as is. We'll be able to grow the bank nicely with net interest income.
spk06: Agreed. And just one last follow-up on the multifamily. It still comes up on the stock in discussions with investors. How do you see the multifamily market in New York playing out? Like, do you expect any hiccups over the next few quarters, over the next year? Like, just based on what you've seen, do you feel comfortable where you feel good about, like, this not posing any credit risk to Signature?
spk04: Well, we talk to our clients all the time, and they're multi-generational clients. holders of huge portfolios and not highly leveraged. That's a substantial portion of our multifamily clients. So that bodes well for us. We haven't seen any negative trends other than that there's some values that, you know, have dropped. But the values of our portfolio are pretty well relative to others who use different kind of cap rates, we're very comfortable where we are with our portfolio. We have not seen any cracks.
spk06: Got it. Thanks for taking my questions. Thank you.
spk01: Thank you. Your next question is from Jared Shaw of Wells Fargo Securities.
spk07: Hi. Good morning. Good morning, Jared. Maybe just following up on the teams, could you give us an update on how the pipelines look going into the beginning of the year? Are those stable, increasing? sort of across the board given the balances you gave us earlier?
spk12: Yeah, the pipeline looks good. A lot of what we've discussed over the last, I'd say, several months is that we're being ultra-selective given the very large teams and business lines that we've brought on board. I think over the course of the next couple of years, our focus is going to be on nurturing those businesses. But on the traditional team hiring front, we've really turned our attention to the West Coast And we have a number of teams in the pipeline there.
spk07: Okay, thanks. And then on the capital management, you know, now that growth is, you know, or staying at these higher levels and the stock's done well, should we expect to see sort of a continued mix of dividends and buybacks as a way to manage capital? Or is that in transition as we start at the beginning of the year?
spk12: Well, I think we're going to maintain the dividend that we've seen now. I don't really see that moving meaningfully. On the buyback front, given the robust growth that we've had, I would anticipate that we'd probably slow down a little bit on the buybacks.
spk04: Well, we won't stop because we still think the stock is undervalued.
spk07: Okay. But in terms of, you know, the CRE capital concentration and the absolute capital levels, you're comfortable – So continuing to look at that, you know, call it total capital return in the, you know, $120 million, $130 million range a quarter.
spk12: Yeah, it will probably be a little bit less than that given the amount of growth that we see. Got it. Thank you. Thank you.
spk11: Thank you.
spk01: Thank you. Your next question is from Stephen Alexopoulos of J.P. Morgan.
spk11: Hey, good morning, everybody.
spk04: Hey, Steve. How are you?
spk11: I wanted to first follow up on the Canada Woods team. If you look at your ability to move the business, has there been any resistance thus far from customers to move over to Signature? Any products or service capabilities you still need to add?
spk12: We've got, I'd say, 95% to 98% of the products and services that we need. There are certainly a few things that we want to tweak and enhance, but nothing that's really meaningful in that space and stopping us from moving over the clients. I think as any new entrant into a particular arena, the clients are testing us right now. They're opening up accounts. They're starting off with smaller dollar accounts. But generally, we're seeing a lot of activity there and a lot of account openings. They came in with about $30 million in balances in the fourth quarter, which we're very pleased with, and predominantly DDA, which is what we anticipated for them. I think they've already brought in more than that thus far this quarter. So we're seeing really good activity. We're hearing good things from the clients, and we expect that that will lead to more and more as we go through the course of this year.
spk11: Eric, as we think about the potential ramp from that business, do you think this becomes more of a 2021 event than 2020 event?
spk12: Not necessarily. I think we'll see some really strong deposits flows this year, probably some large deposit flows coming in mid to late this year.
spk04: There are so many clients that they have that have large deposits that just getting one or two can put us in the half a billion to billion range immediately.
spk11: Finally, reaching $50 billion of assets is clearly a big milestone. But at $50 billion, when we think of the $3 to $5 billion asset growth target per year, that implies just under 10% growth. So you think about the size of the company. Are the days of signature being able to grow the balance sheet double-digit now behind us, given the size, or do you have a strategy to hire more teams to get back to double-digit growth? How do you think about that?
spk04: I think of under-promise and over-deliver.
spk11: Fair enough. Thanks for taking my questions.
spk01: Thank you, Steve. Thank you. Your next question is from Chris McGrady of KBW.
spk10: Hey, great. Just wanted to clarify on the buyback commentary. I think, Joe and Eric, you said continued buyback but slower pace. I think you've got 100 left. How should we be assuming the proceeds from the debt offering? Is that a portion earmarked for buybacks? I'm just trying to manage capital ratios and buyback expectations?
spk12: Yeah, we'll be going at our next annual meeting to re-up the buyback to the $500 million level again, and then we'll have to go for regulatory approval for that as well. So we anticipate going to increase the buyback. Certainly when we issued this subordinated debt, we anticipated that some of those funds would be utilized for the buyback. But ultimately, the buyback is going to be dependent on what we see as our level of growth And as I said earlier, we do anticipate a fair amount of growth in front of us. So we'll be selective on the buyback.
spk10: Okay. And can you just remind us, Eric, the governor, which ratio and what level?
spk12: Traditionally, the tightest ratio for us has been the total capital ratio. So when that starts to get down to a 12% or nearing a 12%, I think we'd start to be mindful of our capital levels. Okay, great.
spk10: Thank you. Thank you.
spk01: Thank you. Your next question is from Brock Vanderbleet of UBS.
spk02: Great. Thanks for the question. That was reassuring with respect to that increase in non-accruals being retail and office as opposed to multifamily. What... And I'll come back to that. But separately, on Cignet, this is something you've kind of intermittently talked about since it's been introduced. Could you kind of review for us what the business proposition is there and exactly what industries this is focused on?
spk04: Well, it's focused on a number of industries that have ecosystems that would fit well within the payment platform that we've created. We are now in it for a little bit more than a year. We have one more enhancement that we wanna, that we've been working on, which will come out in April, which we believe will take us to the next step. Primarily right now, it's the digital, the platform that we have requires us to add this one application in April and one during the summer. And those two applications will actually take us to the next level. One of the things that Eric and I were talking about was having the analysts have a demonstration of it. so you could see what it actually does and what platforms it would work well with. One of the areas is energy. We signed up a client, I guess it was about a year ago, and we've been adding two capabilities. And once April comes along, we'll have that energy company running full boat using Cignet with clients that they service and they provide energy too.
spk02: Okay, thank you. And just to review on the multifamily, how large is the renovation loan portfolio and how much of your reserves are focused on that area?
spk12: That portfolio is about $1.27 billion. It's down about $422 million in the quarter. I think reserve-wise, I don't know if I have a reserve breakout. I don't think it's meaningfully that different from our overall multifamily reserves, which are around 60 basis points.
spk02: Okay. It's down significantly in the quarter. Thank you.
spk01: Thank you. Your next question is from Lana Chan of BMO Capital Markets.
spk05: Thank you. Good morning. Hi, Lana.
spk04: Good morning.
spk05: I'm wondering if you could give us an update on the capital call, what commitments are at the end of the quarter?
spk12: Yeah, the amount of commitments at the quarter Lana, we're at $4.7 billion.
spk05: Thank you. And I guess acknowledging that there's going to be some level of volatility and uncertainty with CECL going forward, but as you grow the commercial loan portfolio versus mixed shifts from CRE multifamily, Should we think about, I guess, with your CISO analysis, the reserve to loan ratio, should that be increasing over time given the commercial loan growth?
spk12: It's super hard to predict at this point, but keep in mind that our C&I portfolio, the majority of the growth that we've seen there has been in very well-secured capital call facilities to major private equity firms that are traditionally, for us, three- and four-rated credits, and they're shorter duration. So it's a one- to three-year loan, a three- to four-rated credit, versus our CRE loans, which are five-year, some seven, but mostly five-year CRE loans, which are predominantly four- and five-rated credits. all else being equal, and that's very important to note because there are so many dynamics that come into play when you look and talk through CECL and all the modeling and forecasting that you have to do. But all else being equal, probably argue that the reserve would come down.
spk05: Thank you. And just one more question on CRE Multifamily in New York talked about a pretty good pipeline and expectations that you should see some stability in that segment in 2020. Can you talk about, you know, what's changed in terms of the competitive environment? I think, you know, a couple of quarters ago you talked about seeing a lot of competition from Freddie and Fannie in that space. Has anything changed there?
spk04: No, it's gotten worse. Freddie and Fannie are doing 10-year interest only loans. We would get criticized by the regulators for doing the loans that they're doing.
spk05: And so in that environment, given I assume the pricing is still pretty competitive, how are you competing with that in terms of pricing?
spk04: Most of the clients like the relationship. So being the balance sheet lender, although we can't do the 10-year or not, we can't, we don't want to do 10-year interest-only fixed-rate loans, they would prefer to deal with a balance sheet lender. So if something during the period of time that they're borrowing occurs that needs to adjust what they're doing on borrowings, they don't have to be killed with a prepayment penalty from Stefani and Freddie. by dealing with us. And I like the turnaround and the fact that we price maybe a little higher than the competitors. It's still like the relationship that we have. That's a big difference between us and other banks that deal with just the brokers. We won't deal with just the broker. We want to have the relationship and have the broker be part of the situation, not the only. person in between.
spk05: Okay. Thanks, Joe.
spk04: You know, I just want to say on Cignet, there's a few other industries that we're working on, courier services, supply and cargo services, and trading and shipping. Those are some of the ecosystems that we're dealing with. Just thought I'd add that on to the previous call.
spk01: Thank you. Your next question is from Brody Preston of Stevens Inc.
spk13: Good morning, everyone. How are you? Good morning. Good morning. Just wanted to follow up on Cecil. Appreciate the color that all else sort of equal the reserve, you know, should trend down or could come down. Just wanted to get a sense for, you know, day two provisioning and how we should think about that from here.
spk12: Quite frankly, it's super hard to predict. You know, as I said, it's going to be more volatile than it is now. And it's going to be based on macroeconomic forecasts, the state of the economy, our loan portfolio composition, and the product mix and the mix of growth. So at this point, it's difficult for us to say.
spk13: Okay. And then on the deposit team front, you know, specifically on the Cano Woods, appreciate the the color that, you know, they've opened a significant number of accounts. And so, you know, beyond deposit growth, though, as we anticipate, you know, should we anticipate, you know, fee income, you know, what should we anticipate for fee income from that team? And how should we be thinking about fee income as a proportion of revenues moving forward?
spk04: You should think that we would have a pretty significant increase in fee income over 2020 and 2021, where we are today. It's not only that team, also the fund banking team collects a lot of fee income. And as since we've improved our ability to do SX, that's going to be included in the growth of fee income. So the expectation that there should be double digit increases.
spk13: Okay, that's great. And then, I have two more questions. One is a clarification. Going back to the rent-regulated multifamily and some of this still comes up in discussions with investors, but I just wanted to clarify the size of the book and then what percent of it, what's the portion of it that is underwritten to current cash flows?
spk12: When you look at the multifamily book, right, that right now is $15.1 billion. It was down about $100 million this quarter. That's all underwritten to current cash flows. So, the construction and land portfolio, which we talked about earlier, decreased about $422 million during the quarter, down to $1.27 billion. That's predominantly made up of those ADC loans that we've talked about. And those, again, those would be the ones written to forward-looking cash flows, but we take significant enhancements on those credits, whether it be rental holdbacks or guarantees of the borrowers. So that's the part of the portfolio that I guess you would say is underwritten to future cash flows.
spk13: Okay, so it would be correct to tell somebody that, you know, only the construction portion of that multifamily book, you know, of that rent regulated multifamily book is underwritten to future cash flow.
spk12: It's the construction and ADC that's underwritten to forward, correct?
spk13: Yep. All right. Yep, understand that. And then I guess a bigger picture question, you know, you guys have done a lot to sort of change the composition of the company over the last year. You know, you had some comments in the release that sort of alluded to all the steps you've taken in 2019. And so I guess as we think about, you know, the next five to 10 years, you know, understand that it's difficult to forecast, but what are your sort of expectations for, you know, balance sheet mix and where you would like to be as we progress, you know, over the next five to 10 years?
spk04: Well, we certainly would like to have more in the West Coast. We think that in addition to here in New York, there's some real opportunities. We'll continue to look for niche businesses that we've done over the last two years. We just don't want to be looked at as a savings bank. We felt that at some point when we were doing a CRE, we were being compared to banks that were nothing like us. We are truly a commercial bank that deals with privately owned businesses. that has been and wants to continue to be a deposit machine. And we just were lumped in with banks that we didn't think we should be lumped in with.
spk13: All right, great. Well, thank you very much, Joan and Eric. I appreciate the call. Thank you.
spk01: Thank you. Your next question is from David Chavarini of Wedbush Securities.
spk09: Hi, thanks. I wanted to ask about your strong deposit growth and the sustainability of I was curious about what the driver was in the fourth quarter. Was it new teams, existing teams, what industries and segments? Was it law firms? Any color would be helpful.
spk04: It was primarily the existing teams. We had some growth from the newer initiatives, but it was primarily the existing teams that have been around for quite a few years.
spk09: And did anything change in the dynamics of those industries to cause such a strong surge in the fourth quarter?
spk04: No. Nothing unusual.
spk09: Got it. Thanks very much. Thank you.
spk01: Thank you. This concludes our allotted time and today's teleconference. If you'd like to listen to a replay of today's conference, please dial 800-585-8367. and refer to conference ID number 3648128. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your lines at this time and have a wonderful day.
Disclaimer