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Signature Bank (NASDAQ:SBNY)
Q4 2019 Earnings Call
Jan 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2019 Fourth Quarter and 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, Executive Vice President, Corporate and Business Development. [Operator Instructions]

It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Christie. Good morning and thank you for joining us today for the Signature Bank 2019's fourth and year-end results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Susan J. Lewis -- Media Contact

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 maybe 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, 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 materially from those in the forward-looking statements. These factors include those described in our quarterly and annual reports filed with the FDIC, which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made.

Now I'd like to turn the call back to Joe.

Joseph J. DePaolo -- President and Chief Executive Officer

Now, let's take a look -- 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 result 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 C&I increase for the quarter was $1.7 billion or 16.2%. Conversely, we further reduced CRE loans this quarter by $428 million, bringing our CRE concentration level down to 480% from a peak of 593%. Furthermore floating-rate loans are now 20.3% 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 were $57.4 million, or 15 basis points of total loans compared with $32.5 million, or 9 basis points for the 2019 third quarter. Our past due were at the lower end of our normal range with 30 days to 89 days past due loans at $31 million, while 90-day past due loans remained low at only [Phonetic] $2.3 million.

For the 2019 fourth quarter, we had net charge-offs $2.5 million or 3 basis points compared with $2.9 million for the 2019 third quarter. The provision for loan losses 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%.

And finally on this topic, looking at the future on the CECL, we have completed the implementation of various models and upon adoption in the first quarter, we anticipate an increase of 15% to 20% 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 macroeconomic variables, loan portfolio composition and the product mix.

Now onto 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 help us -- that truly help us distinguish -- it truly helps 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.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 $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 4 basis points to 2.72%. Excluding prepayment penalty income, core net interest margin for the linked quarter increased 1 basis point to 2.67%.

Now let's look at asset yields and funding costs for a moment. Interest earning asset yields for the 2019 fourth quarter decreased 7 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% due to the decline in market rates, and our portfolio duration remained low at 2.6 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages decreased 2 basis points to 4.18% 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 7 basis points.

Now looking at liabilities. Our overall deposit cost 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% of our average balance sheet. The average borrowing cost decreased 1 basis point from the linked-quarter to 2.58%. The overall cost of funds for the quarter decreased 14 basis points to 1.26%, driven by both a reduction in deposit costs as well as paying down higher cost borrowings.

And now 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 Banks efficiency ratio was 39.9% for the 2019 fourth quarter versus 34.9% for the comparable period last year and 40.2% for the 2019 third quarter.

And turning to capital. In the fourth quarter of 2019, the bank paid a cash dividend of $0.56 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% and 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.

Joseph J. DePaolo -- President and Chief Executive Officer

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% from the 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 non-interest bearing deposits. This led to a rise in net income of $83.6 million or 17%, 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 and to acquire Banks.

On that note, we build 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 then 19 years, Signature Bank has grown from $50 million to $50 billion in total assets. Purely, organically a feet 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. Christie, I'll turn it back to you.

Questions and Answers:

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Ken Zerbe of Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Great, thanks. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

Maybe to start off in terms of the C&I growth, Joe, I know you said that the growth is coming from all categories in C&I. Could you dive into that just a little bit more like where are you seeing the strongest growth in the quarter? I mean basically just outline it by sort of sub-category would be very helpful.

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I'll start with Fund Banking. They had the strongest growth. Eric, you have the numbers, right?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 that tends -- fourth quarter tends to be our 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 C&I lending areas.

Joseph J. DePaolo -- President and Chief Executive Officer

And it's what we expected. We expected that when we were reducing growth in commercial real estate, that would be taken up by C&I.

Ken Zerbe -- Morgan Stanley -- Analyst

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 run-off seems a little high. I know you had -- you were elevated last quarter for various specific reasons in terms of CRE run-off. 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 like going forward? Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

Well, in part it was the continuation of the previous quarter, where we had some run over. We were unable 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 will be some additional prepayments.

The pipeline and 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 are back in business. But now we've seen the pipeline pretty strong.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Yeah, we anticipate going forward that will be relatively stable on that front. It could be down a couple of hundred million, it could be up a couple of hundred million. But we're looking for that portfolio to remain at least flat over the course of the year.

Ken Zerbe -- Morgan Stanley -- Analyst

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?

Joseph J. DePaolo -- President and Chief Executive Officer

Nothing systemic or global. It was one credit that was as an abundance of caution, it was put on non-accrual. It was 50 [Phonetic] days past due. So it wasn't 90, it was 50 days. It was retail plus office building, there is a guarantor and we are working with the guarantor, the owner. It's pretty well secured. We did not put a reserve on. There was no multifamily increase in non-accrual.

Ken Zerbe -- Morgan Stanley -- Analyst

All right, perfect. Thank you very much.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Ken.

Operator

Thank you. Your next question is from Casey Haire of Jefferies.

Casey Haire -- Jefferies -- Analyst

Thanks. Good morning guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Casey.

Casey Haire -- Jefferies -- Analyst

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 more help on the deposit side of things?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 we really have just started to to kick in. So that should be beneficial to our overall margin. Generally, we anticipate in the short-term, in the next quarter or two, that will 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, 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 [Phonetic] range on their new loans. Signature Financial is in the low 4s to high 3s. Traditional C&I is in the low 4s. Venture is in the high 5s.

Joseph J. DePaolo -- President and Chief Executive Officer

Since we have a number of our bankers listening, it would be good to tell that we expect that they'll be able to get the cost of deposits down further. I can tell you how much that will be, but there is an expectation that we have some room, at least in the first quarter.

Casey Haire -- Jefferies -- Analyst

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?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 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 next several quarters, that will certainly be beneficial for the margin.

Casey Haire -- Jefferies -- Analyst

Okay. And just last one for me. The deposit growth momentum is pretty strong. This is two quarters in a row or your basically running at $1.5 billion per quarter, which if this were to continue would sustain well above your $3 billion to $5 billion of asset growth per annum. Just was wondering if you could give some updated thoughts on that? And then the Kanno-Wood, like as best I understand you're not getting any contribution from that team. Why wouldn't the contribution from Kanno-Wood accelerate this deposit growth pace we've seen over the last two quarters?

Joseph J. DePaolo -- President and Chief Executive Officer

Well that team has opened up a significant number of accounts that have not yet been funded. They are contributing -- the big, big deposits like $0.5 billion [Phonetic] or so come with with time, it takes some time to get them over. But despite the number of accounts that they've opened, we're fairly confident. And we will be disappointed for the whole year of 2020, if we didn't end up on the higher end of the $3 billion to $5 billion.

Casey Haire -- Jefferies -- Analyst

Very good. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Casey.

Operator

Thank you. Your next question is from Ebrahim Poonawala of Bank of America Securities.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Good morning, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

I guess, Eric, just wanted to follow-up on the margin. I guess you mentioned, you expect it to be flat to maybe slightly higher over the coming quarters. Just talk to us, in terms of 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. Like do we -- is there potential to see any meaningful expansion in the margin in the current rate backdrop? Like what needs to happen for us to get there?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 a pretty -- still pretty flat yield curve that we're operating under. If we got some steepness to the curve, that could also leads us widening margins a bit, but in this current rate environment it would have to be deposit flows that would drive it.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

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 [Indecipherable]. I'm just wondering what's the incremental cost of deposit, is it sub 100 basis points, is it around 100 basis points today?

Joseph J. DePaolo -- President and Chief Executive Officer

I would say that the competition is slightly 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.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

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.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Yeah, 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 the 15% to 12% range, starting at the high-end of the range 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%.

Now, 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.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it.

Joseph J. DePaolo -- President and Chief Executive Officer

Now as 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 it is. We'll be able to grow the Bank nicely with net interest income.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

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 think -- do you feel comfortable, where you feel good about like this not posing any credit risk to Signature?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we talk to our clients all the time and then multi-generational holders of huge portfolios and not highly leveraged. That's a substantial portion of our multifamily client. So that bodes well for us. We haven't seen any negative trends other than that there is some values that you know dropped, but the values of our portfolio were pretty well relative to others, who use different kind of cap rates. We are very comfortable where we are in our portfolio, have not seen any cracks.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. Thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Ebrahim.

Operator

Thank you. Your next question is from Jared Shaw of Wells Fargo Securities.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

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, across the board given the balances which you gave us earlier?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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. Over the course of the next couple of years, our focus is going to be on nurturing those business, 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.

Jared Shaw -- Wells Fargo Securities -- Analyst

Yeah, thanks for that. And then on the capital management, now that growth is -- 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?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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, and I would anticipate that we'd probably slow down a little bit on the buybacks.

Joseph J. DePaolo -- President and Chief Executive Officer

But we won't stop, because we still think the stock is undervalued.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, but in terms of that the CRE capital concentration and the absolute capital levels, you're comfortable, so we're continuing to look at that call total capital return in the $120 million, $130 million range a quarter.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Yeah, it will probably be a little bit less than that given the amount of growth that we see.

Jared Shaw -- Wells Fargo Securities -- Analyst

Got it. Thank you.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question is from Steven Alexopoulos of J.P. Morgan.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hey, good morning everybody.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Steve, how are you?

Steven Alexopoulos -- J.P. Morgan -- Analyst

I wanted to first follow-up on the Kanno-Wood 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?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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 in stopping us from moving over the client. I think as any new entrant into particular arena, the clients are testing us right now. They're opening up accounts, they are starting off with smaller dollar accounts. But they're -- 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, predominantly DDA, which is what we anticipated from them. I think they have 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.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Eric, as we think about the potential ramp from that business, do you think this becomes more of a 2021 event than 2020 event?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Not necessarily. I think we'll see some really strong deposit flows this year, probably some large deposit flows coming in mid-to-late this year.

Joseph J. DePaolo -- President and Chief Executive Officer

There is so many clients that they have that have large deposits, by just getting one or two could put us in the $0.5 billion to $1 billion range immediately.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Okay. And finally, so reaching $50 billion of assets is clearly a big milestone. But a $50 billion, when we think of the $3 billion to $5 billion asset growth target per year that implies just under 10% growth. So if 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?

Joseph J. DePaolo -- President and Chief Executive Officer

I think of under-promise and over-deliver.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Fair enough. Thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Steve.

Operator

Thank you. Your next question is from Chris McGratty of KBW.

Chris McGratty -- KBW -- Analyst

Hey, great. I 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 am just trying to manage capital ratios and buy back expectations.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Yeah, we'll be going up our next annual meeting to reup 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 the 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 is 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.

Chris McGratty -- KBW -- Analyst

Okay. And if you can just remind us, Eric, the governor, which ratio and what level?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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.

Chris McGratty -- KBW -- Analyst

Okay, great. Thank you.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Thank you.

Operator

Thank you. Your next question is from Brock Vandervliet of UBS.

Brock Vandervliet -- UBS -- Analyst

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 -- I'll come back to that, but separately on Signet, 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 what, exactly what industries this is focused on?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, it's focused on a number of industries that have ecosystems that would fit well within -- on the payment platform that we've created. We are now in it for a little bit more than a year. We have one more enhancements that we want to -- that we have been working on, which will come out in April, which we believe will take us to the next step. Primarily right now, it's 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, 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 to our capabilities and once April comes along, we'll have that energy company running full board [Phonetic] using Signet with clients that they service and they provide energy to.

Brock Vandervliet -- UBS -- Analyst

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?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

That portfolio is about $1.27 billion, it's down about $422 million in the quarter. I think reserve wise it's, I don't know if I have a reserve break out. I don't think it's meaningfully that different from our overall multifamily reserves, which are at around 60 basis points.

Brock Vandervliet -- UBS -- Analyst

Okay. But down significantly in the quarter. Thank you.

Operator

Thank you. Your next question is from Lana Chan of BMO Capital Markets.

Lana Chan -- BMO Capital Markets -- Analyst

Thank you. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Hi Lana, good morning.

Lana Chan -- BMO Capital Markets -- Analyst

I'm wondering if you could give us an update on the capital call what commitments are at the end of the quarter?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Yeah, the amount of of commitments at the quarter, Lana were $4.7 billion.

Lana Chan -- BMO Capital Markets -- Analyst

Thank you. And I guess acknowledging that there is going to be some level of volatility and uncertainty with CECL in -- going forward. But as you grow the commercial loan portfolio versus I guess and mix shift from CRE multifamily, should we think about I guess with your CECL analysis, the reserve to loan ratio should that be increasing over time given the commercial loan growth?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

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-year to three-year loan, 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.

So, all else being equal and that's very important to note, because there are so many dynamics that come into play when you look at and talk through CECL and all the modeling and the forecasting that you have to do. But all else being equal, probably argue that the reserve would come down.

Lana Chan -- BMO Capital Markets -- Analyst

Yeah, thank you. And just one more question on CRE multifamily New York, talked about pretty good pipeline and expectations that you should see some stability in that segment in 2020. Can you talk about what's changed in terms of the competitive environment? I think a couple of quarters ago, you talked about seeing a lot of competition from Freddie and Fannie, in that space. Has anything changed there?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

No, it's gotten worse. Freddie and Fannie are doing 10-year interest-only loans. We will get criticized by the regulators for doing the loans that they are doing.

Lana Chan -- BMO Capital Markets -- Analyst

And then, so in that environment, given I assume the pricing is still pretty competitive, how are you competing with that in terms of pricing?

Joseph J. DePaolo -- President and Chief Executive Officer

Most of the clients like the relationship. So, being a balance sheet lender -- although we can't do the 10-year -- we can't -- we don't want to 10-year interest-only fixed-rate loans. They would prefer to deal with a balance sheet lender. So, it's something during a period of time that their borrowing occurs that needs to adjust to what they're doing on borrowings, they don't have to be killed with the prepayment penalty from Fannie and Freddie by dealing with us.

And I'd like to turn around, 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 don'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.

Lana Chan -- BMO Capital Markets -- Analyst

Okay. Thanks, Joe.

Joseph J. DePaolo -- President and Chief Executive Officer

I just want to say on Signet, there is 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 caller.

Operator

Thank you. Your next question is from Brody Preston of Stephens, Inc.

Brody Preston -- Stephens, Inc. -- Analyst

Good morning, everyone. How are you?

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning.

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Good morning.

Brody Preston -- Stephens, Inc. -- Analyst

Just wanted to follow up on CECL, I appreciate the color that all else sort of equally reserved should trend down or could come down. Just wanted to get a sense for day two [Phonetic] provisioning and how we should think about that from here?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Quite frankly, it's super hard to predict. As I said, it's going to be more volatile than it is now. And it's going to be based on macroeconomic forecast, 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.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And then on the deposit team front, specifically on the Kanno-Wood, I appreciate the the color that they've opened a significant number of accounts. And so, beyond deposit growth though as we anticipate -- should we anticipate fee income? 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?

Joseph J. DePaolo -- President and Chief Executive Officer

You should think that we would have pretty significant increase in fee income over 2020 and 2021, from where we are today. It's not only that team, also the Fund Banking team collects a lot of fee income. And since we've improved our ability to do FX, that's going to be included in the growth of fee income. So, the expectation that there should be double-digit increase.

Brody Preston -- Stephens, Inc. -- Analyst

Okay, that's great. And then, I have two more questions. One is a clarification, going back to the regulated multifamily and some of that still comes up in discussions with investors, but 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?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

So, when you look at the multifamily book right that, right now, it's $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 that we take significant enhancements on those credits, whether it be rental hold-backs 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.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. So, it would be correct to tell somebody that only the construction portion of that multifamily book -- of that rent regulated multifamily book is underwritten to future cash?

Eric R. Howell -- Executive Vice President-Corporate & Business Development

It's the construction and ADC that's underwritten as forward, correct.

Joseph J. DePaolo -- President and Chief Executive Officer

But, we will have enhancements to them.

Brody Preston -- Stephens, Inc. -- Analyst

Yeah. Understand that. And then I guess a bigger picture question, you guys have done a lot to sort of change the composition of the company, over the last year, 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 the next five to 10 years, I understand that it's difficult to forecast, but what are your sort of expectations for balance sheet mix and where you would like to be as we progress over the next five to 10 years?

Joseph J. DePaolo -- President and Chief Executive Officer

We certainly would like to have more in the West Coast. We think that in addition to here in New York, there is 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. And we felt that, at some point when we were doing a CRE, we would be compared to banks that were nothing like us. We are truly a commercial bank that deals with privately owned businesses, that wants to be a -- that has been and wants to continue to be deposit machine. And we just were lumped in with banks that we didn't think we should be lumped in with.

Brody Preston -- Stephens, Inc. -- Analyst

All right, great. Well thank you very much, Joe and Eric. I appreciate the color.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question is from David Chiaverini of Wedbush Securities.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. I wanted to ask about your strong deposit growth and the sustainability of that growth? 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.

Joseph J. DePaolo -- President and Chief Executive Officer

It was existing -- primarily the existing teams. We had some growth from the newer initiatives, but it was primarily the existing teams that had been around for quite a few years.

David Chiaverini -- Wedbush Securities -- Analyst

And did anything change in the dynamics of those industries to cause such a strong surge in the fourth quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

No. Nothing unusual.

David Chiaverini -- Wedbush Securities -- Analyst

Got it. Thanks very much.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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, 364-8128. A webcast archive of this call can also be found at www.signatureny.com. [Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan J. Lewis -- Media Contact

Eric R. Howell -- Executive Vice President-Corporate & Business Development

Ken Zerbe -- Morgan Stanley -- Analyst

Casey Haire -- Jefferies -- Analyst

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Steven Alexopoulos -- J.P. Morgan -- Analyst

Chris McGratty -- KBW -- Analyst

Brock Vandervliet -- UBS -- Analyst

Lana Chan -- BMO Capital Markets -- Analyst

Brody Preston -- Stephens, Inc. -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

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