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Signature Bank (NASDAQ:SBNY)
Q1 2020 Earnings Call
Apr 23, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2020 First Quarter Results Conference Call. Hosting the call 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 & Chief Executive Officer

Thank you, Maria. Good morning and thank you for joining us today for the Signature Bank 2020 First Quarter Results Conference Call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Susan Turkell 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 and business strategy. 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 & Chief Executive Officer

Thank you, Susan. I will provide some overview into the quarterly 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.

Let me begin by saying our hearts go out to our clients, colleagues, friends and their families during this tumultuous time in the world. We're proud of our colleagues' dedication to their clients, families and communities. They persevere through these extraordinary circumstances and have come together during the COVID-19 pandemic, where the personal stress level of many have reached monumental proportions due to life and death situations for the masses. We will endure. There is no better test of an organization, than such periods in history. In the 19 years since we began operations, we endured 9/11 just after opening our doors. During the financial crisis, we not only survived but rather thrived. And finally, we overcame super storm Sandy. Now, we are facing the COVID-19 pandemic. And despite the turmoil it is causing worldwide, I am encouraged to navigate these unchartered waters with the same management team at my side since the bank's founding. It's incredibly important to stress the experience of our tested, veteran management team. We are evaluating and reacting to the complex environment and we know exactly what each of us will handle. Together not only have we proven our abilities to navigate through difficult times, but we have continually demonstrated the successful execution of our single point of contact founding model throughout both good and tough times.

We recognize this is the one -- this is the time we need to shine for our clients to continue meeting their banking needs. Our colleagues have been working round the clock to ensure our clients' businesses, which include many essential services, are operating at full strength. We are also grateful our clients recognize the strength of our balance sheet as in this quarter alone they deposited nearly $1.9 billion in new funds with us. Clients see Signature Bank as a safe haven for their funds because they know we value strong capital and liquidity as a way to guarantee their security. All of our clients appreciate the fortitude and safety of our banking model as they have watched it flourish over the years. Our unwavering focus on organic growth through the hiring of veteran banking teams means even our newest colleagues offer expertise in their fields, which is complementary to the strength of the Signature Bank management team that has always led this bank forward.

As with past crises, we want to assure you management remains dedicated to guiding the bank through these unsettling times. We'll focus on the soundness of our conservative risk management and capital allocation practices ensuring the safety of our 1,500 colleagues and their families and supporting our clients by meeting their needs. The safety and health of all stakeholders remains paramount to our franchise as we navigate the times ahead. We know that Q1 earnings sounds like ancient history, but they are important because although they are about the past, they give hints into the bright future.

So now let's take a look at earnings. Pre-tax pre-provision earnings for the 2020 first quarter were $218.5 million compared with $207.9 million for the 2019 first quarter. The increase was predominantly driven by substantial asset growth of $4.5 billion, offset by the investments we made in business initiatives, including our West Coast expansion. Net income for the 2020 first quarter was $99.6 million or $1.88 diluted earnings per share, compared with $143.5 million or $2.63 diluted earnings per share for last year. With the implementation of CECL, the decrease in net income was driven by a first quarter provision for credit losses of $66.8 million, which was wholly attributable to COVID-19. Looking at deposits, the core of our philosophy, deposits increased $1.9 billion to $42.2 billion this quarter, while average deposits grew by $1.1 billion. This was the second best quarter of deposit growth we ever reported. Moreover, this is now the third quarter in a row of over $1 billion in deposits in both total and average deposit growth. Since the end of the 2019 first quarter, deposits have increased $5.6 billion and average deposits increased $4.7 billion. Non-interest bearing deposits of $13.4 billion still represent a high 32% of total deposits. Deposit and loan growth coupled with earnings retention led to an increase of $4.5 billion or over 9% in total assets since the first quarter of last year.

Now let's take a look at our lending businesses. Loans during the 2020 first quarter increased $1.9 billion or 5% to $41 billion. For the prior 12 months, loans grew $3.5 billion. The increase in loans this quarter was again driven primarily by new fund banking capital call facilities. This is the sixth consecutive quarter where C&I outpaced CRE growth furthering the rapid transformation of the balance sheet to include more floating-rate assets and diversifying our credit portfolio.

Turning to credit quality, our core portfolio continues to perform well. Non-accrual loans of $59 million or 14 basis points of total loans compared with $57.4 million or 15 basis points in the 2019 fourth quarter. Our 30 to 89-day past due loans increased to $118.6 million mostly due to processing and documentation delays given the COVID-19 circumstance. Our 90-day plus past due loans remained low at $4.1 million. Net charge-offs for the 2020 first quarter were $1.7 million compared with $2.5 million for the 2019 fourth quarter. With the adoption of CECL, the provision for credit losses for the 2020 first quarter was $66.8 million compared with $9.8 million for the 2019 fourth quarter. This brought the bank's allowance for credit losses to 87 basis points of loans and the coverage ratio stands at a healthy 603%. As I mentioned earlier, the increase in the provision was wholly attributable to COVID-19.

Looking at the effects of COVID-19, we thus far had a little over 5,100 clients with $5.6 billion in loans as for some form of temporary short-term payment deferral. We are happy to work with these clients, who are clearly struggling to fight through the current crisis. Most appear to recognize it's temporary and are not looking to give us their businesses and livelihoods at this point. Of course, if this goes on for an extended period of time, this may change. On the payroll protection program, again, we participated to help our clients and the community at large, we funded approximately $500 million in approved loan requests.

Now onto the team front, despite dealing with all the current turmoil, we continue to move forward. In the 2020 first quarter, the bank hired new leadership for the West Coast and on-boarded 12 private client banking teams. Five additional teams to bolster our presence in the San Francisco market and seven to spearhead the bank's efforts in the Greater Los Angeles marketplace where we plan to open up four new offices. And thus far in April. already we've hired two additional teams for Los Angeles.

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 first quarter reached $348 million, up $29 million or 9% when compared with the 2019 first quarter and an increase of $10 million from the 2019 fourth quarter. Net interest margin increased 4 basis points in the quarter versus the comparable period a year ago and increased 7 basis points on a linked quarter basis to 2.79%. Excluding prepayment penalty income, core net interest margin for the linked quarter increased 4 basis points to 2.71%. The increase was driven by a significant decrease in deposit costs.

Looking at asset yields and funding cost for a moment, interest earning asset yields decreased 18 basis points from a year ago and 4 basis points from the linked quarter to 3.83%. The decrease in overall asset yields was driven by lower reinvestment rates in all of our asset classes, as well as the repricing of floating rate loans due to the decline in interest rates that took place during the quarter. Yields on the securities portfolio decreased 13 basis points linked quarter to 2.92% given a much lower market for reinvestment rates and higher CPR speeds. The duration of the portfolio decreased slightly to 2.5 years as a result of significantly lower market rates at quarter end.

And turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 5 basis points to 4.13% compared with the 2019 fourth quarter. Excluding prepayment penalties from both quarters, yields decreased 7 basis points. Prepayment penalties for the 2020 first quarter were $9.2 million, up $2.5 million compared to the 2019 fourth quarter as the dramatic decline in longer-term rates led to a significant increase in CRE prepayment activity.

Now looking at liabilities, our overall deposit cost this quarter decreased 10 basis points to 98 basis points due to the significant decrease in the Fed funds rate. Average borrowings excluding subordinated debt decreased $273 million to $4.2 billion or 8.2% of our average balance sheet. The average borrowing cost decreased 9 basis points from the prior quarter to 2.49%, and overall, the cost of funds for the linked quarter decreased 10 basis points to 1.16%.

Looking at our liquidity position, we are on a very strong footing. We increased our cash position substantially to over $1 billion. In addition, we have ample borrowing capacity at FHLB. We also have additional borrowing capacity at the Fed discount window. We have free securities that provide significant liquidity. And finally, we have unsecured overnight access to Fed fund lines with various counterparties. The bottom line, we have more than ample liquidity to meet our clients' needs.

On to non-interest income and expense. Non-interest income for the 2020 first quarter was $14.2 million, an increase of $300,000 when compared with the 2019 first quarter. This quarter, we changed the method of accounting for our low-income housing tax credits. The related quarterly amortization of $9.1 million is now reported as income tax expense instead of non-interest income. This change is also reflected in prior periods. Non-interest expense for the 2020 first quarter was $144 million versus $125.1 million for the same period a year ago. The $18.9 million or 15% increase was due to the significant hiring of private client banking teams in Los Angeles to launch our presence there as well as the five additional teams for San Francisco. The bank's efficiency ratio was 39.7% for the 2020 first quarter versus 39% for the 2019 fourth quarter and 37.6% from the 2019 first quarter.

And looking at our taxes, there was a $7.8 million discrete item related to the difference between the vesting price and grant price of restricted shares that vested during the quarter. Additionally, as mentioned earlier, tax expense included $9.1 million in low-income housing tax credit amortization expense. The effective tax rate excluding these items was 23.2%.

Turning to capital, as a result of adopting CECL, we recorded a one-time cumulative pre-tax adjustment of $45.8 million. Additionally, there was a cumulative adjustment for the adoption of the proportional amortization method of accounting for our low-income housing tax credits of $24.6 million. In the first quarter of 2020, the bank paid a cash dividend of $0.56 per share. Additionally, during the 2020 first quarter, the bank repurchased approximately 393,000 shares of common stock for a total of $50 million. During the quarter, we temporarily stopped our repurchase activity given the COVID-19 circumstances and we have no plans to repurchase shares in the future until these circumstances change.

The dividend and share buybacks had a minor 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 9.45% and total risk-based ratio of 12.77% as of the 2020 first quarter. And now I'll turn the call back to Joe. Thank you.

Joseph J. DePaolo -- President & Chief Executive Officer

We are motivated by the initiatives we recently put in place, such as our California expansion because the enormity of the current environment has to be outweighed by the importance of the future. The bank must forge ahead and continue a path of growth where opportunities abound. As difficult as the current environment is, this is when our high-touch service model truly differentiates us in the marketplace. Furthermore, we never lose sight of the fact that people want to know their money is safe in difficult times. We look forward to continuing to be a trusted banking partner to our clients and helping them through this quagmire.

Now, we are happy to answer any questions you might have. Maria, I'll turn it over to you.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Dave Rochester of Compass Point.

David Rochester -- Compass Point -- Analyst

Hey, good morning, guys. Nice quarter.

Joseph J. DePaolo -- President & Chief Executive Officer

Hi, Dave.

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

Dave, good to see you number one in queue again.

David Rochester -- Compass Point -- Analyst

That's right. Thanks, guys. Hey, that was great news on the teams, it's a really nice add for you guys. So I was just hoping to get some more color on those, maybe how large the teams are from a book of business perspective and what they can do for you guys? And then maybe just from an expense perspective, do we get the timing of their joining, and how they impact your outlook there?

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

Yeah, we're very excited about the teams that we've bought on board. These are truly high quality experienced banking teams, each one of them has books of business in the hundreds of millions. And we're excited about hiring Judi Prejean to lead our efforts out there. She is a 30-plus year veteran out of the Bank of the West and now she's already made a huge impact on our San Francisco business and certainly in LA, where we anticipate opening up those four offices. So it's clearly an area that we expect significant opportunities from. On the expense front related to that, we had said we'd be in a 15% expense range going down to about 10% to 12% by year-end and we continue to hold to that. So we're right at that 15% number this quarter, we'll probably be at a similar 14% or 15% growth for the second quarter and I think you'll see that trend down -- linearly down to 13% and then 12% and 11% and 10%. Although, obviously, when we see opportunities in the marketplace, we're not shy, we'll look to bring more people and act on those opportunities. So we'll be happy to announce at any point that we might have to move that expense guidance up again. But for now, we anticipate that will trend down over the course of the year.

David Rochester -- Compass Point -- Analyst

That's great to hear. Any systems build out or any tech investment you have to make for any of these guys or can they pretty much hit the ground running?

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

They pretty much can hit the ground running and we don't really see any meaningful tax spend there. Obviously, we'll have the expense associated with opening the locations, but we're going with a little bit more of a branch-light strategy in the Los Angeles marketplace as we really bring the banking services to our clients. There's not much need to build out a traditional bank infrastructure there. So that should help keep the expenses mitigated somewhat.

David Rochester -- Compass Point -- Analyst

Yeah, great. And maybe just switching to credit real quick, if you can just talk about what you're seeing in terms of loan deferral activity modifications and then maybe if you could just give some color on how your retail CRE customers are doing through the lock-down? And how cash flows are trending there with the multifamily book? And I know you have some really low LTVs in that part of the business, maybe just talk about those as well. That would be great.

Joseph J. DePaolo -- President & Chief Executive Officer

Well, we'll talk a little bit about the payment deferral. We have about 14% of the portfolio have asked for deferrals. That's about $5.6 billion or the 14%. In particular, if you look at CRE it's $4.1 billion or 15%. The highest percentage, which is expected is the Signature Financial, which is at 25%. As it relates to CRE, what we are hearing -- I'll let Eric talk about the retail, I'll talk about the multifamily, what we're hearing on the multifamily side is that market rentals are about 80%, they're collecting rents, 80% of market rental. And then on rent security, -- I'm sorry, rent stabilized, it's about 50% of the rent being collected. Very few transactions are occurring in the marketplace. We were not doing any new business with prospects, because we're not really taking on any new clients. We're only doing business with existing clients. And I think the most important thing to understand as it relates to the payment deferrals is that we're doing them for 3 months, either April, May and June or May, June and July. We're differing principal and/or interest and we're also adding it onto the back end.

We'll go from 3 months to 6 months if we need to. It really depends upon how long the current circumstances exist. I know the Governor has extended it through the 15th of May. Should it go beyond that, then we have to look at extending. I'll have Eric give a little detail on the retail product.

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

Yeah. On the retail front, we've got about $1.35 billion of our $5.5 billion on our portfolio or 24% that's asked for a deferral there. Over a third of that is in our neighborhood retail clients. That's an asset class that we've talked about for years now that we really like a lot. It held up incredibly well through the great recession. Unfortunately, this is just a rare set of circumstances that is significantly impacting that, the dry cleaners, the hair salons, the barbers, the pizza places, everything has been affected by this in this environment. But at a 50% -- 56% LTV and a 1.62 debt service coverage, we're not overly concerned with it at this point. Our clients generally are working with us. They recognize this to be a temporary situation. They are not looking to hand over their building and give up their 30% to 50% equity in the properties. They recognize that they're going to need that when this temporary situation is over.

So ultimately, they are happy with the deferrals that we've given. And as Joe said, we'll have to see what happens into the future if this is 2 to 3 months more, we should be fine. If we're beyond 6 months, that's where it's going to get a bit more difficult for us.

Joseph J. DePaolo -- President & Chief Executive Officer

And I'll add on the multifamily, the LTV is 61%, the debt service coverage is 1.38.

David Rochester -- Compass Point -- Analyst

Okay, great. And then on the retail strip centers, those are located in high density areas, right, and primarily in Long Island.

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

Yes. Well, it's in outer Boroughs, right.

David Rochester -- Compass Point -- Analyst

Yeah.

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

So, Queens, Brooklyn, Bronx, Long Island and Westchester.

David Rochester -- Compass Point -- Analyst

Yeah. Got it. Great. Appreciate all the color, guys. Maybe just one last one real quick on the NIM. Can you just talk about what you guys are expecting for 2Q given the full quarter impact of the rate cuts? I know you've been moving deposit cost down fairly aggressively in the last couple of months. So if you have any updates there on what the deposit -- the cost of deposits is, maybe, in March or April, that would be great.

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

Yeah, I'll let Joe touch on the deposit side of the equation and I can hit on the rest.

Joseph J. DePaolo -- President & Chief Executive Officer

The average deposit cost for the first quarter was 98 basis points. Included in that was the month of March, which averaged 80 basis points and in the month of April so far, we're averaging 60 basis points. So the last two cuts in March are really starting to be felt in April. So it bodes well for us going forward that we're dropping the cost and we still have tremendous opportunity to continue to do so on the liability side.

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

Right. Looking at the overall margin really, we have a flat to upward bias. I'd say a little bit more strongly that we'd have an upward bias if it were not for significant deposit flows that we've seen thus far in this quarter. Today, we're up over $2 billion in both average and in deposits for the second quarter. So we're seeing tremendous flows there. So we're sitting on a bit more cash than we normally would. Other than that, we'd have more conviction around our margin being up but we still anticipate it will be as much as we would have thought. So on the asset side, we've really seen credit spreads widen in all of our asset classes, so that's been very beneficial to us as we're seeing the runoff being replaced by lower asset yields but not nearly as well as we might have anticipated a month or two ago. And really we put floors in our fund banking area. We now have a LIBOR floor at 1% and we're seeing spreads of 200 basis points to 275 basis points over LIBOR. So that being our biggest area of growth, that's been very helpful to the margin outlook for us.

David Rochester -- Compass Point -- Analyst

That's great. Appreciate all the color, guys. Thanks.

Joseph J. DePaolo -- President & Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Ken Zerbe of Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. I guess maybe starting off in terms of the loan growth, can you just talk about how much of that growth was actually driven by the funds banking business versus all the other categories? Thanks.

Joseph J. DePaolo -- President & Chief Executive Officer

Yeah, we really had solid growth in the C&I fronts across the board. So $1.4 billion of it was driven by the fund banking division but then traditional C&I was up $157 million. We had nice performance out of our asset base lending group, which was up $77 million. Venture capital was up $88 million and specialty finance was up $42 million. This tends to be their weakest quarter coming off the fourth quarter, which is their strongest. So that was anticipated. But we saw across the board increases in all of our C&I areas, which is great to see, the continuance of that diversification strategy that we put in place a couple of years ago.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. That's great. And then just in terms of the deposit growth, I mean, obviously incredibly strong deposit growth last quarter and if I heard the $2 billion, right, this quarter. Two questions around this, so one just what's driving this level of growth? Like what's changed or is this just fear in the market? And then also when you think about the rest of the year, is this a level or at least sort of an elevated pace that could continue in the back half of the year and into 2021?

Joseph J. DePaolo -- President & Chief Executive Officer

Well, let me start off by saying that I'd be very disappointed if we weren't at the -- exceeding the high end of our average growth of $3 billion to $5 billion. It's that confidence that we are because it's a combination of things. One, the new initiatives that we started in the last two years, they are all contributing and they are contributing in a fashion that we expect it to grow even more, the growth percentage to grow even more. Then we have the teams coming in from California. Now we have our existing teams that are still performing at a double-digit increase and we're also seeing new deposits coming in from clients that can't find their banker. And we have a single point of contact customer or client-centric model that is really allowing us to show new prospects that they could find us and we can find them.

So believe it or not, it's across the board. We know of some prospects that are turning into clients that are going to be deposits of hundreds of millions in the coming quarters. So it's just the initiatives that are coming to fruition along with the continuing track record, couple that with the current environment and it's like a perfect storm that can go on for several years.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Perfect. That's great. I'm sorry, go ahead.

Joseph J. DePaolo -- President & Chief Executive Officer

No, I was going to say the numbers that Eric gave, we normally wouldn't -- we stopped giving numbers in the mid-quarter or the beginning of quarters because we have choppiness in our deposits. But as the choppiness of a deposit of $300 million going out, we have two deposits coming in at $500 million. So we're fairly confident in the growth that's going to occur in the institution.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Perfect.

Joseph J. DePaolo -- President & Chief Executive Officer

That actually may slow down the growth in the NIM to a positive because of all the cash we'll have. Well, we'd rather have these core deposits than not have them.

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

We'll take that trade-off every time.

Ken Zerbe -- Morgan Stanley -- Analyst

Sounds good. All right. Thank you very much.

Operator

Our next question comes from the line of Ebrahim Poonawala of Bank of America Securities.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Good morning, guys.

Joseph J. DePaolo -- President & Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

So I guess just wanted to follow up on the NIM, and so, obviously, seems like very positive outlook on balance sheet growth both on loans and deposits. When you talk about upward bias, Eric, in terms of the margin. I get that stronger deposit growth could have an impact. But outside of that like, if the rate environment remains here, just talk to us in terms of the trajectory of the margin as we look out into the back half of the year and beyond. Like, has it become relatively stable? Do you still see some downward pressure like looking out into the back half into next year?

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

If we look out into the back half of this year, it's relatively stable. And then if we look out to the following year, should the yield curve stay similarly shaped, we'll start to see the margin decline at a pretty slow pace, a basis point or few basis points a quarter. But that's given that the shape of the curve stays where it is.

So eventually the assets will catch up through a liability decline, but it's going to take some time. Because like I said, we have seen credit spreads widen, I mean, we're picking up securities now in the 4%, 4.5% range, which was just unheard of a month ago. So, that's going to help us to really stem the tide of the decline on the asset side.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. And I guess just moving back to, I think Dave asked about the CRE book, I feel like that's the biggest drag on the stock right now and you provided good color around that. But just talk to us in terms of the underlying borrowers, your comfort level around them being able to sort of come through this. I mean, assuming like we open up in the next 3 to 6 months, just talk -- if you can give some comfort around the confidence around the retail landlords, the borrowers, your relationship with them in terms of the visibility that you have that unless we are in like a one-year lock-down, these things should not be big credit issues for Signature because I feel like that's going to -- is sort of underpinning why the stock is trading where it is.

Joseph J. DePaolo -- President & Chief Executive Officer

Well, on the multi-family side and even on the rest of commercial real estate, we have some very large clients that are multigenerational that has been around decades, have the wherewithal in terms of cash and actually are waiting on the sidelines for those who were not identified that way because they believe there will be an opportunity to buy. They're not ones to give up and say here are the keys. That many of those large families we were talking to are commercial real estate bankers saying just the opposite of what many are doing in payment deferrals. They haven't asked for payment deferrals, because they have the wherewithal, that's our client and they're the ones that are giving us the confidence, at least if this pandemic is ended sometime during the summer.

Then if you go into the second half of the year, you're going to see opportunities to buy and it's going to be our clients that are doing the buying not the selling. That's kind of the background of the type of Signature commercial real estate client. We're not on -- they're not really on Fifth Avenue, they're in the smaller blocks and it's not going to be an issue for them to buy at discounts. They're just waiting on the sideline.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. And I think it does. And I think it's just a matter of time in terms of -- it's been unprecedented what's happened in terms of having to play this out. And just one last one --

Joseph J. DePaolo -- President & Chief Executive Officer

Let's look at it this way. We have clients on the Grand Concourse in the Bronx. Some of those stores had to close. It's temporary, those retail stores will go back up -- come back up. On Fordham Road in the Bronx, I'm using the Bronx because I'm from the Bronx. But on Fordham Road, those stores that are closed they are going to come back. People are going to shop, there may be few people on Fordham Road today but there's going to be a lot more when we come back. They're in areas, like Eric said earlier, the pizzeria, the nail salon, the barber all that are closed today are going to be open, whether they open them or somebody else comes to open them. Those are where that you see the vacancies. So we view this as temporary and we feel like those that will not survive are clients of others not ours for the most part.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. Than just, Eric, within Signature Financial, anything within that portfolio that feels like at higher risk because of the lockdowns or any area that might be overly susceptible hospitality, leisure, travel related?

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

Yeah. It's the areas that we've discussed in the past that you would anticipate being affected by this, it's transportation and trucking and franchise, those are construction and manufacturing. And those are the primary categories. In the trucking space, I'm talking about the charter buses, the school buses things that are, obviously impaired. Franchise, we're mostly in the fast food. So those have been obviously impaired if they don't have a drive through window certainly. So, again, as the same with the properties, we're lending on revenue producing equipment and revenue producing collateral. And our clients really see this as being temporary in nature. They're not about to give us back the property or the collateral and equipment that they need to run their business, right. They want to get back to work, they want to drive that truck, they want to open up their franchises and they're not giving up. I think broadly, very broadly everyone sees this as a temporary situation. Every one's looking to muscle through it and we are there to do that with them and help them through this environment. So we have not yet had anyone give us back the keys to their truck or say, "hey, take my property back."

We're just not seeing that at all. We expected to have seen a little bit of it already and we've just not. So, we're not overly concerned right now because of the well collateralized nature of our lending. I think that's very, very important for us to point out that for the vast majority of our loans, we have a piece of collateral. We're not lending on air balls.

Joseph J. DePaolo -- President & Chief Executive Officer

I have seen some franchise stores have drive-throughs that had 40 cars in them. People are not going to start eating Dairy Queen, McDonald's. And, again, we use the word temporary, it's a temporary situation. For those that have drive-throughs, they have a line of 40 cars showing that people are really looking forward to going back to the places that gave them comfort food.

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

And then the areas that every one's talking about that are very high risk the hotels, hospitality, travel, oil and gas, our exposure to those asset classes are de minimis.

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Got it. Thanks for taking all my questions. Thank you.

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

Thank you.

Operator

Our next question comes from the line of Casey Haire of Jefferies.

Casey Haire -- Jefferies -- Analyst

Yeah. Thanks. Good morning, guys. So wanted to follow up on the rent controlled multifamily, the 50% rent roll. How is that trending? Is that stabilized at 50%? Is it still building or is it down from a peak? And then what is the provision your reserve build assume when that normalizes lower? Because I can't imagine this provision here captures that kind of that fall in rent.

Joseph J. DePaolo -- President & Chief Executive Officer

It's hard to say, Casey. Right now, we thought it's stabilized but then who knows if every one's going to go on a rent strike. If rents stabilize, they said they were going to do that May 1. We don't believe that most people want to do that. So it's hard to say if it's going to move up or down any further. I will say this, we had a number of owners tell us that if they're in Section 8, they're collecting about 80% of the rents. And what some of them are doing, where they're collecting the 80% they're working with the retail stores because the 80% covers what they need on the multi-family side. But the 50% is, again, we're not concerned about it because we believe that it's a temporary situation that will come back once the blue collar worker that we're talking about gets his job or her job back. A stimulus is not going to cover it.

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

And, again, it's 60% LTV, 1.40 debt service coverage and I think the key to all this really is the fact that we've talked about this for a decade now. We lend to the jockey not to the horse, right? We deal with multigenerational, multi-property owning families that have been through environments, troubling environments before that see this and recognize this as a temporary environment. So we just don't see a level of losses really or any losses really meaningfully coming out of this.

Casey Haire -- Jefferies -- Analyst

Okay. Understood. Another follow-up on the margin. Just wondering the deposit trends, obviously, are favorable for you. Are you guys going to continue to pay-down borrowings, is that part of the upward NIM bias and then the securities book with yields at 4.5%, is that -- should we expect that to grow going forward?

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

Yeah. Well, the 4.5% is at the top end of those yields, I mean, we are getting anywhere from 3% to 4.5% on securities, but yes we will certainly look to invest and grow that portfolio. We've been wanting to do that for quite some time but haven't had the environment to doing it. On the borrowings, yeah, absolutely, we anticipate in paying down borrowings, we have about $450 million in borrowings coming due over the next 3 months that we'll be looking to pay down at some pretty high prices, some of which are north of 3%. So that will definitely be beneficial to the margin.

Casey Haire -- Jefferies -- Analyst

Okay. The borrowings, it was $250 million or so in the quarter, where might that settle going forward?

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

I'm not sure, Casey, certainly I'd expect to get 10 -- another 10 basis points if not more out of that again.

Casey Haire -- Jefferies -- Analyst

Okay. Great. Just last one for me, I caught the tax rate, it sounds like there was a discrete item and, obviously, an accounting change on the fee side, just where do we settle all in going forward?

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

I think to be conservative, we'd stick with the 25% effective tax rate.

Casey Haire -- Jefferies -- Analyst

Great. Thank you.

Joseph J. DePaolo -- President & Chief Executive Officer

Thank you, Casey.

Operator

Our next question comes from the line of Steven Alexopoulos of JPMorgan.

Stephen Alexopoulos -- JPMorgan -- Analyst

Hey, good morning, everyone.

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

Good morning, Steve.

Stephen Alexopoulos -- JPMorgan -- Analyst

To start, just a follow up on Signature Financial, what was the balance of Signature Financial at the end of the quarter? Maybe Eric can you quantify -- I know you called out a couple of exposures, can you quantify those COVID exposed exposures?

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

Yes. So Signature Financial was $4.6 billion at the end of the quarter. We've got $1.2 billion, a little bit less than $1.2 billion or 25% that's asked for deferral. Transportation, which includes trucking, charter buses, school buses, a bunch of different things that go in there, that was $424 million of the amount of relief. And then franchise was another $300 million. So those were our two biggest buckets and that's broadly what we anticipated we'd say.

Stephen Alexopoulos -- JPMorgan -- Analyst

And what were the balances of the transportation and franchise.?

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

Transportation was $1.1 billion, $1.15 billion, so about 37% of the transportation has asked for relief and franchise was $455 million, so about 70% of the franchise. That clearly percentage-wise is in the area that's been hardest hit.

Stephen Alexopoulos -- JPMorgan -- Analyst

Okay. That's helpful. And then on loan growth, we're seeing quite a bit of disruption at PE as well as VC firms. Do you guys expect a slowdown in capital call lending volumes in 2Q?

Joseph J. DePaolo -- President & Chief Executive Officer

Not based on the pipeline that we see going right now. We don't see a slowdown at all.

Stephen Alexopoulos -- JPMorgan -- Analyst

Okay, great. And then finally if we look at the West Coast team hires, were these all deposit teams? And why so many this quarter? Did they come as a group from one bank? Thanks.

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

Well, right. I mean, they're predominantly traditional C&I and deposit teams, fairly equal amount, a little bit more deposits than loans overall. But each team has its own unique mix of that. We were able to hire someone out of Bank of the West, Judi Prejean, I had mentioned earlier, to lead and spearhead our initiative there. Upon her joining us, there were many people at that institution that reached out to her looking to find a new home.

So that's where seven of the new teams came from. And then we had four come out of the Chase and one actually came out amalgamated. So additionally, we've hired from Citibank, BofA and Heritage Bank, so there's been a few other institutions where we've hired people from.

Stephen Alexopoulos -- JPMorgan -- Analyst

Okay. And maybe if I could squeeze one in, were the contribution of deposits from the Kanno-Woods team material in the quarter? Thanks.

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

They approached $100 million in deposits and they have some significant opportunities that we anticipate landing relatively soon.

Joseph J. DePaolo -- President & Chief Executive Officer

Like multiples from that.

Stephen Alexopoulos -- JPMorgan -- Analyst

Terrific. Thanks for taking my questions.

Joseph J. DePaolo -- President & Chief Executive Officer

Thank you, Steve.

Operator

Our next question comes from the line of Jared Shaw of Wells Fargo Securities.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Thanks a lot. Good morning.

Joseph J. DePaolo -- President & Chief Executive Officer

Hi, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

When you look at the West Coast, do you feel that that's sort of built out where you wanted to be now or should we expect that there's additional opportunities as we go through the year there?

Joseph J. DePaolo -- President & Chief Executive Officer

Well, as we go through the next several years, I'd like to see the West Coast equal the East Coast. We want to take that opportunity to grow our business and in order to be a $100 billion business, we have to continue to grow in New York, but we have to go in Los Angeles and San Francisco, and some other cities in California. So we have ambitious ideas.

Jared Shaw -- Wells Fargo Securities -- Analyst

And when you look at the teams that you brought on, you said they are traditional C&I lenders, any specialty, any industry focus or is it really just sort of the standard Signature model of going after the influencers, the economic influencers?

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

Yeah. That's right.

Joseph J. DePaolo -- President & Chief Executive Officer

I would say standard business held by way above standard bankers.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. That's great. And then on the capital call lines, have you seen any increase in the duration of the capital call lines or are you seeing the GPs use those to maybe defer LP calls? Or is it just growth is coming from good investment opportunities and market share gain?

Joseph J. DePaolo -- President & Chief Executive Officer

Yeah, it's growth in market share gain far, far and away, they are still bringing on their clientele and new business. And we looked at this closely because we've seen others say that it's in the drawing of their lines but not here.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And then could you just give us an update on the balances, the multifamily and CRE balances at the end of the quarter? And then what multifamily originations were in and what the current pricing is on that?

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

Yeah. Balances in multifamily were $14.88 billion and commercial property, other forms of CRE, were $10.53 billion. And construction of land was $1.2 billion.

Joseph J. DePaolo -- President & Chief Executive Officer

The multifamily 5-year fixed is 3.75 and we had some really good deals 3.625. So essentially the high 3s.

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

And pushing higher if anything.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. And what did the utilization rates look like at the capital call lines, sorry, just going back on that.

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

They are 65%, they've been 65% for several quarters now, hasn't changed at all. So remember in the capital call business, we're dealing with very, very well-established fund companies that are dealing with the best LPs out there. So they're not going to panic and draw down on lines. They're not going to look to call from the LPs either. I mean, this is an environment right now where they're looking for opportunities, right? And we think in a quarter to two quarters from now, that's when you'll see them draw on their lines in order to seize on those opportunities. So right now, it's pretty steady, but we do anticipate in a quarter or two as they see the opportunities unfold in the marketplace that that's when they'll draw.

Joseph J. DePaolo -- President & Chief Executive Officer

In fact, since the end of March all the way through currently in April, we're actually -- utilization is actually down in the entire portfolio.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great color. Thanks very much, guys.

Joseph J. DePaolo -- President & Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Matthew Breese of Stephens Inc.

Matthew Breese -- Stephens Inc. -- Analyst

Hey, good morning, guys.

Joseph J. DePaolo -- President & Chief Executive Officer

Good morning, Matt.

Matthew Breese -- Stephens Inc. -- Analyst

Just curious, on the New York City rent rolls, you mentioned 80% collection from market rate, 50% for rent stabilized. Could you give us the breakdown between your exposure to market rate and rent stabilized?

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

Yeah, it's right around 50/50.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. And then fee income this quarter was pretty strong even outside the accounting change. Can you just talk about the drivers there and prospects for future growth? I'd imagine capital call lines in Kanno-Woods are helping but I'd like to hear your thoughts. And then as we look further out, once these businesses get fully ramped up, what proportion of revenues do you envision fees making up?

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

Well, I mean, at 5% now they are not much, right, and we've got a lot of work to do on that front and that's certainly going to be some of our focus over the course of this year and next year. Fund banking definitely with the unrealized fees that they obtain that's helping to move the needle. Certainly specialized mortgage servicing in that group, we absolutely think that they will be able to move that line item as well.

Foreign exchange is an area that we're putting a significant emphasis on. And we hope throughout the course of this year, we'll start to really see the revenues move there. And then we've got credit cards, which is something that we really don't make anything from. I think we've made under $100,000 in fee income from credit cards last year, that should be many, many millions of dollars. So that's going to be an emphasis for us in the later part of this year and through next year.

In VC, our Venture Banking group will be a pretty large contributor of fee income as well both in FX and credit card. So we need to get those products up and running for them as well as many of our other existing teams. So there's a lot of work to be done. We'd love to move that 5% to 10% but it is turning a ship in the ocean -- an aircraft carrier in the ocean. So It's going to take some time. But we're pleased with the progress we've seen thus far, but there is a lot of work left to do.

Joseph J. DePaolo -- President & Chief Executive Officer

Yeah. We're going to be dependent upon the new teams, the new initiatives because the traditional teams that we've had all along, there is very little fee income being collected because they do a great job of having their clients keep sufficient amount of DDA and hence our DDA is 32% of total deposits. If we can have clients continue to keep it at that level, we waive the fees. So that's why we are depending upon these other initiatives to drive that 5% that Eric said to 10%.

Matthew Breese -- Stephens Inc. -- Analyst

Understood. Okay. Last one for me, the deposit growth this quarter, how much of that was driven by revolver draw down only to be redeposited? Was there any of that going on?

Joseph J. DePaolo -- President & Chief Executive Officer

None.

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

A de minimus amount. The only area that we saw a little bit of that was in our Venture Banking Group. But given that they've just started, really it wasn't a meaningful amount.

Matthew Breese -- Stephens Inc. -- Analyst

Great. Okay. That's all I had. Appreciate taking my questions. Thank you.

Joseph J. DePaolo -- President & Chief Executive Officer

Thank you, Matt.

Operator

And thank you, ladies and gentlemen. 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 6995686. 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.

Duration: 60 minutes

Call participants:

Joseph J. DePaolo -- President & Chief Executive Officer

Susan Turkell Lewis -- Media Contact

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

David Rochester -- Compass Point -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

Ebrahim Poonawala -- Bank of America Securities -- Analyst

Casey Haire -- Jefferies -- Analyst

Stephen Alexopoulos -- JPMorgan -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Matthew Breese -- Stephens Inc. -- Analyst

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