Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Signature Bank (NASDAQ:SBNY)
Q2 2020 Earnings Call
Jul 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2020 Second Quarter 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, Laurie. Good morning, and thank you for joining us today for the Signature Bank 2020 second quarter 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 may be beyond our control.

Forward-looking statements include information [Technical Issues], interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private -- client team hires, new office openings, business strategy and the impact of the COVID-19 pandemic on each of the foregoing and on our business overall. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance 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

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.

Signature Bank experienced an extraordinary quarter of growth, in spite of the economic uncertainty resulting from the COVID-19 environment. The record quarterly deposit growth of $8 billion emanated from all facets of the Bank, including our well-established private client banking teams and business units, our blockchain-based payments platform, Signet, the more recently formed Digital Banking Group, Fund Banking Division, Venture Banking Group and Specialized Mortgage Servicing Banking team, as well as our latest expansion to the West Coast. Additionally, this quarter we saw record loan growth, both with and without the Payroll Protection Program loans.

All this growth occurred, while we also continued our asset diversification strategy. By furthering commercial and industrial lending, primarily through the Fund Banking Division and selectively growing our commercial real estate portfolio. Perhaps most importantly, the best reflection of the quarter's strong results can be evidenced in our reduction of payment deferrals. As of July 15, of the loans that had their payment deferral come due after three months, we've seen 60% of the loans resume payment status.

So now let's take a look at earnings. Pre-tax, pre-provision earnings for the 2020 second quarter were $247.9 million, compared with $211.4 million for the 2019 second quarter, the increase of $36.5 million or 17% was predominantly driven by substantial asset growth of $11.5 billion, offset by the investments we made in business initiatives, including our West Coast expansion.

Net income for the 2020 second quarter was $117.2 million or $2.21 diluted earnings per share, compared with $147.3 million or $2.71 diluted earning per share for last year second quarter. The decrease in net income was driven by a second quarter provision for credit losses of $93 million, which was predominantly attributable to COVID-19.

Looking at deposits, the core of our philosophy, this was the best quarter of deposit growth we ever reported. Deposits increased $8 billion or 19% to $50.2 billion this quarter, while average deposits grew by $6.2 billion. Moreover, this is now the fourth consecutive quarter exceeding $1 billion in both total and average deposit growth, Non-interest bearing deposits of $16.1 billion still represent a high 32% of total deposits. Since the second quarter of last year, deposit and loan growth coupled with earnings retention increased total assets $11.5 billion or over 23%.

Now let's take a look at our lending businesses. Core loans excluding PPP loans during the 2020 second quarter increased a record $2.2 billion or 5% to $43.2 billion. Fort the prior 12 months core loans grew $5.3 billion, the increase in loans this quarter was again driven primarily by new Fund Banking capital core facilities. This is the second -- excuse me, this is [Technical Issues] C&I outpaced CRE growth furthering the rapid transformation of the balance sheet to include more floating rate assets as we continue to diversify our portfolio. On the PPP front, we funded approximately $1.4 billion in the second quarter for an overall total of $1.9 billion in PPP loans.

Turning to credit quality. Non-accrual loans of $47 million were 10 basis points of total loans, compared with $59 million or 14 basis points in the 2020 first quarter. Our 30 to 89 day past due loans increased to 159 [Technical Issues] and listen carefully, it's important to note $93.5 million of the 30 to 89 day past dues were caused by processing and documentation delays given COVID-19 circumstances and are now current. This brings the total 30 to 89 day past due balances to $65.9 million, which is within our normal range. Our 30 -- excuse me, our 90 day plus past due loans remains low at $16.9 million. Net charge-offs for the 2020 second quarter was $4.6 million or 4 basis points, compared with $1.7 million for the 2020 first quarter.

With the adoption of CECL at the beginning of the year, the provision for credit losses for the 2020 second quarter was $93 million, compared with $66.8 million for the 2020 first quarter to support the Bank's allowance for credit losses to 98 basis points of loans and the coverage ratio now stands at a healthy 947%. As I mentioned earlier, the increase in the provision was predominantly attributable to COVID-19.

For this next part, please listen very carefully. Looking at the effects of COVID-19, loan deferrals peaked to $10.9 billion. As of July 15, we only had approximately $2.2 billion scheduled to come out of their initial 90 day deferral period, because most of the deferrals don't come due until August or later. So of the $2.2 billion, over $1.3 billion or 60% began paying again. Additionally, we had another $295 million of clients have began paying before the deferral period ended, bringing our total deferrals to $9.4 billion.

So let me repeat that, the high of loan deferrals peaked at $10.9 billion. As of July 15, we had only approximately $2.2 billion scheduled to come out of their 90 day period -- deferral period, because most of the deferrals don't come due until August or later. So of the $2.2 billion coming due, over $1.9 -- excuse me, over $1.3 billion or 60% began paying. We're very happy with that number.

Additionally, we had another $295 million of clients deferrals that began paying before the deferral period ended, bringing our total deferrals down to $9.4 billion. In fact in our franchise space, which on a percentage basis was the most affected, we witnessed nearly 100% of our clients, return to paying in some form. Most appear to recognize it's temporary and are not looking to give up their businesses. Of course, should it go for an extended period of time this may change.

Now onto the team front. In the 2020 second quarter, the bank on-boarded three private client banking teams in greater -- in the Greater Los Angeles marketplace, bringing the total to 10 teams there. Together with our San Francisco office, the bank now has a total of 19 private client banking teams on the West Coast, Eric has been busy. Additionally, the bank expects to open up its Warner Center, Newport Beach and Ontario California private client banking offices during the summer of 2000 -- during this summer, right now, 2020 with Beverly Hills closely following in the fall.

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 and Business Development

Great. Thank you, Joe, and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the second quarter reached $387 million, up $61 million or 19%, when compared with the 2019 second quarter and an increase of $39 million from the 2020 first quarter.

Net interest margin increased 3 basis points in the quarter versus the comparable period a year ago and decreased 2 basis points on a linked quarter basis to 2.77%. Excluding prepayment penalty income, core net interest margin for the linked quarter decreased 2 basis points to 2.69%. The decrease was completely driven by significant deposit flows, resulting in an average cash position of $4.12 billion for the 2020 second quarter. The excess cash balances caused a 15 basis point drag on core net interest margin.

And if we look at asset yields and funding costs for a moment. Interest earning asset yields decreased 59 basis points from a year ago and 39 basis points from the linked-quarter to 3.44%. 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. Additionally, excess cash and PPP loans significantly affected average yields. Yields on the securities portfolio decreased 14 basis points linked quarter to 2.72%, given a much lower market for reinvestment and higher CPR speeds. The duration of the portfolio decreased to 2.1 years as a result of lower rates and higher CPR speeds.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 22 basis points to 3.91%, compared with the 2020 first quarter. Excluding prepayment penalties from both quarters, yields decreased 24 basis points. Prepayment penalties for the 2020 second quarter were $11.7 million, up $2.5 million, compared to the 2020 first quarter, as the decline in longer-term rates led to increased CRE prepayment activity.

Now, looking at liabilities. Our overall deposit cost this quarter significantly decreased by 42 basis points from 98 basis points to 56 basis points, due to the low interest rate environment. During the quarter, borrowings decreased $895 million to $4 billion or 6.7% of our average -- of our balance sheet. The average borrowing cost decreased 32 basis points from the prior quarter to 2.17%. And overall the cost of funds for the linked quarter decreased 43 basis points to 73 basis points.

And on to non-interest income and expense. Non-interest income for the 2020 second quarter was $12.7 million, a decrease of $4.4 million, when compared with the 2019 second quarter. The prior year's second quarter included $2.6 million gain on sale of Signature Financial loans, as well as several other one-time items. Non-interest expense for the 2020 second quarter was $151.9 million versus $131.9 million for the same period a year ago. The $20 million or 15% increase was due to the significant hiring of private client banking teams on the West Coast and continued investment in our national initiatives. Even with the significant hiring, the Bank's efficiency ratio improved to 38% for the 2020 second quarter versus 39.7% for the 2020 first quarter and 38.4% for the 2019 second quarter.

And turning to capital in the second quarter of 2020, the Bank paid a cash dividend of $0.56 per share, the dividend had a minor effect on all capital ratios, which remained well in excess of our regulatory requirements and augment the relatively low risk profile of the balance sheet, as evidenced by a Tier 1 leverage ratio of 8.76% and total risk-based ratio of 12.13% as of the 2020 second quarter.

And now I'll turn the call back to Joe. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Eric. This was truly an exceptional quarter where we witnessed strong performances across the entire Bank. We are great [Technical Issues] recognize the strength of our balance sheet, having already deposited nearly $10 billion in new funds this year. During difficult times, our high-touch service model truly differentiates us. We maintain steady contact with our clients informing them of new developments; such as PPP, which led to a strengthening of our client relationships.

Furthermore, we never lose sight of the fact that people want to know their funds are safe in difficult times. As with past crisis, we want to assure you management remains dedicated to guiding the Bank through this unsettling times. We'll focus on the soundness of our conservative risk management and capital allocation practices, ensuring the safety of our nearly 1,600 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 are motivated by the initiatives we recently put in place such as our California expansion. And like I have said before, 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 are bound.

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

Questions and Answers:

Operator

The floor is now opened for questions. [Operator Instructions] Our first question comes from the line of 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.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

So great job, keeping the NIM stable despite the 15 basis point headwind from the excess deposits. I guess the question that I want to ask, though is, if we think about -- if we sort of back out the excess deposits, the 15 basis points, your NIM would have been up materially simple, but it's still a major improvement. Given where we are today, right? Given the fact that you do have those excess deposits, given the fact that rates are still low. How do you see NIM progressing into [Technical Issues]?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yes, it's really going to be [Technical Issues] further deposit flows and we know that we have a very robust deposit pipeline over the next several quarters. The question is what's going to leave? We, you know, clearly have PPP funds that we anticipate people will utilize and we'll see what the deposit outflow are. But if we can get back to, I'd say more normal level of deposit growth anywhere from $500 million to $1.5 billion, you know, then we should have a stable NIM, if not upward bias. And a lot of it's also going to be dependent on how much we can deploy into loans and into securities. In both cases we think we'll have opportunities to invest. So ultimately we think we've got a stable NIM with an upward bias anticipating that we'll get back to a more stable level of deposit flows.

Joseph J. DePaolo -- President and Chief Executive Officer

You know, we have little bit of a headwind in that the first half of July, we saw some outflow due to tax payments. So we're going to have to make up for that. And I think we will, but it's one thing that we had in this quarter -- the third quarter -- the start of the third quarter that we didn't have in the second quarter.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Okay, perfect. And then maybe just a follow-up question, in terms of expenses, can you just address your expense outlook given the growth in the West Coast teams, because I know before I think it was like 15% year-over-year and it's slowly declining, but it seems that that should change given the number of new hires recently?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well, we really anticipate that those new hires in the guidance that we gave coming out of the first quarter, so we came right on top of our 15% target for this quarter and we do expect it to decline in a linear fashion going forward each quarter. So it should be 14% and 13%, 12% and so on. The only caveat we'll give is that we are having quite a few discussions with bankers on the West Coast and we'll see if any of those opportunities actually hit, but we are pleased with the number of people that we're talking to there, and there could be some further opportunity for team hires in the near future, let the marketplace know and we will change that guidance, if need be. But for now, we think we'll see it continue to trickle down from this 15% level.

Ken Zerbe -- Morgan Stanley -- Analyst

Excellent. Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Ken.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Ken.

Operator

Your next question comes from the line of Dave Rochester of Compass Point.

David Rochester -- Compass Point -- Analyst

Hey, good morning guys. Nice quarter.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, David.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, David. Good morning. Thank you.

David Rochester -- Compass Point -- Analyst

Definitely appreciated the deferral stats as well, those were pretty solid. And along those lines, I guess, I was just wondering if you had any updates on the collections data, you guys have been tracking and talking about just on the multifamily side, for a rent stabilized market rent?

Joseph J. DePaolo -- President and Chief Executive Officer

Sure. On the multifamily side it's been actually very, very pleasant surprise it's 80% plus. Generally, our clients feel very comfortable with their collections, on multifamily it's 80%, on office it's 65% to 85% and on retail it's very wide, it's anywhere between 35% the 65%. But the one thing we try to point out on retail is that we have very little destination retail, most of our retail is in the -- is more so the neighborhood type retail, it's not only in Manhattan, but it's in the outer boroughs. the majority of it is the nail salon, the pizzeria, the CVS, the shoe store, the barbershop, the bagel store. And they are, really, the backbone of the neighborhood. So...

David Rochester -- Compass Point -- Analyst

Yes.

Joseph J. DePaolo -- President and Chief Executive Officer

So what happens there is, well as soon as they open, they'll be busy, because everyone in the neighborhood want their stores to be supported and that's what we're seeing.

David Rochester -- Compass Point -- Analyst

Yes, great. Well, I would imagine Phase IV is going to give that a nice boost as well. Is that fair to say?

Joseph J. DePaolo -- President and Chief Executive Officer

Our Phase IV will certainly help the gyms that are hurting, because they're not open. I think you have to keep in mind that New York has done a very good job, and if they continue to do so we'll be very encouraged, we're very optimistic.

David Rochester -- Compass Point -- Analyst

Sounds good. And then just switching to the NIM. You guys did a great job reducing deposit costs this quarter. I mean, if I look at each of these buckets in the average balance sheet, it seems like you have even more room to go, to get back to pre-rate cycle lows. So I was just curious to get your thoughts on that? And if you think that can be a good support for the NIM through the end of this year?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yes, for sure, David, we're actively working on bringing down some of the higher cost deposits that we have. In fact Joe and I were discussing it this morning going through a list. So it's -- we have quite a bit of space yet to reduce deposit costs, albeit it will be at a slow pace, you know, it took us many years through the last cycle to get back to that 40 basis point, 39 basis point, I think was our ultimate low. We’ve got ample room and we'll continue to move that down.

David Rochester -- Compass Point -- Analyst

Sounds good.

Joseph J. DePaolo -- President and Chief Executive Officer

To give you an idea, the current cost of deposits, as Eric said went from $98 million to $56 million. In the month of June it was $54 million and in the -- currently in July it's $51 million.

David Rochester -- Compass Point -- Analyst

Great.

Joseph J. DePaolo -- President and Chief Executive Officer

We really have to get that down into the '40s.

David Rochester -- Compass Point -- Analyst

Yes. All right, thanks for all the color, guys. Appreciate it.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Dave.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Dave.

Operator

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

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

I guess just the first question, I mean, it’s been a very strong quarter for the industry on deposit growth. So wanted to get a sense of with you guys, you've spelt out some of this in the press release, but if Joe you can talk about just where the deposit growth is coming from? And how sustainable this is going forward, as you think about even beyond third quarter, if there is some outflows in 3Q? But, yes, give us a sense of just what this means of -- given all the strategic actions we've taken over the last two years? And what this means in sustainability of deposit growth even [Technical Issues] quarters?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I think there’s sustainability certainly not at $8 billion a quarter, but in the first quarter, that was our third largest growth quarter -- in the first quarter. So if we did something along those lines, like Eric said earlier, if we could do $500 million to $1 billion, we'd be happy. But let me give you an idea of where the deposits came from. The Venture Capital Group was $345 million, Fund Banking was $310 million, we don't normally give this, but the numbers are so large, we thought it would be -- makes sense to do it once. Digital was nearly $1 billion, the Mortgage Servicing -- Specialized Mortgage Servicing Banking team was a $1 billion; West Coast was $340 million. We had 21 teams broken up in the following, the Private Client Banking teams. We had seven teams with over $200 million in growth, we had eight teams with over $100 million in growth, we had six teams with over $75 million in growth.

So you could see this well-established teams that have been here for a number of years, plus all the new initiatives. So it was kind of like a perfect storm. Initially I didn't say this, but I should have, there is some fluff in the deposits, but we always have fluff in the deposit growth. Some of that was the tax payments, but in times like this, we always have fluff, because we're a safe haven with deposits for clients that have excess deposits. They don't want to keep it where the -- at night, on the pillow. That's the pillow on their head and so it's a safe haven and that's where we get some of the fluff. But having said all that, we still think we're going to be nice positive growth in the second half of the year. I think you have to look at it as the second half as opposed to the third quarter versus the fourth quarter, we'll have a nice growth level, but not nearly at the $8 billion level.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And I guess just moving on, I think the single biggest overhang on the stock remains uncertainty on New York CRE and credit, you provided some good updates from the deferrals and the cure rates seem pretty strong. Just talk to us, I think the biggest concern is, as we move to October and the deferrals come to an end assuming there is no further extension, and we see some of these loans going delinquent or non-performing. One, like what visibility do you have there?

And secondarily, what's the loss content when you think about that relative to your reserve adequacy, even if some of these loans do end up being delinquent and non-performing?

Joseph J. DePaolo -- President and Chief Executive Officer

Well under the CARES Act there is some industries that we have that under the CARES Act you can continue to defer into 2021, it's not just six months. As long as they meet criteria such as, as of 12/31/2019 they were current, that's one of the criteria. So let me give you an example of one area that is going to have -- need a little bit more time, Broadway. What we're hearing is they officially said they wouldn't open up until the beginning of January, it's more likely that it won't open up until March or April. So they're going to need deferrals at least through that time before the cash flow starts coming in for the purchase of tickets. So that is an area or an industry that will not go on non-performing or non-accrual, because under the Cares Act that we can go out into 2021 as long as we -- due to the fees -- I'm sorry, the deferral, as long as the deferral was done during 2020, if you go through 2021. So that would be one area. And I think, Eric has another area to mention.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well, yes, I mean, we also have the charter bus area with Signature Financial, which is about $180 million exposure there, that we'll work on putting some long-term deferrals in place. Good thing with that, as we have collateral on each one of those and to the extent that, that collateral is not being used, it's not depreciating either. So we feel pretty well protected there, and we'll be creative and working on a restructuring that works for our clients, as well as us. I'd say overall generally, you know, you're asking about the CRE. Again we bet on the jockey and not the horse. [Technical Issues] These are deep-pocketed borrowers that can bridge a temporary fall in cash flow if necessary. And at an average of 55%, 56% LTV we feel pretty well protected in our CRE portfolio.

Now as Joe talked about earlier, in particular in the retail portfolio that neighborhood retail is an area that's been our bread and butter and behaved really well through the Great Recession. We see the neighborhood retail being really the first ones to come back. And as Joe alluded to, it's really the culture of those neighborhoods and people ultimately want to support their neighborhoods, and we are starting to see that come back. So that gives us some encouragement as well. And collections are starting to come around and a lot of what we have there are essential businesses, they're banks, they're walk-in medical, they're drug stores, they're pharmacies. So that's certainly helping to buoy the collections as well. So we think that the vast majority after another 90 day deferral, will go back to paying us, and we believe that the loss factors on whatever doesn't go back to paying us will be pretty de minimis.

Joseph J. DePaolo -- President and Chief Executive Officer

You know, one thing you have to remember on CRE, if a client of ours comes in, because he has an issue with one property, he has the deferrals on all 10 that he owns or she owns. And we would normally give it to him or her on all 10. So we're comfortable with the fact that more deferrals will come off and become current, because they didn't really need it in the beginning of the first tranche of 90 days.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you.

Operator

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

Matthew Breese -- Stephens Inc -- Analyst

Hey, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Matt.

Matthew Breese -- Stephens Inc -- Analyst

Joe and Eric, just going back to that cure rate discussion, the 60% do you think that's something we should apply into the remaining balance? Or can you give us any color as to where you think that cure rate might migrate to over time?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

I mean, given -- we think that, that's reasonable rate to use on the remainder of the portfolio that has yet to come out of its 90 day deferral, which most of that, as Joe said is happening in August, the majority of it with some in September as well. So we think 60% is a reasonable number to use. Obviously, we're going to try to get better than that. If that happens, if you extrapolate that out that brings us down to about 10% deferral rate after the initial 90 day deferral period. And then we're happy to give that. On the 10% of the portfolio, we'll be happy to give another -- well, I wouldn't say happy, but we'll give another 90 days deferral and see where we go from there.

But it's important to know. We still -- we haven't had a client yet that said here, take my keys back, take back my business, take back my collateral. And that's important. People still recognize this as a temporary event and they very much want to be able to operate their businesses. So the last thing that they want to do is give it back to us.

Matthew Breese -- Stephens Inc -- Analyst

Okay. And just to better understand the portion that doesn't cure. So this quarter is around $900 million, that just goes into another bucket of deferral, it doesn't go to NPA or NPL yet, that's up to you?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Correct. Yes, we made the decision to give 90 day deferrals so that we could check in with our clients after 90 days, a lot of our competitors went right out of the box to a six month deferral. So we always had the plan that we would give 90 days, see how the business was doing and give another 90 days if need be.

Matthew Breese -- Stephens Inc -- Analyst

Understood, and then for the long-term deferral. Should we think that -- think of it as you have the option as of, call it 12/31/2020, to add another 180 days, and that's kind of the stopping point now where deferrals should migrate to NPL, is that correct?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

You know, after the six months, it will really be on a case-by-case basis, depending on really what's happening with the underlying clients in their property and/or collateral.

Matthew Breese -- Stephens Inc -- Analyst

Okay.

Joseph J. DePaolo -- President and Chief Executive Officer

I mean, we use Broadway, as an example because we know they're not going to open up by the end of the year.

Matthew Breese -- Stephens Inc -- Analyst

And then just on the retail book, that's a really wide range of payment collection. Could you give us perhaps some anecdotes, what's going on with the property that's only collecting 35% versus the property at the high end? Is there tenants that are non-essential versus essential? Or are there properties that are deemed to mixed use and better collecting rent than pure retail? Could you just give us some better idea what's going on with the range?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well, clearly there's some properties where we have gyms and restaurants, you know, that just aren't performing at this point. So -- versus more of the essential businesses like the walk-in medical, the drug stores, the pharmacies, the Banks and such. So that's why we have such a broad range.

Matthew Breese -- Stephens Inc -- Analyst

Do you have the breakdown of essential versus non-essential tenants?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

No, we do not. And keep in mind, it changes on a monthly basis, right? People's leases come due and goes into that property or lease base.

Matthew Breese -- Stephens Inc -- Analyst

Okay and then just last one from me. Just with the reserve where it is, do you feel like you have the level of protection there that, that matches the current risk environment post 2Q. And just wanted to get a sense for where you think the provision might go as we are now in the back half of the year?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Well, I mean, obviously in accordance with GAAP, we feel like we're adequately reserved. So we'll have to see where the economic forecast really goes. I mean, that's what's driving the vast majority of our provisioning right now is the economic modeling and as we've said in the past, we used Moody's model, we use their June baseline, which incorporates a significant amount of uncertainty in the economy. I think as we start to see more certainty, you know, that will help us to hopefully release some of those reserves, but it really all depends on where the forecasting goes at this point. We're not seeing anything in our underlying metrics that's really driving the provisioning at this point, it's more of the economic forecast.

Matthew Breese -- Stephens Inc -- Analyst

Got it. Just last one is, what did PPP contribute to NII and expenses for the quarter?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

NII, I don't know. It’s certainly helpful, but I don't know the exact breakout to NII. Expenses in the quarter, it’s -- overall it was many millions of dollars in expense that will be amortized over the life for those loans. So it’s several hundred thousands of dollars in the quarter.

Matthew Breese -- Stephens Inc -- Analyst

That's all I have. Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

I wanted to mention something on the allowance. It's at 98 basis points, but if you exclude Fund Banking, which we have very little on, and the PPP loans we’re actually at 124.

Matthew Breese -- Stephens Inc -- Analyst

Great. I appreciate you taking my questions. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thanks, Matt.

Operator

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

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hey, just looking at the deposit flows again, you're continuing to grow in areas that long-term were going to be net contributors of deposits. Longer term, once some of the fluff from second quarter you said is out, should we be -- how should we be thinking about this liquidity deployment and sort of an ultimate loan to deposit ratio? Are you -- do you feel comfortable building out a securities portfolio, I guess, if the loan growth isn't matching the deposit growth? Or would we expect to see a lower -- reducing FHLB funding and hanging on to more cash? I guess, sort of longer term what are you thinking about liquidity there?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yes, I mean we'd certainly take down borrowings to the extent that they're coming due. I mean, we're pretty low right now at 6.7% of our balance sheet in borrowings. But there are ones that are coming due at a little bit higher percentage rates. So it will be nice to pay those off in the coming quarters. But we've got no problem growing our securities portfolio at all. In fact, we'd like to that affords a significant amount of liquidity, which is very important to us, and we have a very robust securities function that we grew out really when we started the bank, knowing that we were going to be deposit-rich and low in light. So yes, we're happy to grow out this securities portfolio.

Jared Shaw -- Wells Fargo Securities -- Analyst

With that -- would we see like an extended duration and trying to get a little better yield out of that? Or I guess, how would...

Eric R. Howell -- Executive Vice President, Corporate and Business Development

I don't necessarily think it's the right time to potentially do that. There will be certain asset classes in the securities portfolio where that might make sense, but we're going to do a little bit of everything.

Joseph J. DePaolo -- President and Chief Executive Officer

We're certainly not going to pass up the opportunity to bring on deposits.

Jared Shaw -- Wells Fargo Securities -- Analyst

Yes. Okay and then on the deferral extensions, as you negotiate with these borrowers, are you able to get any enhancements to either additional collateral or guarantees or any type of ability to restructure some of those loans to your favor?

Joseph J. DePaolo -- President and Chief Executive Officer

Ones that came off of deferral, we did some refinancing for them. And then in refinancing for them, we get something for that, whether it's a partial guarantee, a springing guarantee some cash put into an escrow account for taxes and the like. So there is some negotiation, but not a lot.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great, thanks a lot.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Jared.

Operator

Your next question comes from the line of Steven Alexopoulos of JP Morgan.

Steven Alexopoulos -- JP Morgan -- Analyst

Hey, good morning everybody.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Steven. Good morning.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Good morning, Steve.

Steven Alexopoulos -- JP Morgan -- Analyst

To start, if we look at the short-term liquidity buildup, how much of that will the tax-related payment outflows consume in 3Q?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Probably $500 million to $1 billion.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, okay, that's helpful. And then you guys called out Signet as being a $1 billion contributor this quarter. What are the total balances there? And could you give color on why you saw such strong growth this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

Signet was a part of it. The digital team is a combination of things. So Signet, it's usually not -- how much the balances are in Signet, it's how much activity occurs, because the balances don't always stay in Signet. So I would say it was about 20% of the Digital.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, got you. Thanks. And then finally just to follow-up on Matt's question on PPP. Do you know the yield on PPP loans in the quarter?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

I think it was around 2.70%, 2.75% in that range.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay. Perfect, thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Steven.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc -- Analyst

Your next question comes from the line of Chris McGratty of KBW.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc – Analyst

Great, thanks for the question. Eric, I just want to go back to Jared's question about the liquidity for a second. Historically, you've kind of run the balance sheet with roughly 20% of earning assets, today it's around 17%, because of the cash. How long do we -- what's a reasonable time to get back? And is that the target, kind of, over the medium term?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

It's really hard to say, it's all going to be dependent on deposit flows. And at this point, I don't think we can really predict that.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc -- Analyst

Okay. And did you provide or could you, the new money yields on purchases today?

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Yes, I'd say for the securities portfolio, we're in the low 2s on new money. And anywhere from 2% to 2.50%, it's probably averaging around 2.10%.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc -- Analyst

Okay. And then lastly if I could. The growth in the first half of the year has really been surprising to the Street. How do we think about capital -- offensive capital at this point given the outlook?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we think our capital ratio is in a good shape. It really is going to depend on something, Eric just said, which is growth. If we have -- if we grow $8 billion, $9 billion in a quarter versus stand at $500 million to $1.5 billion, we need capital sooner, but we're not going to be shy about raising it for growth.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc -- Analyst

Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Thank you, Chris.

Operator

This concludes our allotted time in 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 2117356. 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: 47 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan J. Lewis -- Media Contact

Eric R. Howell -- Executive Vice President, Corporate and Business Development

Ken Zerbe -- Morgan Stanley -- Analyst

David Rochester -- Compass Point -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Matthew Breese -- Stephens Inc -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Steven Alexopoulos -- JP Morgan -- Analyst

Christopher McGratty -- Keefe, Bruyette & Woods, Inc -- Analyst

More SBNY analysis

All earnings call transcripts

AlphaStreet Logo