Signature Bank (SBNY) Q4 2020 Earnings Call Transcript

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Signature Bank (SBNY)
Q4 2020 Earnings Call
Jan 21, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2020 Fourth Quarter and Fiscal Year-End Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer; and Eric R. Howell, Senior 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 fourth quarter and year-end results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Susan 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 different to predict and may be beyond our control. Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings business strategy 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 and annual results and then, Eric Howell, our EVP of Corporate and Business Development will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

Signature Bank continues to experience extraordinary growth during the country's protractive and challenging recovery in the COVID-19 pandemic. Our business philosophy of a client-centric single point of contact model led by experienced group directors continues to distinguish us particularly in times of distress. Additionally, the Bank has an accelerating multi-faceted growth profile with traditional private client banking teams leading the charge in New York, San Francisco and Los Angeles. Further fortifying the Banks market position are our multitude of national businesses, including Signature Financial, Asset-Based Lending, Fund Banking, Venture Banking Digital Banking, including Signet and specialized mortgage banking solutions.

The selective strength of our franchise led to an unbelievable quarter of record deposit growth, record loan growth, record pre-tax pre-provision earnings and record net income. We look forward to a healthier 2021 as recovery from the COVID-19 pandemic commences.

Now let's take a look at earnings -- let's take a closer look at earnings. Pre-tax pre-provision earnings for the 2020 fourth quarter were $261.5 million, an increase of $45 million or 21%, compared with $216.3 million for the 2019 fourth quarter. Net income for the 2020 fourth quarter was a record $173 million or $3.26 diluted earnings per share, compared with $147.6 million or $2.76 diluted earnings per share reported in the same period last year. The increase in income was predominantly driven by substantial asset growth of $23.3 billion, offset by the investments we made in new businesses, including our West Coast expansion.

Looking at deposits. Deposits increased a record $9 billion or 16.5% to $63.3 billion this quarter, while average deposits grew a record $10.4 billion. For the year, deposits increased a record $22.9 billion and average deposits increased a record $12.5 billion. Non-interest bearing deposits of $18.8 billion, representing a high 30% of total deposits. Our deposit and loan growth led to a record increase of $23.3 billion or 46% in total assets for the year, which reached nearly $74 billion.

Now let's take a look at our lending businesses. Core loans or loans excluding PPP during the 2020 fourth quarter increased a record $2.7 billion or 6.2% to $47 billion. For the year core loans grew a record $7.8 billion or 20%. The increase in loans this quarter was again driven primarily by new fund banking capital call facilities. This is the ninth consecutive quarter where 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.

Non-accrual loans were $120 million or 25 basis points of total loans, compared with $81 million or 18 basis points for the 2020 third quarter. 30 to 89 day past due loans increased to $234.9 million. It is important to know that $88.3 million of the 30 to 89 day past dues were caused by processing and documentation delays given COVID-19 circumstances and we are now current. But 90-day plus past due loans remained very low at $5.8 million.

Net charge-offs for the 2020 fourth quarter were $11.4 million or 10 basis points, compared with $10.5 million for the 2020 third quarter. The provision for credit losses in the 2020 fourth quarter was $35.6 million, compared with $52.7 million for the 2020 third quarter. Despite the bank's allowance for credit losses the 1.04% and the coverage ratio stands at a healthy 423%. I would like to point out, and if we took -- if we look -- excuse me -- at the ACL ratio, excluding very well secured fund banking loans and government guaranteed PPP loans, it would be much higher at 1.41%.

Turning to modifications, as of 31, 2020 bank has [Indecipherable] COVID-19 principal and interest modifications of $1.3 billion or 2.7%. Of that balance $107 million remain a short-term modifications. We fully anticipate that we will have increased non-accrual loans and charge-offs in the coming quarters, due to the effect of COVID or given the level of our allowance for credit losses, where we prudently doubled the allowance adding $258 million since the adoption of CECL, we believe we are adequately covered, but what may come.

Now onto the greatly expanding team front, where we had much success. In 2020, we had a total of 20 private client banking teams, two, New York; five in San Francisco and 13 in the Greater Los Angeles area marking our entry into the Southern California marketplace. The Bank now has a total of 116 private client banking teams of which 23 are located on the West Coast.

At this point, I'll turn the call over to Eric, and he will review the quarters financial results in greater detail.

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

Thank you, Joe, and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the fourth quarter reached $395 million, an increase of $6.3 million from the 2020 third quarter. Net interest margin for the quarter declined 32 basis points to 2.23%, compared with 2.55% for the 2020 third quarter. The entire decrease and then some was due to excess cash balances from significant deposit flows, which impacted margin by 46 basis points.

Let's look at asset yields and funding costs for a moment. Interest earning asset yields for the 2020 fourth quarter decreased 41 basis points from the linked-quarter to 2.75%. The decrease in overall asset yields was again driven by the excess average cash balances, which grew from $5.6 billion to $12.5 billion during the quarter. Additionally asset yields continue to be affected by lower reinvestment rates in all of our asset classes. Yields on the securities portfolio decreased 46 basis points linked quarter to 2.13%, due to the decline in market rates, as well as the bank investing in floating rate securities and our portfolio duration remains low at 2.2 years.

Turning to our loan portfolio. Yields on average commercial loans and commercial mortgages decreased 6 basis points to 3.6%, compared with the 2020 third quarter, this was mostly due to lower origination yields. And excluding prepayment penalties from both quarters yields decreased by 4 basis points.

Now looking at liabilities. Our overall deposit cost this quarter decreased 9 basis points to 42 basis points, due to the low interest rate environment. We anticipate this downward trend to continue in 2021. During the quarter, average borrowing balances decreased by $744 million to $3 billion. The overall cost of funds for the quarter decreased 9 basis points to 57 basis points, driven by the reduction in deposit costs and decreased average borrowings, which was slightly offset by the addition of subordinated debt with a 4% coupon.

On to non-interest income and expense. Non-interest income for the 2020 fourth quarter was $24.2 million, an increase of $8.2 million or 51%, when compared with 2019 fourth quarter. The increase is mostly due to a rise of $5.5 million in fees and service charges, as well as an increase of $2.4 million in trading income.

Non-interest expense for the 2020 fourth quarter was $157.7 million versus $138 million for the same period a year ago and $19.6 million or 14% increase was principally due to the addition of new private client banking teams. And despite our significant team hirings and margin compression from significant cash balances, the Banks actually gained operating leverage and as a result, our efficiency ratio improved to 37.6% for the 2020 fourth quarter versus 39% for the comparable period last year, and 38.9% for the 2020 third quarter.

And turning to capital. During the quarter, the Bank successfully raised $730 million in non-cumulative perpetual series A preferred stock, which qualifies as Tier 1 capital. Additionally, the Bank issued $375 million in subordinated debt, which qualifies as Tier 2 capital. All capital ratios remained well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet, as evidenced by Tier 1 leverage ratio of 8.55% and a total risk-based ratio of 13.54% as of the 2020 fourth quarter. And finally, the Bank paid a cash dividend of $0.56 per share common stock.

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

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Eric. I'd like to thank my colleagues, a number of who are listening on the call today. We have demonstrated their dedication to our clients and their needs during this pandemic. Times like these, our clients truly value the level of care and advice that my colleagues provide. And our performance for the year reflects their extraordinary efforts and the strength of our franchise as we continue to execute on many, many fronts. 2020 was truly remarkable year of growth and achievement for Signature Bank.

On the deposit front, which is our key metric, we delivered unbelievable record deposit growth of $23 billion or 57%. And we reduced the cost of deposits from a high of 121 basis points in Q3 2019 to 42 basis points at year-end with room for further reductions. Demand deposits increased to record $5.7 million -- excuse me $5.7 billion for the year and remain at a high 30% of total deposits. And most importantly, our deposit growth came across the board from our existing teams to all of our new businesses.

There were literally 26 traditional banking teams in New York, that grew over $100 million each. Our newly established teams on the West Coast grew over $1 billion. The specialized mortgage banking solutions team grew over $3.5 billion. The Venture Banking Group grew nearly $1 billion and our Digital Banking team grew over $8 billion in deposits. We have clearly distinguished ourselves as the predominant bank in the digital space.

Turning to loans. We had record core loan growth of nearly $8 billion, driven by another of our new businesses, the Fund Banking division, which delivered nearly $7 billion in loan growth. Additionally Signature Financial had another strong year and surpassed $5 billion in outstanding loans and ranked as the 15th largest bank lender in this space, a truly remarkable accomplishment for that team. Congratulations guys. Furthermore as planned, we held our commercial real estate loan balances flat over the last few years and made great strides in reducing our CRE concentration of 376% from 551% at year-end 2018.

Looking at earnings, the Banks pre-tax pre-provision earnings grew by $136 million or 16% for the year and we had a strong ROE of 10.7%, despite a heavy amount of provisioning and margin compression, due to excess cash balances. Fee income or non-interest income grew by 22% or $13.5 million for the year and several of our fee income initiatives are just starting to take hold. Additionally, we improved our already best-in-class efficiency ratio during the year to 37.6%.

On the capital front, we meaningfully improved our capital position by over $1 billion with the issuance of $375 million in subordinated debt and $730 million in preferred stock. Moreover, we maintained our dividend while turning off our buyback program to support the tremendous level of growth.

And most importantly, we set the stage for future growth with the hiring of 20 private client banking teams and the opening of five new offices in the Los Angeles marketplace. Everything we said, we would do this year we did; everything we said, we would do this year, we did. Our growth for 2020 was equivalent to acquiring the top 50 Bank, but we did it organically and without expanding shareholder value. Signature Bank enters 2020 as a strong financial institution and we very much look forward the years to come.

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

Questions and Answers:

Operator

Thank you. 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

Fantastic deposit growth this quarter, I mean just [Indecipherable] stunning. But I guess my question on the deposit growth, are you guys earning a positive spread on the new deposits coming in?

Joseph J. DePaolo -- President and Chief Executive Officer

No, that's the issue we have been deploy it and we have to deploy it quickly. So when the new deposits coming and even though they're coming in at a much lower cost and we had is recently, no we're still not making the spread.

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

And that's clearly affecting our net interest margin. But this is a trade-off that will take every time we've been through cycles before, we've been through a rising rate environment before, when rates rise, we will see the deposit growth moderate, but what we'll also see is continued loan growth and we'll have -- we have the deposits now to fund the substantial loan growth that we have in the future. So we're loaded forbear and this is the -- very high-class problem for us to have, Ken.

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, Ken, we are taking market share like for instance, with the mortgage servicing -- specialized mortgage servicing team, they grew by $2.5 billion this year, that's market share that they're taking and we're getting an opportunity to bring the business in. So we'll take it all [Indecipherable] and deploy it later.

Ken Zerbe -- Morgan Stanley -- Analyst

Yes, I guess, I think like I said, it's the quarter was very awesome in my view. But I guess with the negative spread you're getting, I mean it's just -- like I could see how you would gain share by paying a much higher rate than the market is currently paying. So the question is just like do you feel that you have to keep paying this elevated yield on your new deposits? It seems like there might be some room to lower your new deposit yields that you're offering and still definitely -- so more than support your loan growth?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, we had 42 basis points cost in the quarter -- for the fourth quarter. The month of December was down to 41 basis points and in January thus forward we're at 37 basis points. So we're continuing to bring the rate down, we'll be -- probably in the mid to low '30s by the end of the quarter. So we've brought it down 9 basis points in the fourth quarter, there is no reason why we can't bring it down 9 basis points or more in the first quarter of 2021.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it, OK. And then maybe switching gears a little bit. Joe, I think you mentioned that you do expect higher net charge-offs over time, which is a very reasonable expectation. But one of the concerns around Signature is just been the potential for significant loss content in the CRE portfolio. Can you guys help quantify when you say higher charge-offs, like what exactly are you thinking when you say that? Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we're not seeing -- what we're seeing and what was happening is not necessarily meeting, I'll tell you what I mean by that. We're not seeing charge-offs right now coming through, we expect it to be more than it had been in the last couple of years, which was pretty negligible, but our clients are just not handing back the keys. We've had some charge-offs in the last two quarters, and they've been -- some CRE retail, but with the [Technical Issues] with the CARES Act, a lot of the clients are saying, I have an opportunity to get by during the pandemic, and then start paying again and that's why we're not seeing a lot of charge-offs, but we expect it to be higher than it had been in 2018, 2019, which I said was pretty negligible.

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

Yes. In fact, we've challenged our team to get ahead of this to find the bad credits now to identify and to deal with them. And quite frankly we're just not finding them. Now our clients see their properties, their businesses as their livelihood in the future, they are not of the panic where they want to give up. With the vaccines, the news of the vaccines, more vaccines on the horizon, the potential stimulus that will come from the new administration gives them a lot of positive things to look forward to in the future. And it's just giving unless reason to want to give up. So as much as we are looking for the charge-offs and we're anticipating we'll have them, but just not coming to fruition.

Joseph J. DePaolo -- President and Chief Executive Officer

And you know, we've doubled our allowance to over $0.5 billion during this year. So we're certainly well prepared for it.

Ken Zerbe -- Morgan Stanley -- Analyst

Alright. Now it's good to hear. Alright, thank you very much.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Ken.

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

Thank you, Ken.

Operator

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

David Rochester -- Compass Point -- Analyst

Hey, good morning guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Dave.

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

Good morning, Dave.

David Rochester -- Compass Point -- Analyst

Hey, on the NIM or the NII outlook, which ever I guess is easier to talk about. I was wondering what your thoughts were there just following the curve steepening we've seen recently. And then your outlook on the deposit cost there that you mentioned being in the the low to mid-30s at some point? And then maybe as a part of that outlook, you guys obviously have a ton of cash in the balance sheet. I was just curious to hear your thoughts on how fast you're willing to deploy that into securities? And then how much more in the way of borrowings did you pay down for this year?

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

Yes, there is a little bit more, I'll take the latter part first. There is a little bit more on borrowings to pay, but not a substantial amount. So we won't see too much of the savings there, Dave. We do -- as Joe pointed out, we hope to get the deposit costs down another 9 basis points or so and we'll be in the mid to low-30s come quarter end. Certainly we have the ability to deploy on the asset side, we can really put $1 billion to $2 billion per quarter to work in the securities portfolio and another $1 billion to $2 billion per quarter to work on the loan side. So we're going to have $2 billion to $4 billion in asset growth. I mean, that's a little bit easier for us to predict. The hard part is the deposit flows, thus far this quarter it's slowed down a little bit, but we still have growth. We certainly don't anticipate $8 billion worth of deposit flows in this coming quarter. But we expect it to continue to happen, which is great.

So all that being said, the NII will be up, and that much we can predict it should be up pretty, pretty nicely. The NIM is impossible at this point to predict, because of the nature of deposit flows and it's hard to say more. We're going to come in, it will be able to make a meaningful impact to all the cash that we're sitting on. But we should have a pretty substantial NII growth.

David Rochester -- Compass Point -- Analyst

That makes sense. So when you're talking about $1 billion to $2 billion in securities growth a quarter and $1 billion to $2 billion in loan growth a quarter, is that right? So you're getting $3 billion to $4 billion in asset growth a quarter? Or you cap that to $3 billion for capital concerns? Or what are your thoughts?

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

No, I mean, we're not concerned about capital, we have ample ability to drive capital generation through earnings [Indecipherable] 13.5% return on common equity this quarter. So, the earnings is there, we get to a normalized provision and I think we're going to get there relatively soon that gives us even more earnings power. Like I said, I don't think the deposit growth is going to be quite as robust as it was last year, so we'll have a little bit less growth there. So earnings should really be supportive of our growth and we feel very comfortable where we are on the capital front.

David Rochester -- Compass Point -- Analyst

Yes, great. And then where are you seeing as surprising today just on securities and you are still doing some of those floaters, which are sometimes lower yielding. And then on the capital call lines were those pricing these days?

Joseph J. DePaolo -- President and Chief Executive Officer

On the capital call lines, the pricing is -- become little tighter, but it's LIBOR based and we know it's become tighter is on the floor, because we'd like to have a floor 50 basis points or thereabouts and that's becoming tighter, but if the pricing is anywhere from LIBOR 150 to LIBOR 225.

David Rochester -- Compass Point -- Analyst

Yes and on securities?

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

On the securities side, no floating rate securities that we're putting on are anywhere from 40 basis points to 60 basis points, and then other investments are in the high 1s, I'd say, so blended we'll probably come in a little bit over 1% on security reinvestment. We're still being selective on the long side as we do anticipate rates will continue to rise at least on the longer back end of the curve.

Joseph J. DePaolo -- President and Chief Executive Officer

And for the first quarter, we're going to have the PPP loans. Thus far, for the last two days, we have a -- little bit more than 2,000 applications and exceeding $600 million. Well, we have -- we've deployed a significant number of personnel, we're ready to get the applications into the system and have the SBA -- gives us an SBA number, so the process is done and we hope to get up to $1 billion if not more.

David Rochester -- Compass Point -- Analyst

Yes. Sounds good. Maybe just one last one real quick on the deposit side. I know you guys bank cryptocurrency firms. So just wondering, if you could talk about what you do for these guys? And I know you mentioned the strong deposit growth in digital, that's for the nice positive to the story. I was just curious, how big of a chunk of that is coming from your crypto customers and then what's your outlook is for growth in that segment?

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

Well, there's is a number of different types of clients, whether it's stable client or OTC [Indecipherable] or digital asset exchanges or blockchain type tech companies and others that we bank in that space. So we have approaching, I think we just crossed over $10 billion in deposits with our digital asset team. So it's been a very solid area of growth, we've clearly become the pre-eminent player in that space. So we're very excited about what's happening there in our -- it's obvious that the digital assets and cryptocurrencies are not going away. And there are something in the future, we're not sure who the winners and losers are going to be, but we're very happy that we're -- the bank for all those various firms.

Joseph J. DePaolo -- President and Chief Executive Officer

And -- what helps there is the Signet platform that we announced on January 1, 2019, very exciting 24/7/365, the team that handles that -- those continuous enhancements and there is a world beyond crypto currencies, where we can have other ecosystems using the platform, so it's very exciting. It's one of the areas -- one of the few areas where we're staying ahead of the pack and not being the follow-up of being the leader technologically wise.

David Rochester -- Compass Point -- Analyst

Great. Thanks guys. Appreciate the color.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you, David.

Operator

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

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

Good morning.

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

Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Ebrahim.

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

I guess, Eric just in terms of expense outlook, you previously talked about just expense growth generally in terms of quarterly basis peaking out maybe early part of the year. So give us some color on expense growth? And how that translates into operating leverage and efficiency ratio based on what you see for the year?

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

Yes, I mean, we anticipate hiring a reasonable number of teams early on in the year, probably 10 to 15 teams, but not the 20 teams that we hired in 2020. So we should see our expenses really start out in that 14% maybe 15% range, but hopefully we keep it the 14%, and then trend down slowly over the course of the year. We gained operating leverage this year, right? Even though, we had a declining demand we are sitting on it on a ton of cash, we hired 20 teams. So we have a very powerful model that can really drive net income, right? And we have some leverage yet in our infrastructure. So we should see positive operating leverage, especially as we put the cash to work and have more on the earning side and I think we'll be able to keep expenses in check and gain efficiencies.

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

Got it. And on the cash going back to -- just the negative carry $12.5 billion in the fourth quarter. From what I have -- I think you said previously that you see that number should be -- maybe about $2 billion to $3 billion, where you feel the cash position should be adequate. So is it fair to assume that there's about $9 billion to $10 billion that you will redeploy toward loans and securities over the next few quarters? Just how do we think about that?

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

I think, it's going to take us little bit more than a few quarters, but yes, absolutely. We should have $10 billion flowing into interest earning assets over the course of this year at least.

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

And that number doesn't stay static, because more deposit is going to continue to come in, right, right, and I'm not sure if you're able to disclose, but going back to the earlier question around bringing in deposits that maybe marginally higher rates than what the market offers. Like I'm assuming the new deposits that are coming in fairly much lower than the low to mid-30s, where we expect the total cost of deposits going through, any color around that? And just talk to us, Eric, in terms of why it is worth paying up for these deposits in terms of what franchise value these add in the near-term and over time for Signature?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, for example the mortgage servicing -- specialized mortgage servicing team, they bring in on a daily basis tremendous number of accounts of DDA non-interest bearing and then some of the escrows that of the dollar that stayed are flowing out much less frequently. We're paying right now in the 30% -- 30 basis point range. But when you combine the two 30 and then the DDA, you are coming down below 30. So, I think everyone focuses on NIM, but the real -- we'll place the focus is on the efficiency, because we're a lot more efficient bringing these deposits earned then a retail group.

Retail group will have much lower deposit costs, but they will have high real estate costs by marketing in higher advertising costs, where we don't have that, that bodes well for the efficiency ratio, but we have a lot of room, like I said earlier we brought the cost down to 37 basis points from 41 basis points in December to January now, so in one month we're down 4 basis points, but we continue to drive account further. We don't have that retail component, so we don't have the expense, but we also don't have the retail component where we can drop rates as quickly as you would for the large clients that we have in our portfolio.

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

That's helpful. Thank you and just one -- quick one, Eric. Just the outlook for tax rate for the year?

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

That is 28%, we had some one-time state tax, true-ups as we file those returns, so that brought our rate down and we are a little bit higher than we'd probably should have been earlier in the year. So we should get back to a 28% effective tax rate for next year. Barring any changes obviously taxes.

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 Jared Shaw of Wells Fargo.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Maybe first going back to Signet and the growth in digital and that's great deposit growth. Can you share with us how also -- what other ways, can you monetize those relationships? And I'm looking at the fee income line as well, up almost 40% this quarter, is that a level we can see growth from? And is that dependent upon or conditioned upon Signet as well? Or how should we be thinking about other ways summarizing the -- just deposit balances?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, the digital clients, right now are generating very little fee income. We are improving our foreign exchange system to the point that the digital clients will be using foreign exchange quite a bit. So the team that handles that is waiting for the improvements to happen in our FX system, and we could drive some foreign exchange there. But Signet drives really deposits, right now, we're not charging fees and getting the new ecosystems on and we'll probably won't spot fee income on Signet for some time until we get a large amount of ecosystems on there. So the fee income that's being driven right now, you know, institution is non-digital.

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

Right, and we certainly -- we're pleased with the growth that we've seen in the fee income a lot of that's coming from the new teams that we've brought on board, whether it's, you know, the mortgage banking team, which is pretty fee intensive or Venture for the Fund Banking team, which generates a lot of unutilized fees. Joe talked about foreign exchange that we're putting a new system in place that should help us to really bolster profits there and all the new groups that we've added and in particular the West Coast we really benefit from better foreign exchange capabilities. So that's a way for us to continue to drive fee income we're working on. A new credit card for us the issue, well that for the West Coast as well as our Venture team. So that hopefully will come out mid-year and we'll start to see some revenues generated from that.

Our Trade Finance Group, we continue to build that out and starting to see some nice traction gain there, and really we're talking to our bankers more. And tell them that, you know, we provide an unbelievable level of service to our clients, and we certainly saw that play out in this current environment where other -- some of our clients who tell us, I couldn't even get a banker on the phone at X, Y, Z Bank, right? Well we need to be paid for that, right? The fact that we've got a team that is there, all the time for their clients needs. We need to get paid for that. So we're focusing on that with our banking teams and that also will hopefully drive revenues.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, that's great color thanks. And then I guess shifting to credit, obviously you sound optimistic when you're talking about the loss content and the potential losses in the loans that you're working with the borrowers on here. Maybe can you share with us as you've gone through year-end and you did the modifications in the second round of deferrals? I guess why do you feel that confidence, whether it's in the loan to value or debt service coverage ratios or vacancies. Maybe just give us an update on, sort of, the strength of that underlying portfolio and where you're getting that confidence from?

Joseph J. DePaolo -- President and Chief Executive Officer

It's somewhat everything you said, but headed on top of that is that in the commercial real estate world we deal with these multi-generational high net worth families that do deals with other partners that are multi-generational yield., high earning families, and they want to keep the buildings, particularly the multifamily in their portfolios and they've stepped up when they've had too. And that gives us the confidence that the type of clients that we have are not the client that has one building that relies on that one building for their livelihood. We have more of these large clients that have multiple buildings that some will be hurting, but most are not and they are able to take care of.

What gives us confidence also is -- that in the deferrals. The fact that they're not paying us on a principal and interest deferral. They still have operating costs, that's the cost to operate the building, they're still paying taxes, they're paying insurance. So that gives us confidence that when the pandemic starts to subside that they'll have the cash flow when start moving up. They pay the interest only piece and then they pay the principal and interest piece for the third leg of the deferral. They just don't want to give up on keeping their properties. I think what's different now than any of the cycles in the past is that we have the CARES Act and the banks can be more flexible for them and it's more of a timing issue than it is a cycle.

Jared Shaw -- Wells Fargo Securities -- Analyst

And then -- that's great color thanks. And then I guess when you look at that second round of PPP, are you going to be really able to targeted to those borrowers that may need the most? Or I guess how important is that second round of PPP to the loans that are already in deferral or modification?

Joseph J. DePaolo -- President and Chief Executive Officer

[Indecipherable] they're really separate. I think the PPP is going to help them, but it's not going to help them pay their loans, it's going to help them pay the employees. So that takes a survive, while the pandemic is going on. I think it's more humanistic piece then it is paying for the rent.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thanks a lot.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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

Matthew Breese -- Stephens Inc. -- Analyst

Good morning.

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

Good morning, Matt.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Matt.

Matthew Breese -- Stephens Inc. -- Analyst

Following up on the credit question. So the 6.6% of loans that were full C&I deferrals. Could you just provide us with the composition the LTVs and the types of modification being provided there? And what was that balance last quarter?

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

Well, sure the balance for the last quarter, but it's -- those are predominantly interest-only loans where we modified it [Technical Issues] structure in line with lower LTVs were on the entire portfolio, you know, mid-50%. On an LTV 125 to 145 on a debt service coverage. Those loans were really not concerned about, if the clients were paying this interest-only plus partial principles, so not overly concerned.

Matthew Breese -- Stephens Inc. -- Analyst

Okay and that debt service covered for the -- as of most recent or at the time of underwriting?

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

No at the time of underwriting.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. Understood. The second question was just on loan growth for this year. In 2020 Fund Banking was the primary driver, and I recognize the team is still fairly new. I'm just curious how much of the growth this year were driven by the team's recapturing old customers versus general private equity market tailwinds? And then looking ahead, how much do you think the Fund Banking division will contribute to loan growth in 2021? What are the verticals will grow?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, I think the Fund Banking team will still lead -- will have a Signature Financial, which is past $5 billion in outstandings, probably somewhere between $400 million and $500 million -- they'll have $400 million or $500 million in growth. The Venture group could probably have somewhere $1 million to $400 million. We have then -- the teams in Los Angeles and San Francisco are really purely traditional C&I teams and we expect several hundred million in growth there. The PPP loans will discount, because we don't know how long they'll stay on. The Fund Banking division could do probably anywhere between $1 billion to $1.5 billion a quarter.

And then we have two initiatives that we'll be discussing right now to bring on two verticals that will be asset generators. We haven't disclosed what they are, because we're still in the midst of bringing them on board, but they'll contribute in the second half of the year on the asset side.

Matthew Breese -- Stephens Inc. -- Analyst

Okay, understood. And just to be clear the Signature Financial $400 million to $500 million the VC, that's all on a quarterly basis, not for the year, correct?

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

No that's for a year.

Joseph J. DePaolo -- President and Chief Executive Officer

That's for the year.

Matthew Breese -- Stephens Inc. -- Analyst

Okay, with fund banking doing $1 billion to $1.5 billion a quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

Right.

Matthew Breese -- Stephens Inc. -- Analyst

Okay.

Joseph J. DePaolo -- President and Chief Executive Officer

For the Signature Financial, it's a lot more short-term, so they had to overcome a lot of the amortization. They could be doing several billion, but it's net $400 million to $500 million.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. And...

Joseph J. DePaolo -- President and Chief Executive Officer

No, go ahead.

Matthew Breese -- Stephens Inc. -- Analyst

I'm sorry, the last one was just on digital and Signet Banking deposits, as you went back the tape and you look at when you first hired the Digital Banking team. You mentioned catering to the institutional investors playing in that space. It was a different time for crypto back then, I think folks are much more skeptical. Can you just talk a little bit about how sentiment adoption, investing in crypto, how appetite and interest from the institutional investors changed over the past couple of years, but really over this year. And what the growth opportunity for this line of business it could be?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, it's growing by leaps and bounds. We are doing -- we were only taking institutional deposits in this space and in fact, that's pretty much what we're doing. But for the exchanges -- with your top five exchanges we have as clients, we're allowing for some retail of funds flow and we're doing enhanced compliance. Now these exchanges have been given licenses by the state. The regulators are starting to regulate the business and only joined with five some retail. But for the most part, we're still institutional and they just keeps on growing by leaps and bounds. I think what -- we drove it in part is the pandemic.

Matthew Breese -- Stephens Inc. -- Analyst

Right. And with that, did you see enhanced or outsized growth on the back half of the year than the first half?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, it's likely, yes. I would agree with that. We would agree with that.

Matthew Breese -- Stephens Inc. -- Analyst

Okay. I'll stop there. I appreciate it guys. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks, Matt.

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

Thank you.

Operator

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

Steven Alexopoulos -- JP Morgan -- Analyst

Hey, good morning everybody.

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

Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Alex -- I mean, Steven, good morning.

Steven Alexopoulos -- JP Morgan -- Analyst

So just to start. So the 6.6% of loans that are COVID-19 modified, it's still not clear to me what's exactly in that bucket? Are those loans on deferral or they not on deferral?

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

Those are loans that were modified, sort of, predominantly modified, sort of, interest-only structure. So there is loans that are on full payment deferral, the P&I full payment deferral, that's the $1.3 billion that we disclosed in the table. And then there's other loans that were modified to an interest-only structure.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, so essentially there are being deferred, right? I mean the least principal payments being deferred?

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

Right principal has been deferred, that's right.

Steven Alexopoulos -- JP Morgan -- Analyst

Principal is being deferred. And Eric, what's the term of these like how long are the -- are you providing these deferrals for?

Joseph J. DePaolo -- President and Chief Executive Officer

Somewhere -- anywhere between six to 12 months.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay. Yes, yes.

Joseph J. DePaolo -- President and Chief Executive Officer

We will take [Indecipherable] once they're paying, the loans that they're paying interest-only are paying their insurance, they're paying their operating cost and they're paying their taxes. And we've given them a little relief.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

Joseph J. DePaolo -- President and Chief Executive Officer

So would be -- could possibly be it -- maybe it would be a TDR, so instead of doing a TDR it's an interest-only modification.

Steven Alexopoulos -- JP Morgan -- Analyst

Right, so Joe, if we think about it from a big picture view the NPLs are relatively low, you still have relatively high deferrals and the CARES Act modifications also seem relatively high. But if you thought either of those two buckets were not going to pay you at the end of this deferral term, they would have to be an NPL today, correct? We are not postponing moving them to NPL.

Joseph J. DePaolo -- President and Chief Executive Officer

We would not postpone them. If we believe some was up in the past that will be moved to non-performing, if we believe somebody is not going to pay us, that we'll also take a charge.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

Joseph J. DePaolo -- President and Chief Executive Officer

Specific -- well we put a specific reserve on it.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes, yes, yes.

Joseph J. DePaolo -- President and Chief Executive Officer

As an example, I won't give the amounts, let's say who the client is. But we have one situation where the client is paying, but we don't believe that it's going to end up being good, so that has a specific reserve on it.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes, got you. Okay, that's helpful. And then to ship directions to the growth side. So we used to talk not that long ago, I think it was actually 2020 of $3 billion to $5 billion per year will be asset growth target, and you did $23 billion in 2020. What is a reasonable target now as we think about Signature Bank and its current form?

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

Well, as you know, what we talk about Steve is that, we have the ability to grow securities $1 billion to $2 billion a quarter. The ability to grow loans $1 billion to $2 billion a quarter that we base we sets up to $2 billion to $4 billion in asset growth per quarter. So you're looking at anywhere from $8 billion to $16 billion in growth.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

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

We put in place very meaningful businesses over the last couple of years that will really allow us to drive future growth.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

Joseph J. DePaolo -- President and Chief Executive Officer

We brought on -- new initiatives, which in our full businesses we did know how quickly they would come to fruition. So $3 billion to $5 billion for the year, we didn't realize this is going to be $3 billion to $5 billion per quarter.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes, yes. Right, I guess what I'm trying to drill down to also, so you grew deposits $23 billion, but loans grew by $10 billion in 2020. And when we think about this mix, is there -- and I know you said there might be new teams coming on the asset side. But should we expect the loan to deposit ratio, which I think was like 77%-ish range. Is there enough on the asset side to absorb the deposit verticals all contributing? Or do you think the loan to deposit ratio from here just continues to trend lower through the year? Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

It will probably trend a little lower initially, because we are going to have -- we think these two new verticals on the back end of the year, the second half of the year. So that will mean that will be much more asset generation in the second half than we were in the first half, so that ratio could be come down slightly.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay...

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

Steve, we've been through cycles, right? And we've seen when rates rise, right? Deposits tend to find other uses, whether it's people building their business or investing in of off-balance sheet investments they can earn them more. And we've seen deposit growth then slowed out, right? And that's when we'll ultimately be able to take the current deposits that we have really deploy them and maximize our earnings potential. But the important thing, you know, and I think people are losing sight of this a little bit. We grew by about $10 billion this quarter and we returned 13.5% return to common equity shareholders. I mean, one of the bank is doing that.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

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

So now imagine putting the cash to use and what does that do for earnings?

Steven Alexopoulos -- JP Morgan -- Analyst

Yes.

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

Tremendous amount of earnings power in our balance sheet right now.

Joseph J. DePaolo -- President and Chief Executive Officer

And we're continuing to drive down the cost of deposits. Like I said, we went from $42 billion for the quarter to $41 billion in December to $37 billion thus far in January. So we have a little more room to drive that and create more ROE.

Steven Alexopoulos -- JP Morgan -- Analyst

Yes, yes. Thanks for all the color, guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thanks, Steve.

Operator

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

Joseph J. DePaolo -- President and Chief Executive Officer

Great. Good morning.Good morning, Chris.

Chris McGratty -- KBW -- Analyst

Most of the question been answered, just a couple of nitpicky ones. Joe, can you remind us or Eric could you remind us the remaining PPP fees that are scheduled to come through the next couple of quarters?

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

We haven't really forgiven that much. So it's a little bit of a gas, but it's going to be around $50 million still that we have to come through.

Chris McGratty -- KBW -- Analyst

$50 million? Okay.

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

Yes.

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

Chris McGratty -- KBW -- Analyst

And then on the -- the non-interest income is going back to that for a moment. A couple of quarters back you used to have a -- the amortization line that ran through it, and there was an option on the tax line, that seemingly has gone away, maybe I'd say masked by some other items. But how do we think about that other non-interest income line?

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

We reclassified that at the beginning of the year. So we took that out of the expense -- out of the non-interest income line it was a negative non-interest income component and we move that down into taxes. So that's why our tax rate -- our effective rate bumped up at the time from 25% to 28%.

Joseph J. DePaolo -- President and Chief Executive Officer

But we also took out the previous years. So when we would be saying about the growth, that growth is apples-to-apples, because we reclass previous years as well.

Chris McGratty -- KBW -- Analyst

Okay. I mean, if I'm just looking at fee line was, call it $24 million bucks this quarter, a little over $20 million, if you back out the bond yield last quarter. These are kind of a stepped up run rate that sustainable is what your messaging?

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

Correct, that's right.

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

Chris McGratty -- KBW -- Analyst

Got it. Okay, thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you, Chris.

Operator

Your next question comes from the line of Mark Fitzgibbon of Piper Sandler.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey guys, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Mark.

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

Good morning, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Just follow-ups to our prior questions, I guess, I'm curious do you have any plans for new lending businesses to sort of help sop up some of the liquidity?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes, we actually have two initiatives that -- is we're in the midst of discussions, but we should have them on board sometime in the next -- certainly this quarter and then we'll start seeing the fruits of their labor in the second half of the year. And then both initiatives are both asset generators.

Mark Fitzgibbon -- Piper Sandler -- Analyst

And they are scalable by the way?

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

It will take them three to six months to get up and running for sure and one is a bit more scalable than the other, but realistically we'll have some impact for the fourth quarter numbers, I'd expect, but more so really in 2022, where they're really be able to ratchet it up.

Joseph J. DePaolo -- President and Chief Executive Officer

We're not trying to be [Indecipherable] about it, it's just that we haven't bought them on board yet.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Fair enough. And just -- Joe, correct me if I'm wrong, but I thought you had said in the past that some of the large deposits coming in, in the second half of 2020 might not be that sticky that there were some that maybe were temporarily parked. Do you see sometime during 2021, some of those flowing back out?

Joseph J. DePaolo -- President and Chief Executive Officer

There is some fluff -- there's always been some fluff, we had some very large deposits during the year that were [Indecipherable] deposits, which we -- believe it or not, we had $3.7 billion or nearly $4 billion of deposits, but you don't see in the end of the third quarter or end of the fourth quarter, because it came in the beginning of the fourth and left during the month of December. We had another $3.7 billion in deposits, but it was all DDA and so we saw about $4 billion flow out. We expect that there will be some fluff, in fact, we expect that when rates rise some of that money will go off balance sheet to money market mutual funds, but we're OK with that, because we don't use capital and we get a fee for putting it off balance sheet. In fact, it wasn't too long ago when we get $3,250,000 a quarter. And today, we're getting less than 200,000 a quarter on fee income for off balance sheet. So we expect some of that to flow out. It won't be -- those the growth, it just slows it down a little.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

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 4079502. A webcast archive of this call can also be found at www.signatureny.com.

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan Turkell 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

Jared Shaw -- Wells Fargo Securities -- Analyst

Matthew Breese -- Stephens Inc. -- Analyst

Steven Alexopoulos -- JP Morgan -- Analyst

Chris McGratty -- KBW -- Analyst

Mark Fitzgibbon -- Piper Sandler -- Analyst

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