Signature Bank (SBNY) Q1 2021 Earnings Call Transcript

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Signature Bank (SBNY)
Q1 2021 Earnings Call
Apr 21, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2021 First Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph DePaolo, President and Chief Executive Officer and Eric Howell, Senior Executive Vice President, Corporate and Business Development. Today's call is being recorded.

At this time, all participants have been placed in a listen-only mode [Operator Instructions]

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

You may begin.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you Erica. Good morning and thank you for joining us today for the Signature Bank 2021 First Quarter Results Conference Call. Before I begin my formal remarks. Please go ahead, Susan.

Susan Turkell Lewis -- Investor Relations

Thank you Joe. This conference call and oral statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and may be beyond our control.

Forward-looking statements include information concerning our future results, interest rates 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 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 with some quarterly and annual results and then Eric Howell, our Senior Executive Vice President 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. We started 2021 at an astonishing manner with another quarter of record deposit growth of $10.7 billion emanating from our core client relationships. Coming off the heels of 2020 where we grew record deposits by nearly $23 billion. It's clear that the bank is firing on all cylinders, including our newer business lines where again many contributed to this quarter's phenomenal growth.

When looking at earnings, we had another quarter of record net interest income, driven by record deposit growth, strong loan growth and record securities purchases. Additionally, we had record fee income and contained expense growth which culminated in record net income. Bottom line, we are delivering strong results for our shareholders even with significant excess liquidity. This liquidity bodes well for future earnings as the unlocking of excess cash, especially for higher-yielding loan growth has a far greater impact than any Fed or political action.

In retrospect, it's truly not that astonishing to see, we delivered another quarter of record earnings and growth as we have done for the past 20 years. In fact, our 20 year anniversary is less than 2-weeks away on May 1. We remain true to our founding principles of a team-based single point of contact model that caters the privately owned businesses and their owners and managers. This focused model has allowed us to distinguish ourselves from the pack and deliver outstanding performance consistently throughout Signature Bank's existence.

It's hard to believe that the Bank started with nearly $50 million in assets and grew organically without ever making an acquisition to an $85 billion bank. Separately, I would be remiss not to mention how proud we are of the recently issued 2020 Annual Report, highlighting essential frontline health-care workers that are closely associated with our colleagues. We wanted to showcase the unrelenting dedication and sacrifice of these frontline heroes including our own and thank them for their service.

Now, let's take a look at earnings. Pre-tax, pre-provision earnings for the 2021 first quarter were a record $272.8 million, an increase of $54 million or 25% compared with $218.5 million through the 2020 first quarter. Net income for the 2021 first quarter was a record $191 million or $3.24 diluted earnings per share, net with $99.6 million or $1.88 diluted earnings per share reported in the same period last year. The increase in income was predominantly driven by substantial asset growth of $32.3 billion over the last 12 months as well as the decrease in the provision for credit losses, which were substantially impacted by COVID-19 in the first quarter of 2020.

Looking at deposits, deposits increased a record $10.7 billion or 17%, $74 billion this quarter, while average deposits grew $6.8 billion. This quarter's growth, which was across the board, was driven by the digital asset banking team which grew deposits by $4.4 billion. The specialized mortgage banking solutions team, which grew $2.3 billion. The Fund Banking team, which was up nearly $700 million, our Venture Banking Group, which increased over $300 million and nine private client banking teams across the spectrum in Metro New York, which grew over $100 million each, including five of the teams that exceeded $200 million.

Since the end of the 2020 first quarter deposits increased a remarkable $31.7 billion or 75% and average deposits increased nearly $28 billion. Non-interest bearing deposits increased $3.8 billion to $22.5 billion, which represent a high of 30.5% of total deposits. Our deposit growth plus capital raises as well as earnings retention led to an increase of $32.3 billion or 61% in total assets, since the first quarter of last year. Now, let's take a look at our lending businesses. Core loans or loans excluding PPP during the 2021 first quarter increased $1.3 billion or 2.8% to $48 billion.

For the prior 12 months, core loans grew $7.3 billion or 17.8%. Increase in loans this quarter was again driven primarily by new fund banking capital core facilities. This is the 10th quarter or 10th 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. We are well positioned in all our lending businesses to capitalize on opportunities based on our pipeline and a recovering economy.

Turning to credit quality, the portfolio continues to perform well. Non-accrual loans were $134 million or 26 basis points of total loans and with $120 million with 25 basis points for the 2020 fourth quarter. Our past due loans returned to the pre-COVID-19 levels with 30 to 89 past due loans decreasing to $39 million and the 90 day plus past due loans remained very low at $4.9 million. Net charge-offs for the 2021 first quarter was $17.9 million or 15 basis points of average loans compared with $11.4 million to the 2020 fourth quarter.

Provision for credit losses for the 2021 is $30.9 million compared with $35.6 million from 2020 fourth quarter despite the bank's allowance for credit losses to 1.02% and the coverage ratio stands at a healthy 390%. I would like to point out that excluding very well secured fund banking loans and government guaranteed PPP loan, the allowance for credit loss ratio would be much higher at 1.43%.

Turning to modifications as of April 15, the bank's COVID-19 related non-payment modifications reduced by $329 million -- to $983 million or 1.9% of loans when compared with the balance at the end of 2020 fourth quarter. Now, on to the expanding team front, where we continue to have success. In the 2021 first quarter the bank on-boarded three private client banking teams, including two in the West Coast. Additionally, the bank added four private client banking group directors, to existing California teams and Signature Financial added seven executive sales offices throughout its national footprint.

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

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

Thank you Joe, and good morning everyone. I'll start by reviewing net interest income and margin. Net interest income for the first quarter reached $407 million, an increase of $11.5 million from the 2020 fourth quarter. Net interest margin declined 13 basis points to 2.1% compared with 2.23% for the 2020 fourth quarter. The entire decrease and then some was due to massive excess cash balances from significant deposit flows, which impacted margin by 58 basis points. Now, let's look at asset yields and funding costs for a moment.

Interest earning asset yields for the 2021 first quarter decreased 21 basis points from the linked-quarter to 2.54%. The decrease in overall asset yields was again driven by the massive excess average cash balances which grew from $12.5 billion to $17.1 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 25 basis points linked quarter to 1.88% due to lower reinvestment rates as well as the bank investing in floating rate securities, and our portfolio duration increased to 3.25 years which was due to a steeper yield curve.

Given the better rate environment, we aggressively grew the securities portfolio by a record $2.1 billion and we anticipate similar growth in future quarters. Turning to our loan portfolio, yields on average commercial loans and commercial mortgages decreased 6 basis points to 3.5% compared with the 2020 fourth quarter. This was mostly due to lower origination yields, excluding prepayment penalties from both quarters, yields decreased by 9 basis points. And now, looking at liabilities, our overall deposit cost this quarter decreased 8 basis points to 34 basis points due to the low interest rate environment as we gradually lower our relationship-based deposit rates. We anticipate this downward trend to continue in the coming quarters.

During the quarter, average borrowing balances decreased by $7 million and the cost of borrowings increased by 1 basis point to 2.41%. The overall cost of funds for the quarter decreased 10 basis points to 47 basis points, driven by the reduction in deposit costs. And now on to non-interest income expense. We continue to emphasize fee income; and non-interest income for the 2021 first quarter was $32.7 million, an increase of $18.5 million or 131% when compared with the 2020 first quarter. The increase is mostly due to a rise in fees and service charges, net gains on sales of loans and trading income.

Non-interest expense for the 2021 first quarter is $166.4 million versus $144 million for the same period a year ago. The $22.4 million or 15.6% increase was principally due to the addition of new private client banking teams and operational support to meet the bank's growing needs. Despite our significant team hirings and margin compression from substantial cash balances, the Bank continues to gain operating leverage and as a result, our efficiency ratio improved to 37.9% for the 2021 first quarter versus 39.7% for the comparable period last year.

And turning to capital, during the quarter, the Bank successfully issued $708 million of common stock. All capital ratios remain well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet, as evidenced by common equity Tier 1 risk-based ratio of 10.92%. In total, risk-based ratio of 14.41% as of the 2021 first quarter. And given our robust total risk-based ratio, we redeemed 260 million of subordinated debt at a rate of 5.3% on April 19, which will further reduce our interest expense in coming quarters.

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 who 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 we provide, and our performance once again this quarter reflects their extraordinary efforts as we continue to execute on many fronts. We look forward to a healthier 2021 as recovery from the COVID-19 pandemic continues. The collective strength of our franchise led to an unbelievable quarter of record deposit growth record pre-tax, pre-provision earnings and record net income. Bottom line, we delivered another strong quarter and we are well positioned for the future.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question is coming from Matthew Breese with Stephens Inc.

Matthew Breese -- Stephens Inc -- Analyst

Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning Matt.

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

Good morning Matt.

Matthew Breese -- Stephens Inc -- Analyst

Maybe first, we can just address the liquidity position of the bank with over $19 billion of cash. Eric, you addressed the outlook for the securities portfolio, but could you give us an update on, how you feel about loan growth through the end of the year, what it could look like and then, maybe provide some details on the new upcoming two asset generating verticals that we've discussed, but haven't quite gotten a lot of detail on yet.

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

Sure Matt. We expect that we'll see loan growth per quarter in the $1 billion to $2 billion range, so we should see anywhere from $4 billion to $8 billion in loan growth coupled with roughly $1 billion to $2 billion in securities purchases hopefully closer to the $2 billion in both cases, right. So, we should have asset growth anywhere, given pretty broad ranges because it can be choppy in both deposits -- both loans and securities, but anywhere from $8 billion to $16 billion for the year.

So, we certainly have ample places to put the deposit growth and the cash to use. On the new business line front, the two new businesses that we've been talking to you about for a little while. The gentlemen leading those efforts are both here. The first is in mortgage warehouse lending team, which is being led by Ken Logan has been a 35-year industry veteran; he founded and led the Mortgage Banking Finance Group at Wells Fargo -- he actually started at Wachovia from scratch and when they were acquired by Wells, he continued the efforts there. So a substantial track record in this space, has built that business at a few different institutions from scratch, extremely well-known and we're very excited to be entering it. Clearly, it's a very logical fit with the mortgage -- specialized mortgage banking team that we brought on board that really is to deposit generating side. So, now we've got the lending side and I'd say that our clients are very pleased on both fronts that we're in this business and that from a growth perspective can be a little choppy again, but we're looking at $200 million to $1 billion in growth per quarter, so we should see at least $1 billion in growth for the year, if not closer to $4 billion in growth from that space.

So very excited to have them on board. We don't really anticipate anything meaningful on the growth front until the third quarter and fourth quarters, we could see some participations in the second quarter. The second business line that we've on boarded is the SBA origination business. As many of you know, we're one of the largest buyers of SBA loans in the market, we have a very large business out of our Houston office where we buy the loans, pool them, securitize them and sell them to accredited investors.

Now, we're getting into the origination business -- we've done, so once again with a 30-plus year industry veteran George Glines who comes out of Bank of the West and we'll really be focused on the California market place. So, this business was very strategically important to us and to our growth initiatives on the West Coast. The cost of real estate often makes it prohibitive for our businesses to buy their real estate, so they really need that government helping there and we're very happy to be involved in that space.

On the growth side, it's a little lower growth we're talking anywhere from $200 million to $500 million per quarter and we don't really anticipate seeing that growth until the third and fourth -- I'm sorry -- $200 million to $500 million per year, not per quarter, per year and we don't see that growth coming until the latter half of this year. In both cases, once again it is a continuation of the Signature Bank model where we've hired very well seasoned, knowledgeable banking veterans to spearhead the efforts in both of these spaces. So we're very excited to have both teams on board.

Joseph J. DePaolo -- President and Chief Executive Officer

We're also starting -- we're deep into the process of putting policies and procedures together, we're only going to use it for the very, very best clients but we're going to start doing some lending in the crypto, digital world. There'll be very deep discounts, and quality custodians will allow us to liquidate when necessary. We're going to crawl before we walk and we're going to walk before we run.

Matthew Breese -- Stephens Inc -- Analyst

Understood. Maybe, just you gave us a sense of size for these three verticals, could you give us a sense of incremental loan yields. And as we start thinking about putting the liquidity to work, is it likely that not until 3Q, 4Q that we should really start to see that $19 billion turnaround and become something less?

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

Well, on the latter part of that, I mean that's really all dependent on how much in deposit flows we have, so we're confident that in the latter part of this year we'll start to see some positive movement on both of those fronts, but the deposits aren't stopping anytime soon. So, hard to say that's really put a dent in that. On the earlier part, I mean this is going to -- generally both of these business lines will be in line with our existing asset yields so -- but it's early on to say and I wouldn't want to say exactly what rates we'll be getting in either space until we actually do it.

Operator

Your next question is from Ebrahim Poonawala with the Bank of America.

Joseph J. DePaolo -- President and Chief Executive Officer

Hi Ebrahim.

Ebrahim Poonawala -- Bank of America -- Analyst

Good morning Joe. Good morning Eric. I guess just following up on the deposit comment, Eric, we've seen two quarters of close to $10 billion sequential deposit growth; is it safe for us to assume that continues as we look forward, given the momentum you had or is there any reason to believe that $8 to $10 billion range is unlikely everything about the second quarter or the rest of the year?

Joseph J. DePaolo -- President and Chief Executive Officer

Second quarter has kicked off very nicely. We expect continued deposit growth because we have all these new businesses and they were all contributing. In fact, we've had to turn down deposits because we have limitations -- we set internal limitations on concentrationss, so we've had to turn away deposits. So, our expectation is that we'll continue to grow maybe not at the $10.7 billion level, but there'll certainly be growth.

Ebrahim Poonawala -- Bank of America -- Analyst

Safe to assume you will be growing in excess of that $4 billion high-end range that you'd previously talked about?

Joseph J. DePaolo -- President and Chief Executive Officer

Yes.

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

Since that was an annual number, we kind of already beat that this quarter. So yeah, I think that's pretty safe.

Joseph J. DePaolo -- President and Chief Executive Officer

[Speech Overlap] the deposits are coming from all over, across the board in all the business that is something we want to get across.

Ebrahim Poonawala -- Bank of America -- Analyst

And so I guess just tied to that. I think there has been a fair amount of conversation Joe around the stickiness of your crypto related deposits so if you could touch upon that in terms of as we think about one, your ability to deploy those funds into longer duration assets and how do you see them in terms of -- if we get into higher rate environment how rate sensitive are those deposits?

Joseph J. DePaolo -- President and Chief Executive Officer

30% of the digital deposits, usually in DDA, because we're getting the operating accounts. So I think it's important to understand just like all our other businesses that our clients [Indecipherable] the key thing is to have their operating accounts and tie them in to making it difficult to leave, and we give great performance, great support for the clients' operating accounts. Now, within digital we're in all different areas of digital with stable [Indecipherable] reserves with the OTC desks, the client's digital asset exchanges, Blockchain technology, digital miners and then we have those that you sit in that and then we have some of the traditional. So, within Digital we have a mixture and outside of digital we have a mix shift because of all the businesses.

So, we feel that they are fairly sticky deposits. I know it's early on, but we have a team, but we have two teams, one that handles Signet, one that handles the clients and tries to get the business into the institution and that team has been around for over 8 years and they have a knowledge base and they're key into getting the actual operating accounts.

So, we feel the stickiness in there. We've been asked what about the competition, like the big banks, the Chase's and cities. If they get into digital in a big way, well, we've been competing with them for 20 years. So, we're not worried about the big players nor are we worried about the stickiness of the deposit. Having said that, we do keep a decent amount of liquidity, we won't say what percentages are, but we do keep decent amount of liquidity against these deposits, because it's still early on, although we have a team that's been around 8 years in the business, it's still early on in the crypto world.

Ebrahim Poonawala -- Bank of America -- Analyst

And just sticking with Joe, so we saw this announcement with your partnership with Circle yesterday. Are you able to share any stats around the transaction or the volume of transaction that was processed over Signet over the last quarter compared to maybe the fourth quarter a year ago? And just the number of clients that you're adding each quarter.

Joseph J. DePaolo -- President and Chief Executive Officer

I won't give you statistics as it relates to Circle, because I'm sure our competition is listening, but the clients have grown, we had about 630 clients at the end of the year and we have about 740 clients now.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. And one last question. All this hiring Eric, any change in expense growth guidance as we look forward, should it continue to decelerate from 1Q or any update there?

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

Yeah, we still expect it to decelerate from this point, so we should see it come down in a linear fashion each quarter throughout the course of this year.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. Thanks for taking my questions.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Pleasure.

Operator

Your next question is from Casey Haire with Jefferies.

Casey Haire -- Jefferies -- Analyst

Thanks. Good morning guys. I wanted to follow up on the liquidity deployment. It sounds like the security is up $2 billion this past quarter -- if I'm understanding you correctly Eric, it sounds like you want to keep that pace going forward. I guess, my question is why not do more, given there is clearly capacity and you sound decently comfortable with the duration of the deposit franchise, just why not step up the securities purchases?

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

I mean it's a good question Casey, I mean, we certainly will try to. We are a little bit mindful that we do feel interest rates can continue to rise, so we don't want to incur too much in unrealized losses on that portfolio. So, we're trying to be smarter and thoughtful around that, but it's just hard finding the paper, right, we're not the only ones in this position and people are fighting for the securities. So, really that's the other side of the equation. We have a lot of cash flow coming back at us on the portfolio and just trying to reinvest and find a good paper to put it into is harder and harder these states.

But we are trying to -- we are trying to deploy more hopefully, like you said it's an excess of the $2 billion. But that's -- we don't want to guarantee that.

Casey Haire -- Jefferies -- Analyst

Understood, and is -- are you guys predominantly doing -- is it a mix of floating rate and longer duration stuff and sort of what is the blended new money yield on your securities purchase today?

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

It's about 20% 25% floating rate. We're doing a bit more in fixed with the pick up in the yield curve, it's a blended, we're at 1.5% right now.

Casey Haire -- Jefferies -- Analyst

Okay. And then just finishing up on capital CET1 ratio is in pretty solid shape here just under 11% but the deposit outlook sounds still very strong. I'm just curious as to, is CET1 ratio that you guys are looking at over TCE and at what level would you address capital?

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

Well, that's the level we can't really speak to right, that depends on so many factors but we're primarily focused on the regulatory ratios and the risk based ratios versus just the straight TCE ratio given the nature of our growth rate. We've grown cash, we've grown securities and we've grown well secured fund banking loans. So, we've really put on little to no risk, so we're not focused on the TCE for sure, but it's more of the CET1, the Tier 1 and total risk-based capital ratios that's our focus and we're well above our peers now in those levels as well as the level that we need to be well capitalized. So, right now, we feel comfortable with where our capital ratios are today, but we're an opportunistic organization and that's the approach that we've always taken to growth and that's the same approach that we take with capital to support that growth.

Casey Haire -- Jefferies -- Analyst

Okay, great. And just to clarify that the loan growth of $1 billion to $2 billion per quarter, is that inclusive of these -- of the new lending verticals in SBA and mortgage warehouse?

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

No, that's the traditional businesses that we're already in.

Casey Haire -- Jefferies -- Analyst

Okay, so these new verticals would provide upside to that loan growth guide?

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

Potentially, but let's get them up and running first.

Casey Haire -- Jefferies -- Analyst

Understood. Okay. Thanks guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you Casey.

Operator

Your next question is from Dave Rochester with Compass Point.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning Dave.

Dave Rochester -- Compass Point -- Analyst

Hey, good morning guys. Congrats on a solid 20 years and a great quarter.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Dave Rochester -- Compass Point -- Analyst

Just wanted to start on the crypto side of things, when are you guys expecting to get that up and running and any sense for how much volume you'd be willing to do there on a quarterly basis -- it sounds like there's a lot of demand there from everything we've been hearing from other players in the space, and it seems like the biggest question will be, what you're willing to do there?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we want to be a zero loss business and so we're only going to have it for the very, very best clients, we're going to underwrite, we're going to have deep discounts and quality custodians, so it will contribute in 2021, but not necessarily in the second quarter to a great extent and as I said, we'll crawl before we walk and walk before we run.

We want to be very safe in this space but having said that, we also want to be in this space, because we're one of the predominant, if not the predominant bank in this space -- typically we're the largest bank in this space. And we know that there is a need by clients and we'll take care of those clients. I know that's kind of nebulous but we don't have an expectation of dollar amount yet, until we finish everything -- policies, procedures and the due diligence that we're doing on the on the custodians.

Dave Rochester -- Compass Point -- Analyst

So, those answers my next question, as you guys are going to take custody of the assets, you're going to hammer out some agreements with third parties?

Joseph J. DePaolo -- President and Chief Executive Officer

Top line custodians that we commit to-date, we also want to have the ability to liquidate quickly and we won't negotiate on margin or liquidation provisions. You wanted to do.

Dave Rochester -- Compass Point -- Analyst

Were you guys limited to just -- sorry, go ahead.

Joseph J. DePaolo -- President and Chief Executive Officer

No, no go ahead.

Dave Rochester -- Compass Point -- Analyst

I was just going to say, are you just limiting this to Bitcoin or are you open to other currencies?

Joseph J. DePaolo -- President and Chief Executive Officer

Yeah, not necessarily just Bitcoin.

Dave Rochester -- Compass Point -- Analyst

Okay. Great. And then in terms of the yields on that, I mean we've heard mid to high single digits, is that kind of what you guys are thinking there?

Joseph J. DePaolo -- President and Chief Executive Officer

Yeah, we really don't want to comment, because we haven't done one of the loans yet. I would say it'd be more than our traditional C&I.

Dave Rochester -- Compass Point -- Analyst

Okay, great. Maybe just switching to deposit growth. I was just hoping to get a breakdown of that across your different drivers you've got and regarding the start to the quarter that you just mentioned that, that was -- it sounds like that was good was just curious where you are at this point, and I know that the spot, will kind of bounce around, but was just curious how much growth you've seen so far this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

The first part is, you wanted a breakdown of the growth?

Dave Rochester -- Compass Point -- Analyst

Yes, please.

Joseph J. DePaolo -- President and Chief Executive Officer

Right. So, we had $4.4 billion in digital, $2.3 billion in the specialized mortgage servicing, $700 million in Fund Banking, $300 million in venture, we had nine teams in New York -- more than $100 million in each of the nine teams, of which five had $200 million each, five of the nine, so it really was across the board.

Dave Rochester -- Compass Point -- Analyst

Yeah, that's great.

Joseph J. DePaolo -- President and Chief Executive Officer

I was just going to say we're also bringing down the cost. We were at 42 basis points, we brought it down at 34 basis points. The month of March was 31 basis points and right now in April, we're at about just slightly below 30 basis points in the 29 basis point area.

Dave Rochester -- Compass Point -- Analyst

What do you think the potential is -- go ahead.

Joseph J. DePaolo -- President and Chief Executive Officer

We're happy with how it's declining. I don't know the mid-twos, mid-20s [Indecipherable] as Eric said earlier, we're a relationship-based organization and a lot of these clients keep significant DDA as represented by the 30.5% in DDA, we have of total deposits. We'll probably give an update -- we have a couple of conferences in the second quarter, we'll probably give an update of deposits in those conferences. We won't give an update now, it's still a little too early but it's robust.

Dave Rochester -- Compass Point -- Analyst

Yes. I'm sure. And then you've got the Circle relationship which I mean it sounds like they've got, I think the press release said $13 billion in deposits -- reserve deposits and you guys are going to become the major bank that they're using for that, right so that's a lot of potential growth there, at least just from that one relationship alone. Maybe, just switching to back in the Fund Banking piece I mean that $700 million in growth that's some pretty good growth for that group and I know you talked originally when these guys came on board that you were hoping that one day they'd self-funded. Are we -- do you think moving closer to that, do you expect to see that deposit growth continue to remain strong or maybe even ramp up from here as that business sort of matures at Signature?

Joseph J. DePaolo -- President and Chief Executive Officer

Let me say that I'm happy that that's self funded right now. We had quite a bit of deposit growth. [Indecipherable] and his group are concentrating on building their loan business, but we're happy with where they are on the deposit side. They can have more time to bring in deposits over the next quarters and years. But, we like to see them continue to reduce the debt that they have in the lending side, in their business.

Dave Rochester -- Compass Point -- Analyst

All right. Great, thanks for all the color guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

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

Thank you Dave.

Operator

Your next question is from Ken Zerbe with Morgan Stanley.

Ken Zerbe -- Morgan Stanley -- Analyst

Hi, great, thanks, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning.

Ken Zerbe -- Morgan Stanley -- Analyst

Take a break from talking about loans for just a second, I guess. Very nice growth in fee income, obviously I know fee income is sort of a bigger focus for you guys, is there anything in there that's sort of unsustainable and how do you view your fee income growth over the next several quarters, starting with this level of base. Thanks.

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

Yeah, it was certainly a very strong quarter across the board, there from many of our initiatives. The net gains on sales of loans, we had a phenomenal quarter from our SBA business as well as from Signature Financial. That's probably a number that we're not going to see again in the following quarter, as well as our trading income. We had some nice initiatives that helped on that front as well but I'm not so sure we'll be able to maintain that rate.

We try to look at fee income year-over-year, as it can be a bit volatile. If we look back to the second quarter of last year, we should be able to double that number during this quarter. So, we expect a 100% increase over the prior year's numbers, but it probably will not be quite what we saw in the first quarter of this year. But we're very, very pleased with all the initiatives that we have in place. We really saw across the board growth in every aspect of our fee income.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it. Okay, perfect. And then, in terms of the provision expense or the reserve more specifically, I certainly wouldn't imply to give you guys a hard time for not releasing reserves, given you're one of the only banks that's truly growing loans in a very rapid way, and I get you have to build reserves for those new loans. But when we think about sort of day one CECL reserve levels versus kind of where you're at today, and it just seems that you're adding a lot of very high quality loans, especially on the Fund Banking side, is there any reason to think that eventually you won't get back down to the CECL [Indecipherable] I'll call it 80 basis points roughly or 75 basis points or just say at a fairly higher level around the 1%.

Joseph J. DePaolo -- President and Chief Executive Officer

One of the things you have to consider that although we are very bullish on Manhattan, we have quite a bit of business commercial real estate in Manhattan and that's one thing we have that others don't. And that's one of the reasons the uncertainty -- it's the uncertainty, Manhattan is just starting to open up, like I said, we're very bullish on it, but we try to account for the level of uncertainty in the economic environment in Manhattan and that is a factor.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it, OK. So, it sounds like as if Manhattan were to improve over the next, however long it takes that it could trend lower but not until -- understood.

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

We are seeing it trend down right, just a few basis points per quarter over the last few quarters Ken. We just need to see that trend continue, and we need to see the uncertainty be removed. There is nothing that we see right now that leads us to believe that we're not going to continue to see that trend, but there still is enough uncertainty out there that it makes sense for us to continue to provide and be safe.

Ken Zerbe -- Morgan Stanley -- Analyst

Okay. And just last question in terms of tax rate [Technical Issues] I think it was a little lower than expected, anything unusual in there, this quarter.

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

That came through a little big garbled but I think that question was related to our tax rate. We have a one-time benefit from restricted shares that came through at a higher level, so we gained a tax benefit from that and brought our effective -- our overall rate down and utilized a 29% effective tax rate moving forward.

Ken Zerbe -- Morgan Stanley -- Analyst

All right, thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan Turkell Lewis -- Investor Relations

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

Matthew Breese -- Stephens Inc -- Analyst

Ebrahim Poonawala -- Bank of America -- Analyst

Casey Haire -- Jefferies -- Analyst

Dave Rochester -- Compass Point -- Analyst

Ken Zerbe -- Morgan Stanley -- Analyst

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