Signature Bank (SBNY) Q3 2021 Earnings Call Transcript

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Signature Bank (SBNY)
Q3 2021 Earnings Call
Oct 19, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Signature Bank's 2021 Third Quarter Results Conference Call. Hosting the call today from Signature Bank are Joe DePaolo, President and Chief Executive Officer; and Eric Howell, Senior Executive, Vice President and Chief Operating Officer. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions]

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

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you Anna. Good morning and thank you for joining us today for the Signature Bank 2021 third quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Susan Turkell Lewis -- Media Contact

Thank you, Joe. This conference call and oral statements made from time to time by our representatives contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 expectations regarding 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. Forward-looking statements often include words such as may, believe, expect, anticipate, intend, potential, opportunity, could, project, seek, target, goal, should, will, would, plan, estimate, or other similar expressions. 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 and can change as result of many possible events or factors, not all of which are known to us or in our control. 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 would provide some overview into the quarterly results and then my colleague Eric Howell, our Chief Operating Officer 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's dramatic growth, which surpassed the milestone of $100 billion in assets was driven by the collective success of our legacy banking teams in New York, our blockchain driven -- our blockchain-based payments platform Signet and the many low-risk franchises, which now comprise our organization. The deposit growth of $10 billion in the third quarter continued to be widespread with notable contributions from our digital asset banking team including growth on the Signet platform, the specialized mortgage banking solutions team and the New York legacy banking teams. Our core growth, our core loan growth was driven by our Fund Banking Division, which grew a record $5 billion in outstandings. Although some of these businesses have only recently come to fruition, our approach remains consistent since the day we opened our doors. We've always adhered to our client-centric single point of contact model, which inevitably attracts top bankers from across the industry, as well as their clients.

Now let's take a look at earnings. Pre-tax pre-provision earnings for the 2021 third quarter were a record $331 million, an increase of $78.6 million or 31% compared with $252.4 million for 2020 third quarter. Net income for the 2021 third quarter increased $102.9 million or 74.2% to record a $241.4 million or $3.88 diluted earnings per share compared with $138.6 million or $2.62 diluted earnings per share for last year. The increase in income was predominantly driven by substantial asset growth of $44.1 billion over the last 12 months as well as the decrease in the provision for credit losses, which was substantially impacted by COVID-19 in the third quarter of 2020.

Looking at deposits. Deposits increased $10 billion or 11.7% to $95.6 billion this quarter, while average deposits also grew $10 billion. This quarter's growth was driven by the digital asset banking team, which grew deposits $5.1 billion including $2.7 billion of growth on the Signet platform. Additionally, the specialized Mortgage Banking Solutions team grew $2.3 billion. Our Venture Banking Group increased $200 million. The West Coast banking teams grew $235 million, and our New York banking teams grew $1.9 billion. This includes 8 New York teams that exceeding $100 million in growth. Since the end of the 2020 third quarter, deposits increased a remarkable $41.2 billion or 76% and average deposits increased $33.4 billion, furthering the reduction in our loan to deposit ratio which now stands at 61% down from 85% just one year ago.

During the quarter non-interest bearing deposits increased $5.7 billion, that's worth saying twice, non-interest bearing deposits increased $5.7 billion to $34.4 billion, which represents a high 36% of total deposits. This tremendous growth in DDA can largely be attributable to the adoption of our Signet platform, which as I stated earlier grew to -- grew by $2.7 billion this quarter. A substantial organic deposit growth led to an increase of $44.1 billion or 69.2% in total assets since the third quarter of last year. That's the equivalent of acquiring the top 50 U.S. bank, but we did it completely organically. We believe this is by far the most efficient use of capital.

Now let's take a look at our lending business. Core loans or loans excluding PPP during the 2021 third quarter increased a record $5 billion or 9.6% to $57.2 billion. For the prior 12 months core loans grew $13 billion or 29.4%. The increase in loans this quarter was again driven primarily by the Fund Banking capital call facilities. Our existing teams are well-positioned to capitalize on opportunities. We also welcome our corporate mortgage finance business, warehouse mortgaging and our SBA originations platform, which will help to further our growth and diversification.

Now turning to credit quality. Our portfolio continues to perform well. Let me first point out, the Bank's COVID-19 related non-payment modifications continue to trend positively. As of year-end 2020, they were $1.3 billion. At April 15, they were $983 million. At July 15 they were $309 million, and as of October 10, they are now at $254 billion. So from the end of 2020, when it was $1.3 billion, we're now down to $254 million or 43 basis points of total loans. That's a non-payment modification. Non-accrual loans of $165.4 million or 28 basis points of total loans compares with $136.1 million or 25 basis points for the 2021 second quarter, well within our expectations. Our 30 day to 89 day past due loans are well within our normal range of $98.1 million. Our 90 day plus past due loans were $81.2 million. However, there were two loans that were renewals that was delayed and have subsequently closed. Adjusting for this, our 90 day plus past dues would have been within a normal range of 7.0 -- at $7.9 million.

Net charge-offs for the quarter of -- net charge-offs for the 2021 third quarter was $17.3 million or 12 basis points of average loans compared with $15.3 million for the 2021 second quarter, again well within our expectation. The provision for credit losses in 2021 third quarter decreased to $4 million compared with $8.2 million for the 2021 second quarter. This support the Bank's allowance for credit losses 85 basis points and the coverage ratio continues to stand at a healthy 303%. I would like to point out that excluding very well secured Fund Banking core -- capital call facility and government guaranteed PPP loans, the allowance for credit losses will be much higher at 136 basis points.

Now, onto the expanding team front, where we continue to realize success. In the 2021 third quarter, the Bank on-boarded one large private client banking team in New York. This brings the team total hires to 8 for the year, 2 in New York, 4 in the West Coast as well as the Corporate Mortgage Finance team and the SBA originations team.

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

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Thank you, Joe, and good morning everyone. I'll start by reviewing net interest income and margin. With our emphasis on growing net interest income, for the third quarter, it reached $480.9 million, an increase of $23.7 million or 5.2% from the 2021 second quarter, an increase of $220.5 million or 20% from the 2020 third quarter. Net interest margin declined 14 basis points to 1.88% compared with 2.02% for the 2021 second quarter. The decrease was due to massive excess cash balances from significant deposit flows, which impacted margin by 59 basis points. Again our focus is on net interest income growth.

Let's look at asset yields and funding costs for a moment. Interest earning asset yields for the 2021 third quarter decreased 19 basis points from the linked-quarter to 2.18%. The decrease in overall asset yields was again driven by the massive excess average cash balances, which grew $5.4 billion to $29.2 billion during the quarter. Yields on the securities portfolio decreased 23 basis points linked quarter to 1.49% due to lower reinvestment rates as well as the Bank investing in floating rate securities. Additionally our portfolio duration increased to 3.01 years, which was due to increase in rates at the end of the quarter. We anticipated that it was going to be a better environment for investing in securities, and fortunately interest rates were lower for most of the quarter. However, we were opportunistic throughout the quarter as we saw limited windows in which to invest, and therefore we did increase the securities portfolio by $2.2 billion, which includes $1 billion in purchases that settled literally on the last day of the quarter.

And turning to our loan portfolio. Yields on average commercial loans and commercial mortgages decreased 13 basis points to 3.45% compared with the 2021 second quarter. Excluding prepayment penalties from both quarters, yields decreased by 10 basis points. Now looking at liabilities, our overall deposit cost this quarter decreased 5 basis points to 22 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, albeit at a slower pace. During the quarter average borrowing balances decreased by $146 million and the cost of borrowings decreased 3 basis points to 2.8%. The overall cost of funds for the quarter decreased 6 basis points to 32 basis points, driven by the reduction in deposit costs. And I'd like to point out the dramatic shift in our interest rate risk profile where our balance sheet has moved to significantly asset sensitive from mildly liability sensitive over the last several years. The Bank's focus on growing floating-rate loans, which now comprise 45% up from 10% of our loan portfolio, coupled with our core deposit funding base, makes us extremely well-positioned to take advantage of a rising rate environment.

And now on to non-interest income and expense. With our plan to grow non-interest income, we achieved growth of $7.2 million or 30% to $31.4 million when compared with the 2020 third quarter. The increase is mostly due to rise in fees and service charges, which was driven by an increase in both unused commitment fees and treasury management fees. Non-interest expense for the 2021 third quarter was $181.2 million versus $160.6 million for the same period a year ago. The $20.7 million or 12.9% increase was principally due to the addition of new private client banking teams and operational support to meet the Bank's growing needs. And despite our significant team hiring and margin compression from substantial cash balances, the Bank continues to gain operating leverage, and as a result, our efficiency ratio improved to 35.4% for the 2021 third quarter versus 38.9% for the comparable period last year.

And now quickly, turning to taxes. This quarter we benefited from multiple one-time tax items, which totaled $7.4 million and included $4.3 million in solar tax credits. This lowered our tax rate to 26.2% for the quarter. Excluding these benefits, the effective tax rate for the quarter would have been 28.5%. And turning to capital, the Bank raised 655 million of common equity through a public offering during the quarter. As a result all capital ratios strengthened and remained 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 10.49% and total risk-based ratio of 12.96% as of the 2021 third quarter.

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

Joseph J. DePaolo -- President and Chief Executive Officer

Thanks Eric. The collective strength of our franchise let to yet another quarter of strong deposit growth. Record core loan growth, record pre-tax pre-provision earning and record net income. Bottom-line, we delivered another strong quarter. We are well-positioned for the future given the robust deposit growth from across the board that has led to a significant level of excess cash on our balance sheet. We will continue to prudently put the cash to use in our securities portfolio as well as our loan portfolio through both our new and existing lending businesses. Our steadfast deployment will ultimately drive earnings higher for our shareholders. Our approach to organic growth coupled with our industry-leading efficiency continues to be the best method for capital deployment. Signature Bank's track-record confirms that investing in people is paramount and the optimal path is to avoid all of the cultural and organizational disruptions that stem from M&A, which are often under-estimated.

Looking ahead, we will continue to invest in our colleagues whose dedication has brought us to this next chapter. It has always been and will continue to be their efforts that culminate into the thriving institution that has become Signature Bank. We look forward to a bright future ahead. Now we are happy to answer any questions you might have. But before I turn --before I turn the call over to Anna, the operator, I just want to encourage everyone please get vaccinated.

Now I'll turn it over Anna. Thank you.

Questions and Answers:

Operator

The floor is now open for questions. [Operator Instructions] Our first question comes from Ken Zerbe with Morgan Stanley.

Ken A. Zerbe -- Morgan Stanley -- Analyst

All right, great. Thanks. Good morning guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning Ken.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Are you able to provide any data in terms of how much payment volume is flowing through Signet and how that may have changed over the last couple of quarters?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, Ken, we can provide some statistics around that. Our transfer volumes for the quarter were $128 million -- billion, sorry billion, down slightly from the prior quarter of $149 billion.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got you. And where was that maybe, I don't know, say first quarter or a year ago. And I'm trying to get a sense of how that's ramped up over time?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

It was not relevant. So -- we're up about 4 times. If we look at all of 2020 we are a $112 billion in volume. Year-to-date we're at $365 billion. So we'll be 4 times more this year than we were -- more than four times this year than we were last year.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got it. Okay, perfect. And then second question, can you just elaborate just a little bit more, I think, Joe, you mentioned that your non-interest bearing deposit growth was really driven by the adoption of the Signet platform. I know you have the Digital Banking team that pays some very small amount of interest on the deposits coming in. But can you just break that out or help us understand how much, like how do you delineate where you're paying interest on those crypto deposits versus where you're not paying interest on those, if that makes sense. Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we don't pay interest on the operating accounts. So I would say on average about 30% of the deposits are non-interest bearing in the Digital team, and about 70% of interest bearing. But that cost of funds to that team is about 5 basis points less than the cost of funds we have for all the other teams. So they've been driving the cost of digital deposits down.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. All right. That's helpful. And then just maybe last question if I can squeeze one in. Did you do any Bitcoin backed loans this quarter?

Joseph J. DePaolo -- President and Chief Executive Officer

See, we did one loan, not sure, I think $25 million.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Correct.

Joseph J. DePaolo -- President and Chief Executive Officer

And that's always done for the third quarter thus far for the year. We expect [Speech Overlap] one or two others.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Awesome. Okay, great. Thank you very much.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Thank you.

Operator

Our next question comes from Matthew Breese with Stephens Inc.

Matthew Breese -- Stephens Inc. -- Analyst

Hey, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Matthew.

Matthew Breese -- Stephens Inc. -- Analyst

Maybe turning to loan growth, this quarter's performance was well ahead of guidance, just curious what happened throughout the course of the quarter that you weren't expecting and maybe could you just recalibrate your expectations on loan growth going forward?

Joseph J. DePaolo -- President and Chief Executive Officer

In the Fund Banking Capital call group, they had a number of commitments that they made prior to the third quarter that we had drawdowns on. So that was one piece. Another piece is that, it was -- I'll call it the perfect storm. There were a lot of opportunities, both large and small for them to participate and do direct loans as well. So it wasn't -- it wasn't anything, any one thing that drove it. It's just something that we wouldn't recalibrate the fourth quarter based on the third quarter because so many good things happened.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

And the fourth quarter tends to be a bit choppier for us and harder to predict. We do tend to see clients pay down loans often in the quarter. So we're looking at $1.5 billion to $2 billion in loan growth guidance for the fourth quarter.

Matthew Breese -- Stephens Inc. -- Analyst

Great. Okay. And then, you know, now that the balance sheet is through $100 billion, should we expect any changes on the regulatory front or the stress test front, or you guys operate without a holding company. Does that exclude you from any of the Dodd-Frank Act stress test. Could you just maybe talk a little bit about that?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, most of those would come into play at the $250 billion mark and can be considered systemically important between $100 billion to $150 billion. I don't think we're doing anything that would render us to be systemically important. Our banking model is pretty straightforward and simple. So I highly doubt that the regulators would go there. The one thing that we'll have to do is submit a resolution plan. We've got some time to do that. So we feel very comfortable about our ability to do that. Again, we're pretty straightforward, simple banking model and structure. So it really shouldn't be difficult for us to put together a resolution plan.

Joseph J. DePaolo -- President and Chief Executive Officer

And that resolution plan will be expected, if we get notified, sooner than later would be expected in 2023. So as Eric said, we certainly have time.

Matthew Breese -- Stephens Inc. -- Analyst

Great. Okay. Last one from me is just, I was hoping you could talk a little bit about, there's obviously a ton of cash on the balance sheet, $29 billion. At what point do you think, we start to see an inflection? We can actually see cash balances start to turn and go lower. And could you maybe just talk a little bit about what you think the normalized cash position of the Bank is? A lot of the stablecoin issuers are mandating that certain, you know, the reserve deposit need to be in certain asset classes. Should we expect Signature as a participant in that, just needs to hold on to more cash than your average bank? That's all I had. Thanks.

Joseph J. DePaolo -- President and Chief Executive Officer

The difficulty in answering the first part of the question is, because of deposit flow, it's hard to determine what the deposit flows would be because we have all these businesses out there, both new and legacy that are continuing to draw in clients. Particularly if you think about the West Coast, they've been under a pandemic the whole time they've been here. So as they start to bring more of their deposits in, it's hard to deploy that quickly. So really depends on the deposits flows. But one of the good things that we have going on, on the asset side is that, we have two new verticals, we have the warehouse lending and we have the SBA lending. And we have another vertical that will be coming on board either this quarter or next, first quarter of 2022. So that deployment will help us. We expect that commercial real estate will start coming on, not like they did in the early part of their tenure here, but certainly in a positive way. So whatever cash we have, we're pretty confident that we can deploy it to levels that were much higher than they've been in the past.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Well, and we certainly have a securities environment that we can invest in today that's much improved from what it was for most of last quarter. So we'll be able to deploy there as well. A normalized cash balance is tough to predict, because again, we're growing the overall balance sheet. But, I'd say, we're probably in the $10 billion to $15 billion cash hold now. So, we've got a significant amount of cash that we need to deploy in the future and we'll be able to do so. We've seen -- it's hard to say, as Joe said, it's very hard to predict deposit growth for us because of the engine that we have in place to drive that future deposit growth.

We have been through a couple of rising rate environments now in our history. And although we've only had one quarter of negative deposit growth in all of our history, we did see that deposit growth moderate, right. So we do anticipate, as interest rates rise, we will see the growth moderates near impossible to think that we're going to grow at $10 billion a quarter in perpetuity. And when that happens, then that should signal a stronger economy and steeper yield curve, which will give us plenty of asset classes to deploy into. And that's where we really monetize these cash balances.

Joseph J. DePaolo -- President and Chief Executive Officer

Now something Eric said early on, with deployment is that, we have a very bright future for the fourth quarter. Eric had pointed out that we had $1 billion in investment securities that settled on the last day. So really that didn't contribute to net interest income. And that we had $1.4 billion in loans, settled a fund in the last 15 days of the quarter. The net interest income looks very bright for us in the fourth quarter.

Matthew Breese -- Stephens Inc. -- Analyst

Great. Thank you.

Operator

We'll take our next question from Ebrahim Poonawala with Bank of America.

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

Good morning. I guess maybe just a quick follow-up on that statement, Joe and Eric around the securities book. The 3 year to 5 year part of the curve is anywhere 30 basis points, 40 basis points above year -- part of the year. Just if you could size up, Eric, in terms of the incremental securities you could purchase during the quarter, is it $3 billion, is it $5 billion, would appreciate any color on that.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

It's somewhere in that range, it could be $3 billion, it could be as much as $5 billion. It's probably pushing it a little bit because we do have a lot of payoffs there. But we have to see how long the yield curve stays similarly situated as it is now, Ebrahim. So -- but if we have a 5-year and a 10 year position where it is now, we can deploy a fair amount of cash into the portfolio.

Joseph J. DePaolo -- President and Chief Executive Officer

It will definitely be a record growth in investment securities in the fourth quarter based on where we are today.

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

Understood. And just, on capital, so obviously you did the equity raise and you have a lot of risk weighted capital. When you look at Tier 1 leverage, you're essentially where you were in the second quarter. Just remind us again, how you're thinking about capital management potentially for another growth equity raise, means, it would be a good thing, but give us some context around how you're thinking about this.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

We're in good position today with the raise that we did early in last quarter. So we feel good about where our capital levels are. But, look, if we see an extended period of out-sized growth, we're not going to be shy about raising capital. And that's our answer and that's what's going to continue to be our answer.

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

Understood. And then just a quick follow-up, Eric, on the cash flow volumes, you mentioned, you were down quarter-over-quarter, how should we read into that? It feels like the backdrop obviously Bitcoin prices not totally correlated with that, I get it, but activity is increasing. I'm assuming you're adding clients, just talk to us in terms of if that's a metric we are looking at, how we should think about the sequential drop? And if you can give us an update on the Circle partnership where things stand, what's the outlook there?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Look, we're early on still in this eco-system. I don't think one quarter of volume decline is a trend by any means, we added near 100 clients in the quarter. So that's positive and we are up $5 billion in deposits or over $5 billion in deposits in the quarter. So, and that's the key driver for us. And as Joe pointed out, this is a lower cost deposit play for us than we have at the rest of the Bank, so on average. So...

Joseph J. DePaolo -- President and Chief Executive Officer

Just think [Speech Overlap]

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

We're in the early innings. And we've got ways to go yet.

Joseph J. DePaolo -- President and Chief Executive Officer

Just think of it that we're 4 times ahead of last year.

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

Okay. Understood. And any update, Joe, on the [Technical Issues] and like how that partnership is growing?

Joseph J. DePaolo -- President and Chief Executive Officer

We have a great relationship with Circle. We continue to do business, they opened up many operating accounts and now doing a tremendous amount of business on Signet with their operating accounts. So the partnership is going well and we continue to see it flourish.

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

Got it. Thank you. I'll requeue.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

We'll take our next question from Brock Vandervliet with UBS.

Brock Vandervliet -- UBS -- Analyst

Thanks. Good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Brock.

Brock Vandervliet -- UBS -- Analyst

Just going back to Ken's question, on the -- that 25 million securities lending relationship, you've been very thoughtful in how you've been approaching the market and building that business. That seems like you're going particularly slowly there. Is there a key regulatory, some regulatory clarity you're awaiting. And if so what is it?

Joseph J. DePaolo -- President and Chief Executive Officer

We just think it's best to go slowly. We wanted to test it out, which we did. It's not -- it's not going to be a vertical like others where we're going to depend on it for great deployment. We're going to do it for the best clients, we're going to underwrite the loans as we state the creditworthiness of the underlying borrower. We are not just going to take Bitcoin and accept it as collateral, which we will accept as collateral, but we also want to underwrite it at the borrower can actually pay back without worrying about the collateral. We're -- I just wouldn't depend on it being, if we do $100 million a quarter, let's say, that's not going to drive deployment to any great levels. It's just not something we're going to do for everyone. So you depend on it going forward.

Brock Vandervliet -- UBS -- Analyst

Okay. And shifting over to the digital deposits. How much are stablecoin and could you talk about specific regulatory changes there, that may be coming whether it means a Fed regulated bank or treating them as money market funds. And how do you think that may shake out?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, first we have stablecoin dollars deposits, we have $5.2 billion that are on reserve. And then we have also another $1 billion that are for stablecoin clients, but are not in the reserves, they're in the operating accounts. So it's strict interest-bearing reserves, it's $5.2 billion and the total digital deposits are 22.0 -- call it, $23 billion, $23 billion in total deposits in digital, of which stablecoin is $5.2 billion.

Brock Vandervliet -- UBS -- Analyst

And how do you see regulatory issues playing out there in terms of, is there a risk of a change in the template?

Joseph J. DePaolo -- President and Chief Executive Officer

From what we hear, what we understand is that they wanted in deposits on by FDIC-insured banks and/or in treasuries. So if they want to buy -- if they want to put it in treasuries, they could put in treasuries or in bank deposits, money market deposits. That's our discussions with the clients that we've had, that is stablecoin.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I mean, Brock, there's is a lot that has to be done in the U.S. as it relates to regulations around, you know, financial technology and we certainly appreciate that and understand that. We are already highly regulated and we ultimately expect that fintechs and all others will need regulation as well and we welcome that, all right. For us, or the DFS, New York DFS have been really strong supporters, and they have a team that's well-versed in crypto and they work really well with us and hopefully they'll continue to do that with others as well.

Joseph J. DePaolo -- President and Chief Executive Officer

And our stablecoin clients have actually welcomed in the regulation because, they are in a position that regulation will actually eliminate a number of competitors, or be even small, and eliminate some of the competition because they're ready and willing and able to move under new regulatory guidance.

Brock Vandervliet -- UBS -- Analyst

Got it, OK. I appreciate the color. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Casey Haire with Jefferies.

Casey Haire -- Jefferies & Co. -- Analyst

Yeah, thanks. Good morning guys.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning.

Casey Haire -- Jefferies & Co. -- Analyst

I wanted to follow up on the securities build, specifically the reinvestment rates, what's -- what was the rates that you got on that $1 billion at the end of the quarter? And then where is that today?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I mean, I'd say, it's probably in the low to mid 1s range, 1.5, 130 to 150, somewhere in there. Now I think we're over the 150 mark and what we're reinvesting in.

Casey Haire -- Jefferies & Co. -- Analyst

Okay. And is there any change, Eric in the composition, are you doing a mix of floaters and then regular pass through type securities. Just some color on what you're buying today.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I mean, we're still, it's the same type of securities that we've been buying for a long time, defensive buy from the agency CMOs, agency CMBS pools, callable agency debentures, we've got some opportunistic plays that we've done in regional bank sub debt and such. But it's more the same really.

Casey Haire -- Jefferies & Co. -- Analyst

Okay, understood. And from a capital management perspective, what -- as you move -- as you rotate from cash into these types of securities, what is the risk weighting for the risk weighted ratios?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I think it's 0% to 20%, right, I think it's in the 20% bucket, most of this.

Casey Haire -- Jefferies & Co. -- Analyst

Okay, very good. And then on the new loan vertical, any color you can provide in terms of what this can add to the loan growth guide per quarter, yields, expenses. Just trying to get a sense of what's coming either this quarter or next year?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, in the mortgage warehouse lending team, you know, they've got well over [Speech Overlap]

Casey Haire -- Jefferies & Co. -- Analyst

Actually Eric, I was talking about the other, the new -- the team that you're going to add, not mortgage warehouse or SBA.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

For SBA, a little early to say. I mean the -- we're probably looking at when they're fully ramped $1 billion to $2 billion per year in growth.

Casey Haire -- Jefferies & Co. -- Analyst

Okay. And a similar type yield as capital call or mortgage warehouse.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I'd say, similar hopefully a little higher, probably a little bit more spread in that business.

Casey Haire -- Jefferies & Co. -- Analyst

Okay. Very good. Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

We'll take our next question from Jared Shaw with Wells Fargo Securities.

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Hey, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Just circling back on Signet, what's the average transaction size done, has that been moving around or what does that sort of looking like this quarter versus what we've seen in the past?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

I don't have actual size transactions, sorry Jared.

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Or magnitude, is it getting bigger or smaller or just...

Joseph J. DePaolo -- President and Chief Executive Officer

They are larger than other banks that have because we do institutional only, very little retail. And the retail is high level, so in institutional levels, it's going to be pretty high.

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Okay. And then I guess, just shifting to the commercial real estate side, when you look at CRE and multi-family, the balances there have been stable for a while as you've grown capital and the market is stabilized a little bit. Any thoughts on potentially reengaging there and seeing growth or are you happy keeping balances stable here?

Joseph J. DePaolo -- President and Chief Executive Officer

We're ready for the reengagement. We want to keep the balance growing a little, all right. And then on an annual basis. We think it's a strong asset to have. We're still dealing with the multi-generational, multi year experience -- years of experience. And that has helped us through the pandemic, because in the pandemic, we've been able to deal with the jockey and that's what you have to bet on. And so, we -- right now, we're coming through the pandemic at very, very favorable way. And that has led us to believe that we should continue to grow the portfolio, albeit not what we did in the years past, but to grow it a level that we're comfortable with, to keep it in line percentage wise with the rest of the organization.

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Great. Thanks very much.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you.

Operator

We'll go next to Steven Alexopoulos with JP Morgan.

Steven Alexopoulos -- JP Morgan -- Analyst

Hey, good morning everyone.

Joseph J. DePaolo -- President and Chief Executive Officer

Hey, Steve.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Good morning, Steve.

Steven Alexopoulos -- JP Morgan -- Analyst

I wanted to start, so on the digital asset business, we've seen some smaller banks announce that they are either now providing an on-ramp too to the exchanges are holding stablecoin deposits. Are you guys seeing many new entrants into the space and how difficult would it be for one of them to replicate Signet?

Joseph J. DePaolo -- President and Chief Executive Officer

Well some of them are entering the space to use a Signet type product of eco-systems, not necessarily the digital ecosystem. Well let's put it this way, 3 years ago, I said banks should be on the blockchain. Well they would not survive within 5 years, so that's 2 years left to go. And we expect that there'll be banks coming on the blockchain or they're going to merge. And there have been a number of announcements of mergers and we think that's because they want to avoid dealing on with the blockchain technology on their own. So, are you talking about any particular bank?

Steven Alexopoulos -- JP Morgan -- Analyst

Well we've see Joe like Customers Bancorp said that they're now in the business small and there's been a couple of other small banks saying, they're now holding more deposits from stablecoin companies. We're just hearing rumblings. Just really wondering how proprietary is Signet and can these newer entrants use off-the-shelf fintechs to basically replicate what you guys offer today?

Joseph J. DePaolo -- President and Chief Executive Officer

Well, we were surprised that it took this long actually. We expected that it will have occurred sooner, particularly with Customers Bank, we're actually excited that they're on-board because we have a piece of ownership, a meaningful piece of ownership in Tassat. And we have a Board seat on Tassat. So we want them to do well. But I think with Customers, they're looking to do things without the eco-systems, because it's hard to get into the digital space if you don't have a team. Like we have a team that handles Signet, and we have a team that handles the digital clients, and we have a team that has 9 years of experience. And that bodes well for us and hard for others to do it because they don't have bankers that have experience in this space. With Signet, and with other products we're continuously making enhancements and we'll probably announce in the upcoming quarters, into the fourth or first quarter, announcements of some of the new things that we'll be doing. So we're not concerned at all because we were first out there and I think being first out there and having the -- coupled with having the experience goes a long way for us.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

And it's a massive growing ecosystem with room for others to play.

Steven Alexopoulos -- JP Morgan -- Analyst

Eric, to follow up on that, and in the earlier commentary that volume had slowed a bit on Signet in the third quarter. Is your growth at this stage more about simply adding more institutions to the platform or is it more about seeing those volumes accelerate so institutions hold more deposits with you like, what is the bigger driver here?

Joseph J. DePaolo -- President and Chief Executive Officer

I must say, I'm not sure the volumes drive it, it's really how much they keep in Signet. And the transactions are pretty large, although I don't have the averages. So we weren't concerned at all. We were actually looking at it compared to what we've done in the past years and we're on a four-fold rate right now.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay. That's helpful. And just one final one. Joe, I want to shift to credit. Just any color on the linked quarter increase in NPLs this quarter, $29 million. Thanks.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, we really fully expect that our non-accruals are going to increase as we're still dealing with the effect of pandemic, Steve, So it's not a surprise that our non-accruals went up a little bit. Most of the loans that are coming out of non-pay are curing. But clearly some are going to go to non-accrual. I think the bright spot if you want to call it that is really that charge-offs are well contained. And under the new CECL modeling, you're able to put up some pretty substantial provisions which appear to be able to easily absorb any losses that we have coming out of it. But it's no surprise to us that we saw our non-accruals climb. I think you're going to see that continue for several quarters as we work through the last lingering effects of COVID.

Steven Alexopoulos -- JP Morgan -- Analyst

Thanks for taking my questions.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Thank you, Steve.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Steve.

Operator

We'll take our next question from David Bishop with Seaport Research.

David J. Bishop -- Seaport Global Securities LLC -- Analyst

Yeah, good morning gentlemen.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Hi, David. Good morning.

David J. Bishop -- Seaport Global Securities LLC -- Analyst

[Indecipherable] questions have been asked and answered. But I think, Eric, you started touching up on it. But the -- remind us in terms of the new verticals, the mortgage warehouse and SBA, maybe what the expectations or targets for growth there? Yes, thanks.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, we did our first SBA, 504 origination in the fourth quarter. So early on in this quarter. That's going to be a much slower growth, more granular type loans, which we love. I think if we can do $10 million to $20 million in originations in the fourth quarter, that would be great. And then hopefully, next year it's $20 million to $30 million and then $30 million to $40 million, $40 million to $50 million. So you're looking when that business is mature several years out from now, that being a $200 million to $500 million, I am going to give you a fairly wide range there. Let's see how it goes. But $200 million to $500 million a year in growth.

In the mortgage warehouse finance business, they've got almost $2 billion, I want to say, now in the pipeline. We expect, let's say, anywhere from $200 million to maybe even as much as $800 million, but that would really be on the high end of lines to close and draws will be roughly 50% of that. So we could see a couple of 100 million dollars of growth out of that vertical in the fourth quarter. And that should be $1 billion to $2 billion in growth per year going forward.

David J. Bishop -- Seaport Global Securities LLC -- Analyst

Okay. Thank you.

Operator

We'll go next to Chris McGratty with KBW.

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

Great, good morning. I'm wondering, Eric, if you could provide an update on the expense run rate and the fee income trajectory given the momentum?

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah. On the expense front, we had some one-time items in the fourth quarter of last year, that led to a low level of expenses. So probably pop back up to a 14% or 16% growth in the fourth quarter this year compared to last year. And then for next year we're really, Christopher, I think it's going to be a higher growth expense number, similar to what we've seen in prior years, and we'll start out in that 14% to 16% range. Might stay there for a few quarters though. And then hopefully trend down when we get into the third and fourth quarters. We've brought on some massive business lines and undertaking a number of initiatives, and we need to invest in our people and our operations and in our technology. So we're going to still have a hefty level of spend next year for sure. All that being said, the revenue growth is there, and we should continue to see efficiencies be gained and see our efficiency ratio go down even with the level of expense that we're talking about putting on.

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

That's great. And then maybe just a couple of housekeeping. The remaining PPP fees and what was earned in the third quarter and then also that 28.5 tax rate, is that kind of where you're guiding us? Thanks.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, on the taxes, it's probably going to be closer to 28%. We are seeing some ongoing benefits. So I'd say effective rate of 28% going forward. In the third quarter on the PPP fees, we recognized $15.6 million and we've got $32.9 million remaining to be recognized, which should happen over the next 2 quarters to 3 quarters.

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

Thank you.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Thank you.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, Chris.

Operator

So we'll go next to David Long with Raymond James.

David J. Long -- Raymond James & Associates, Inc -- Analyst

Hey guys, good morning.

Joseph J. DePaolo -- President and Chief Executive Officer

Good morning, David.

David J. Long -- Raymond James & Associates, Inc -- Analyst

Yeah, just the West Coast, you guys have done some pretty good expansion there. And I know it's late in the year, but just curious what your pipeline is there to add additional bankers out on the West Coast, is that something that you guys would look to continue to build? And is that more likely to see that maybe in the first half of next year versus anything the rest of this year? Thanks.

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Yeah, I mean I think we're -- we might add a banker here and there to existing teams this year. But mostly at this point in the year, we're setting the stage for next year. We do have a number of teams in the pipeline for California. So anywhere, I'd say from 4 teams to 8 teams in the pipeline. So that's part of the growth guidance in the expenses as well.

David J. Long -- Raymond James & Associates, Inc -- Analyst

Got it, thanks. All my questions -- other questions have been answered.

Joseph J. DePaolo -- President and Chief Executive Officer

Thank you, David.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Joseph J. DePaolo -- President and Chief Executive Officer

Susan Turkell Lewis -- Media Contact

Eric R. Howell -- Senior Executive Vice President and Chief Operating Officer

Ken A. Zerbe -- Morgan Stanley -- Analyst

Matthew Breese -- Stephens Inc. -- Analyst

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

Brock Vandervliet -- UBS -- Analyst

Casey Haire -- Jefferies & Co. -- Analyst

Jared Shaw -- Wells Fargo Securities LLC -- Analyst

Steven Alexopoulos -- JP Morgan -- Analyst

David J. Bishop -- Seaport Global Securities LLC -- Analyst

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

David J. Long -- Raymond James & Associates, Inc -- Analyst

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