Apr 23, 2020
Operator
Welcome to Signature Bank's 2020 First Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph J.
DePaolo, President and Chief Executive Officer; and Eric R. Howell, Executive Vice President-Corporate and Business Development.
Today’s call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.
[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 DePaolo
Thank you, Marina. Good morning, and thank you for joining us today for the Signature Bank’s 2020 first quarter results conference call.
Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.
Susan Lewis
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.
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 DePaolo
Thank you, Susan. I will provide some overview into the quarterly results.
And then Eric Howell, our EVP of Corporate and Business Development will review the bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.
Let me begin by saying our hearts call out to our clients, colleagues, friends and their families during this tumultuous time in the world. We're proud of our colleague’s dedication to their clients, families and communities.
They persevered through these extraordinary circumstances and have come together during the COVID-19 pandemic where the personal stress level of many have reached monumental proportions to the life and death situations for the masses we will endure. There is no better test of an organization than such periods in history.
In the 90 years since we began operations we endured 9/11 just as to opening outdoors, during the financial crisis we not only survive, but rather thrive. And finally we overcame Superstorm Sandy.
Now we are facing the COVID-19 pandemic and despite the turmoil it is causing worldwide I am encouraged to navigate these uncharted waters with the same management team at my side since the bank’s founding. It’s incredibly important to stress the experience of our tested veteran management team.
We are evaluating and reacting to the complex environment and we know exactly what each of us will handle together not only how we've proven our abilities to navigate through difficult times, but we have continually demonstrated a successful execution on a single point of contact founding model throughout both good and tough times. We recognize this is the one -- this is the time we’ll need to shine for our clients to continue meeting their banking needs.
Our colleagues have been working round the clock to ensure our clients businesses which include many essential services are operating at full strength. We are also grateful our clients recognize the strength of our balance sheet.
As in this quarter alone, they deposited nearly $1.9 billion in new funds with us. Clients view Signature Bank as a safe haven for their funds because they know we value strong capital and liquidity as a way to guarantee their security.
All of our clients appreciate the fortitude and safety of our banking model as they have watched us flourish over the years. Our unwavering focus on organic growth and the hiring of veteran banking teams means even our newest colleagues offer expertise in their field which is complimentary to the strength of the Signature Bank management team that has always led this bank forward.
As with past crises, we want to assure you management remains dedicated to guiding the bank through these unsettling times. We'll focus on the soundness of our conservative risk management and capital allocation practices ensuring the safety of our 1,500 colleagues and their families and supporting our clients by meeting their needs.
The safety and health of all stakeholders remains paramount to our franchise as we navigate the times ahead. We know that Q1 earnings sounds like ancient history.
But they are important because although they are about to pass, they give hints into the bright future. So now let's take a look at earnings.
Pretax, pre-provision earnings for the 2020 first quarter was $218.5 million compared with $207.9 million for the 2019 first quarter. The increase was predominately driven by substantial asset growth of $4.5 billion offset by the investments we made in business initiatives including our West Coast expansion.
Net income for the 2020 first quarter was $99.6 million or $1.88 per diluted earnings per share compared with $143.5 million or $2.53 diluted earnings per share the last year. With the implementation of CECL the decrease in net income was driven by our first quarter provision for credit losses was $66.8 million which was wholly attributable to Covid-19.
Looking at deposits the core of our philosophy, deposits increased $1.9 billion to $42.2 billion this quarter while average deposits grew by $1.1 billion this was the second best quarter of deposit growth we ever reported. Moreover this is now the third quarter in a row of over $1 billion in deposits in both total and average deposit growth.
Since the end of the 2019 first quarter, deposits have increased $5.6 billion and average deposits increased $4.7 billion. Non-interest-bearing deposits of $13.4 billion do represent a high 32% of total deposits.
Deposit and loan growth coupled with earnings detention to increase of $4.5 billion or over 9% in total assets since the first quarter of last year. Now let's take a look at our lending businesses.
Loans during the 2020 first quarter increased $1.9 billion or 5% to $4 billion. In the prior 12 months, loans grew $3.5 billion.
The increase in loans this quarter was again driven primarily by new fund banking capital core facilities. This is the sixth consecutive quarter were C&I outpace CRE growth furthering the rapid translation of the balance sheet To include more floating rate assets and diversifying our credit portfolio.
Turning to credit quality, our portfolio continues to perform well. Non-accrual loans of $59 million or 14 basis points of total loans compared with $57.4 million or 15% basis points for the 2019 fourth quarter.
Our 30 to 89 past due loans increased to $118.6 million mostly due to processing and documentation delays given the COVID-19 circumstance. A 90 day plus past due loans remain at $4.1 million.
Net charge-offs for the 2020 first quarter were $1.7 million compared with $2.5 million for the 2019 fourth quarter. With the adoption of CECL, the provision for credit losses for 2020 the first quarter was $66.8 million compared with $9.8 million for the 2019 fourth quarter.
This brought the bank’s allowance for credit losses to 87 basis points of loans and the coverage ratio stands at a healthy 603%. As I mentioned earlier the increase in the provision was wholly attributable to COVID-19.
Looking at the effects of COVID-19 and thus far had a little over 5,100 clients with $5.6 billion in loans after some form of temporary short term payments deferral. We are happy to work with these clients who are clearly struggling to fight through the current crisis.
Most appear to recognize it's temporary and I’m not looking to give up their businesses and livelihoods at this point. Of course business goes on for an extended period of time this may change.
On the payroll protection program again we participated to help our clients and the community at large. We funded approximately $500 million in approved loan request, improved loan requests.
Now on to the team front, despite dealing with all the current turmoil, we continue to move forward. In the 2020 first quarter the bank hired new leadership in the West Coast and onboarded 12 private client banking team.
Five additional teams to bolster our presence in the San Francisco market and seven to spearhead the bank's efforts in the Greater Los Angeles marketplace where we plan to open up four new offices. And thus far in April already we've hired two additional teams for Los Angeles.
At this point I’ll turn the call over to Eric and he will review the quarter’s financial results in greater detail.
Eric Howell
Thank you, Joe and good morning, everyone. I'll start by reviewing net interest income and margin.
Net interest income for the first quarter reached $348 million up $29 million or 9% when compared with the 2019 first quarter, and an increase of $10 million from the 2019 fourth quarter. Net interest margin increased 4 basis points in the quarter versus the comparable period a year ago and increased 7 basis points on a linked quarter basis to 2.79% excluding prepayment penalty income, core net interest margin for the linked quarter increased 4 basis points to 2.71% and the increase was driven by a significant decrease in deposit costs.
Looking at our asset yields and funding costs for a moment, interest earning asset yields decreased 18 basis points from a year ago and 4 basis points from the linked quarter to 3.83%. The decrease in overall asset yields was driven by lower reinvestment rates in all of our asset classes as well as the re-pricing of floating rate loans due to the decline in interest rates that took place there in the quarter.
Yields on the securities portfolio decreased 13 basis points linked quarter 2.92% given a much lower market for reinvestment rates and higher CPR speeds. The duration of the portfolio decreased slightly to 2.5 years as a result of significantly lower market rates at quarter end.
And turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined 5 basis points to 4.13% compared with the 2019 fourth quarter. Excluding prepayment penalties from both quarters, yields decreased seven basis points.
Prepayment penalties for the 2020 first quarter were $9.2 million up $2.5 million compared to the 2019 fourth quarter as the dramatic decline in longer term rates led to a significant increase in CRE prepayment activity. Now looking at liabilities, our overall deposit cost this quarter decreased 10 basis points and 98 basis points due to the significant decrease in the Fed funds rate.
Average borrowings excluding subordinated debt decreased $273 million to $4.2 billion or 8.2% of our average balance sheet. The average borrowing cost decreased 9 basis points from the prior quarter to 2.49%.
And overall, the cost of funds for the linked quarter decreased 10 basis points to 1.16%. Looking at our liquidity position, we are on very strong footing.
We increased our cash position substantially to over $1 billion. In addition, we have ample borrowing capacity at the FHL Bay.
We also have additional borrowing capacity at the Fed discount window. We have free securities that provide significant liquidity.
And finally, we have unsecured overnight access to fed fund lines with the various counter-parties. So bottom line, we have more than ample liquidity to meet our clients' needs.
On to the non-interest income and expenses, non-interest income for the 2020 first quarter was $14.2 million, an increase of $300,000 when compared with the 2019 first quarter. This quarter we changed the method of accounting for our low income housing tax credits.
The related quarterly amortization of $9.1 million is now reported as income tax expense instead of non-interest income. This change is also reflected in prior periods.
Non-interest expense for the 2020 first quarter was $144 million versus $125.1 million for the same period a year ago. A $18.9 million or 15% increase was due to the significant hiring of private client banking teams in Los Angeles to launch our presence there as well as the five additional teams for San Francisco.
The bank's efficiency ratio was 39.7% for the 2020 first quarter versus 39% for the 2019 fourth quarter and 37.6% for the 2019 first quarter. In looking at our taxes there was a $7.8 million discrete item related to the difference between the vesting price and grant price of restricted shares that vested during the quarter.
Additionally as mentioned earlier, tax expense included $9.1 million in low income housing tax credit amortization expense. The effective tax rate excluding these items was 23.2%.
Turning to capital as a result of adopting CECL we recorded a onetime cumulative pre-tax adjustment of $45.8 million. Additionally there was a cumulative adjustment for the adoption of the proportional amortization method of accounting for a low income housing tax credits of $24.6 million.
In the first quarter of 2020 the bank paid a cash dividend of $0.56 per share. Additionally during the 2020 first quarter the bank repurchased approximately 393,000 shares of common stock for a total of $50 million.
During the quarter we temporarily stopped our repurchase activity given the COVID-19 circumstances and we have no plans to repurchase shares in the future until these circumstances change. This dividend and share buybacks had a minor effect on capital ratios which all remain well in excess of regulatory requirements and augment a relatively low risk profile and balance sheet as evidenced by a Tier 1 leverage ratio of 9.45% and total risk based ratio of 12.77% as of 2020 first quarter.
And now I’ll turn the call back to Joe. Thank you.
Joseph DePaolo
We are motivated by the initiatives we’ve recently put in place that we’ve got California expansion because the enormity of the current environment has to be outweighed by the importance of the future. The bank must forge ahead and continue a path of growth where opportunity is about as difficult as the current environment is.
This is when our high touch service model truly differentiates us in the marketplace. Furthermore we never lose sight of the fact that people want to know their money is safe in difficult times.
We look forward to continuing to be a trusted banking partner to our clients and helping them through this quagmire. Now we are happy to answer any questions you might have.
Maria, I'll turn it over to you.
Operator
Thank you. The floor is now open for questions.
[Operator Instructions] Our first question comes from the line of Dave Rochester of Compass Point.
Dave Rochester
Hey good morning guys nice quarter.
Joseph DePaolo
Hey Dave. Hey Dave.
Good morning.
Eric Howell
Hey. Good to see you.
Your number one in queue again, Dave.
Dave Rochester
It’s right. Thanks, guys.
Hey there was great news on the teams. It’s really nice add for you guys.
So I was just hoping to get some more color on those. Maybe how large the teams are from a book a business perspective and what they can do for you guys and then maybe just from an expense perspective.
We get to get the timing of joining and how they impact your outlook there.
Joseph DePaolo
Yeah. We're very excited about the teams that we've on board.
These are truly high quality experienced banking teams. Each one of them has books of business in the hundreds of millions and I’m excited about hiring Judy to lead our efforts out there.
She is a 30-plus year veteran out of Bank of Alaska and she has already made huge impact on our San Francisco business and certainly in LA we anticipate opening up those four offices, so it’s, it’s clearly an area that we expect significant opportunities from. On the expense front related to that we’ve said we’ve been a 15% expense range going down to about 10% to 12% by year and that we continue to hold for that.
So we're right, right out at that 15% number this quarter, we’ll probably be at a similar 14% or 15% growth for the second quarter. I think you'll see that trend down linearly down to 13%, then 12%, then 11% and 10% although obviously you’ll see opportunities in the marketplace.
We're not shy, we'll look to bring more people and act on those opportunities so we'll be happy to announce at any point that we may have to do that expense guidance up again. But for now we anticipate that will trend down over the course of the year.
Dave Rochester
That’s, that’s great hear. Any systems build out are any tech investment you have to make for any of these guys or can they pretty much hit the ground running?
Joseph DePaolo
No, they pretty much can hit the ground running and we don't really see any meaningful tax spend there. Obviously we'll have the expense associated with opening the locations, but we're going to move a little bit more of a branch like strategy in the Los Angeles marketplace as we really bring the banking services to our clients, though there's not much need to build out a traditional bank infrastructure there so that should help keep the expenses mitigated somewhat.
Dave Rochester
Yeah. Great.
And maybe just switching to credit real quick if you can just talk about what you're seeing in terms of loan for all activity modifications And then maybe if you can just give some color on how your retail CRE customers are doing through the lockdown and how cash flow are trending there with multi-family book. And I know you have some really well LTV use in that part of the business.
Maybe just talk about those as well that’ll be great.
Eric Howell
Well. We’ll talk a little bit about the payment deferral.
We have about 14% of the portfolio have asked for deferrals, that's about a $5.6 billion with a 14%. In particular if you look at CRE its $4.1 billion or 15%.
The highest percentage which is expected is the Signature Financial which is at 25%. As it relates to CRE, what we’re hearing, I’ll let Eric talk about the retail.
I’ll talk about the multifamily. What we’re hearing on the multifamily side is that market rentals are about 80%, they're collecting, rent 80% of market rental.
And then on rent security – I’m sorry stabilized to about 50% of the rent being collected. Very few transactions are occurring in the marketplace.
We were not doing any new business with prospects, because we're not really taking on any new clients. We're only doing business with existing clients.
And I think the most important thing to understand as it relates to the payment deferrals is that we're doing them for three months either, April, May and June or May, June and July. We’re differing principal and or interest and we’re also adding it onto the back end.
We’ll go from three months to six months if we need to. It really depends upon how long the current circumstances exist.
I know the governor has extended it through the 15th of May should it go beyond that, and we’ll have to look at extending. Eric has gives a little detail on the retail product?
Joseph DePaolo
Yeah. On the retail front, we've got about $1.35 billion of our $5.5 billion on our portfolio to 24% that’s asked for deferral there.
Over a third of that is in our neighborhood retail clients. That's an asset class that we've talked about for years now that we really like a lot.
It held up incredibly well through the great recession. Unfortunately, this is just a rare set of circumstances that is significantly impacting that the dry cleaners, the hair salons, the barbers, the pizza places, everything has been affected by this in this environment.
But at a 50% - 56% LTV and a 1.62 debt service coverage, we're not overly concerned with it at this point. Our clients generally are working with us.
They recognize that this to be a temporary situation. They are not looking to hand over the building and give up their 30% to 50% equity in the properties.
They recognize that they're going to need that when this temporary situation is over. So ultimately they are happy with deferrals that we've given.
And as Joe said, we'll have to see what happens in the future if this is two to three months more, we should be filing for beyond six months. That's where it's going to get a bit more difficult for us.
Eric Howell
However on the multifamily, the LTV is 61%. The debt service coverage is 1.38.
Dave Rochester
Okay, great. And then on the retail service centers, those are located in high density areas, right and primarily in Long Island.
Eric Howell
Yes, it was outer boroughs, right.
Dave Rochester
Yeah.
Eric Howell
So, Queens, Brooklyn, Bronx, Long Island and Westchester.
Dave Rochester
Yeah. Got it.
Great. Appreciate all the color guys.
Maybe just one last one real quick on the NIM. Can you just talk about what you guys are expecting for 2Q given the full quarter impact of the rate cuts.
And I know you've been moving deposit costs down fairly aggressively in the last couple of months. So if you have any updates around what the deposits, the cost of deposits is, maybe in March or April that would be great.
Eric Howell
Yeah, I’ll let Joe touch on the deposit side of the equation and I can hit on the rest.
Joseph DePaolo
The average deposit costs for the first quarter was 98 basis points. Included in that was the month of March which averaged 80 basis points and in the month of April so far we're averaging 60 basis points.
So the last two cuts in March are really starting to felt in April. So it bodes well for us going following that we’re dropping the costs and we still have tremendous opportunity to continue to do so on the liability side.
Eric Howell
Right, looking at the overall margin really we have a flat to upward bias. I'd say a little bit more strongly that we'd have an upward bias if it were not for significant deposit close that we've seen thus far in this quarter.
Today we're up over $2 billion in both average and in deposits for the second quarter. So we're seeing tremendous flows there.
So we're sitting on a bit more cash than we normally would. Other than that we'd have more conviction around our margin being up.
But we still anticipate it will, as much as we would have thought. So on the asset side we've really seen credit spreads widen in all of our asset classes, so that's been very beneficial to us as we're seeing the runoff being replaced by lower asset yields but not nearly as well as we might have anticipated a month or two ago.
Dave Rochester
Yeah.
Joseph DePaolo
And really we put floors in our fund banking area. We now have LIBOR floor at 1% and we're seeing spreads at and we’re seeing spreads of 200 basis points to 275 basis points over LIBOR.
So that being our biggest area of growth, that’s been very helpful to the margin outlook for us.
Dave Rochester
That's great. Appreciate all the color guys, thanks.
Joseph DePaolo
Thank you.
Operator
Our next question comes from the line of Ken Zerbe of Morgan Stanley.
Ken Zerbe
Great thanks. I guess maybe starting off in terms of the loan can you just talk about how much of that growth was actually driven by the funds banking business versus all the other categories.
Thanks.
Joseph DePaolo
Yeah, we really had solid growth in C&I fronts across the board. So $1.4 billion of it was driven by the fund banking division but then in a traditional C&I was up $157 million.
We had nice performance out of our asset base lending group which was up $77 million. Venture capital was up $88 million and specialty finance was up $42 million.
This tends to be their weakest quarter coming off the fourth quarter which is their strongest. So that was in this period.
But we saw across the board increases in all of our C&I areas which is great to see, the continuance of that diversification strategy that we put in place a couple of years ago.
Ken Zerbe
All right. That's great.
And then just in terms of the deposit growth, I mean obviously incredibly strong deposits growth last quarter and if I heard the $2 billion right this quarter. Two questions round this, so one just what's driving this level of growth.
Like what's changed or is this just fear in the market. And then also when you think about the rest of the year, is this a level or at least sort of an elevated pace that could continue in the back half of the year and into 2021?
Joseph DePaolo
Now, let me start off by saying that I'd be very disappointed if we weren’t at the exceeding the high end of our average growth of $3 billion to $5 billion. It's that – it's that confidence that we are because it's a combination of things.
One the new initiatives that we started in the last two years they’re all contributing and they're contributing in a fashion that we expected to grow even more, the growth percentage to grow even more. Then we have the teams coming in from California now we have our existing teams that are still performing at a double digit increase and we're also seeing new deposits coming in from clients that can't find their banker.
And we had a single point of contact customer or client centric model that is really allowing us to show new prospects that they could find us and we can find them. So even that it's across, it’s across the board we know of some prospects that are turning into clients that are going to be thousands of hundreds of millions in the coming quarters.
So it's just the initiatives that are coming to fruition along with the continuing track record couple that with the current environment and it's, it's like a perfect storm that can go on for several years.
Ken Zerbe
All right. Perfect.
That's great. I’m sorry you’ve got.
Joseph DePaolo
No, I was going to say the numbers that we gave, we really normally wouldn't, we stop giving numbers in the quarter or the beginning of quarters because we have choppiness in our deposits but as the choppiness of our deposit of $300 million going out we have two deposits coming in at $500 million. So we're fairly confident in the growth that's going to occur in the institution,
Ken Zerbe
All right. Perfect.
Joseph DePaolo
That actually may, that actually may slow down the growth momentum to positive because of all the cash we’ll have. We’ll have these core deposits to not happen.
Eric Howell
We’ll take the trade-off every time.
Ken Zerbe
Sounds good. All right.
Thank you very much.
Operator
Our next question comes from the line of Ebrahim Poonawala of Bank of America Securities.
Ebrahim Poonawala
So, I guess just wanted to follow up on the name and also obviously seems like very positive outlook on balance sheet growth both on loans and deposits. When you talk about upward bias Eric in terms of the margin.
I get that stronger deposit growth could have an impact. But outside of that like if the rate environment remains here, just talk to us number the trajectory of the margin as we look out into the back half of the year and beyond.
Has it become relatively stable? Do you still see some downward pressure be it like looking out into the back half into next year?
Joseph DePaolo
If we look at the back half of this year, it’s relatively stable. And then if we look at to the following year, should the yield curve stay similarly shaped, we’ll start to see the margin decline at a pretty slow pace a basis point or few basis points a quarter.
But that's given that the shape of the curve space where it is. So eventually the assets will catch up through a liability decline, but it's going to take some time because like I said, we have seen credit spreads widen and we were picking up securities now.
And you know the 4 to 4.5 range which was just unheard of a month ago. So, that’s going to help us to really stem the tide of the decline on the asset side.
Ebrahim Poonawala
Got it. And I guess just moving back to I think Dave asked about the CRE book.
I feel like that’s the biggest drag on the stock right now. And you provided good color around that.
But just talk to us in terms of the underlying borrowers, your comfort level around them being able to sort of come through this. I mean assuming like we open up in the next three to six months.
Just talk if you can give some comfort around the confidence around the retail landlords, the borrowers. Your relationship with them in terms of the visibility that you have that unless like one year lockdown, these things should not be big credit issues for Signature because I feel like that’s for now is sort of underpinning why the stock is trading where it is?
Joseph DePaolo
Well on the multi-family side and even on the rest of commercial real estate we have some very large clients that are multigenerational that had been around decades have the wherewithal in terms of cash and actually are waiting on the sidelines for those who were not identified that way because they believe there will be an opportunity to buy. They're not ones to give up and say here are the keys that many of those large families we were talking to are commercial real estate bankers saying just the opposite of what many are doing in payment to firms they haven't asked for payment to firm because they have the wherewithal that that's our client and they're the ones that are giving us the confidence at least if this endemic is ended sometime during the summer.
Then if you go into the second half of the year, you’re going to see opportunities to buy and it's going to be our clients that are doing the buying not the selling. That's kind of the background of the type of Signature commercial real estate client.
We're not on – they’re not on the – they’re not really on to stay with you – they’re in the smaller blocks and is not going to be an issue to them to buy at discounts. They’re just waiting on the sideline.
Ebrahim Poonawala
Got it. And I think it does.
And I think it’s just a matter of time in terms time, it’s been unprecedented what’s happened in things in terms of having to play this out. And just one last one.
Joseph DePaolo
Let’s put this way -- let’s put it this way. We have clients on the Grand Concourse in the Bronx.
Some of those stores had to close. It’s temporary, whereas retail stores to go back up – come back up.
On Fordham Road in the Bronx I’m using the Bronx because I’m from the Bronx. But on Fordham Road those stores that are closed they are going to come back.
People going to shop, people -- there maybe few people Fordham Road today but there's going to be a lot more when we come back. They’re in areas like Eric said earlier, the Pizzeria, the nail salon, the barber all that are closed today are going to be open, whether they open them or somebody else comes to open them.
Those where you see vacancies so we view this as temporary and we feel like those that will not survive are clients of others not ours for the most part.
Ebrahim Poonawala
Got it. And just Eric within Signature Financial, anything within that portfolio that feels like at higher risk because of the lockdowns or any area that might be overly susceptible hospitality, leisure, travel related.
Eric Howell
Yeah. It's the areas that we've discussed in the past that you would anticipate being affected by this transportation and trucking and franchises, construction and manufacturing.
And those are the primary categories. In the trucking space, I’m talking about the charter buses, the school buses things that are obviously impaired.
Now franchises were mostly in the fast food. So those have been obviously impaired if they don't have a drive through window certainly.
So again there – as the same with the properties, we're lending on revenue producing equipment, revenue producing collateral. And our clients really see those as being temporary in nature.
They're not about to give us back the property or the collateral and equipment that they need to run their business. They want to get back to work, they want to drive that truck, they want to open up their franchises and they’re not giving up.
I think broadly, very broadly everyone sees this as a temporary situation. Everyone's looking to muscle through it and we are there to do that with them and help them through this environment.
So we have not yet had anyone give us back the keys to their truck or say, “hey, take my property back.” We're just not seeing that at all.
We expected to have seen a little bit of variety and we’re just not. So, we’re not overly concerned right now because of the well collateralized nature of our lending.
I think that's very, very important for us to point out that for the vast majority of our loans, we have a piece of collateral. We're not lending on air balls.
Eric Howell
I have seen some franchise stores have drive-throughs had 40 cars in them. People are not going to start eating Dairy Queen, McDonald's and then we use the word temporary to temporary situation.
For those that have drive throughs they have a line of 40 cars is showing that people are really looking forward to going back to the places that gave them comfort food.
Joseph DePaolo
And then the areas that everyone's talking about that are very high at risk the hotels, hospitality, travel, oil and gas. Our exposure to those asset classes are de minimis
Ebrahim Poonawala
Got it. Thanks for taking all my questions.
Thank you.
Joseph DePaolo
Thanks.
Operator
Our next question comes from the line of Casey Haire of Jefferies.
Casey Haire
Yeah. Hi.
I sort of follow up on the rent controlled multifamily the 50% rent roll. How.
How is that trending? Is that stabilized to 50%?
Is it still building or is it down from a peak. And then what is that a provision reserve bill assume one that normalizes lower because I can imagine this provision here captures that kind of captures, captures that kind of that fall in rent.
Joseph DePaolo
It's hard to say Casey. Right now, we thought it's stabilized but then who knows if everyone's going to go on a rent strike.
If rents stabilized, they said they were going to do that May 1. We don't believe that most people want to do that.
So it's hard to say if it's going to move up or down any further. I will say this we had a number of owners tell us that if they're in Section 8, they're collecting about 80% of the rents.
And what some of them are doing where they're collecting the 80% they're working with the retail stores because they – the 80% covers what they need on the multi-family side. But the 50% is again we're not, we're not concerned about it because we believe that it's a temporary situation that will come back once the blue collar worker that we're talking about gets his job or her job back.
The is not going to cover it.
Eric Howell
And again it’s 60% LTV, once 140, debt service coverage and I think the key to all this really is the fact that we’ve talked about this for a decade now. We lend to the jockey not to the horse right.
We deal with multigenerational, multi-property owning families that have been through environments, troubling environments before that see this and recognize us as a temporary environment so. We just don't see a number of losses really or any loss meaningfully coming out of this.
Casey Haire
Okay. Understood.
Another follow-up on the margin. Just wondering the deposit trends obviously are favorable for you.
Are you guys going to continue to pay-down borrowings, is that part of the upward NIM bias and then the securities is that part of the upward NIM bias and then the security spoke with, with the yields at 4.5% is that should we expect that to grow going forward?
Joseph DePaolo
Yeah. Well 4.5% is at the top in those yields and we were getting anywhere from 3%, 3% to 4.5% on securities, but yes we will, we will certainly look to invest and grow in that portfolio.
We've been wanting that for quite some time but haven’t had the environment to doing and on the borrowings yeah absolutely we anticipate in paying the borrowings we have about $450 million in borrowings coming due over the next three months that we’ll be looking to pay down at some pretty high prices, some of which are north of 3%. So that, that will definitely be beneficial to the margin.
Casey Haire
Okay. The borrowings was, it was $250 million or so in the quarter where might that settle in going forward?
Joseph DePaolo
I'm not sure Casey, but certainly I’d expect to get 10, another 10 basis points if not more over that again lowering…
Casey Haire
Okay. Great.
Just last one for me, I got the, the tax rate, it sounds like there was a discrete item and obviously an accounting change on the fee side, where do we settle all in going forward?
Joseph DePaolo
I think to be conservative we stick with the 25% effective tax rate.
Casey Haire
Great. Thank you.
Joseph DePaolo
Thank you, Casey.
Operator
Our next question comes from the line of Steven Alexopoulos of JPMorgan.
Steven Alexopoulos
To start just a follow up on Signature Financial, what was the balance of Signature Financial at the end of the quarter, maybe Eric can you quantify, I know you called out a couple of exposures, can you quantify those COVID exposed, exposures?
Joseph DePaolo
Yes. So, Signature Financial was $4.6 billion at the end of the quarter.
We've got $1.2 billion, a little bit less than $1.2 billion or 25% that's asked for deferral, transportation which includes trucking, charter bus, school buses that a bunch of different things that go on there that was $424 million of the amount of relief. And then franchise was another $300 million.
So those were two biggest buckets and that's probably what we anticipated we'd say.
Steven Alexopoulos
And what were the balances of the transportation and franchise.
Joseph DePaolo
Transportation was $1.1 billion -- $1.15 billion so about 37% of the transportation is asked for relief and franchise was $455 million so about 70% of the franchise. That clearly percentage wise in the area that's been harvested.
Steven Alexopoulos
Okay. That's helpful.
And then on loan growth we're seeing quite a bit of disruption in PE as well as VC firms. Do you guys expect the slowdown in capital Paul lending volumes in 2Q?
Joseph DePaolo
Not based on the pipeline that we see going right now. We don't see a slowdown in at all.
Steven Alexopoulos
Okay great. And then finally if we look at the West Coast team hires were these all deposit teams.
And why so many this quarter? Did they come as a group from one bank?
Thanks.
Joseph DePaolo
Well, we – right. I mean they're predominantly traditional C&I and deposit teams fairly equal amount a little bit more deposits of loans overall but each team has its own mix of that.
We were able to hire someone out of Bank of the West, Judy. I had mentioned earlier to lead and spearhead our initiative there upon her joining, joining us there were many people at that institution that reached out to her looking to find a new home.
So that's where seven of the new teams came from. And then we have four they come out of the chaise and one actually came out.
Now we’re – additionally we’ve hired from Citibank, BMA and Heritage Bank, so there’s been a few other institutions where we've hired people from.
Steven Alexopoulos
Okay. And maybe if I could squeeze in.
Were their contribution Okay and maybe if I could squeeze one in, were the contribution of deposits from the Cana Woods team material in the quarter? Thanks.
Joseph DePaolo
They approached the $100 million in deposits and they have some significant opportunities to anticipate landing relatively so…..
Steven Alexopoulos
Sure. Thanks for taking my question.
Operator
Our next question comes from the line of Jared Shaw of Wells Fargo Securities.
Jared Shaw
When you, when you look at the West Coast do you feel that, that's sort of built out where you wanted to be now or should we expect that there's additional opportunities as we go through the year there?
Joseph DePaolo
Well as we go through the next several years I'd like to see the West Coast take over the East Coast.
Jared Shaw
Okay.
Joseph DePaolo
We want, we want to take that opportunity to grow our business and in order to be a $100 billion business we have to continue to grow in New York, but we have to go in Los Angeles and San Francisco, the mother cities in California. So we have, we have ambitious ideas.
Jared Shaw
And when you, when you look at the teams that you brought and you said they're traditional CNI lenders, any specialty, any, any industry focus or is it really just sort of the standard Signature model of going after the, the influencers, the economic influencers.
Joseph DePaolo
Yeah. That's right.
Eric Howell
I would say, I would say standard, standard business held by above, way above standard bankers.
Jared Shaw
Okay. That's great.
And then on the capital call lines have you seen any increase in the duration of the capital call lines or are you seeing the GP users to maybe defer LP calls or is it just growth is coming from good investment opportunities and market share gain?
Joseph DePaolo
Yeah it's, it's, it's growth in market share gain far, far and away, they still bring on their clientele and new business. And we look We looked at this closely because we've seen others say that there it’s in the drawing of the lines but not here.
Jared Shaw
Okay. And then could you just give us an update on the balances of the multifamily and CRE balances at the end of the quarter.
And then what multifamily originations were in and what the current pricing is on that?
Joseph DePaolo
Yeah. Balances and in multifamily were $14.88 billion and commercial property, other forms of CRE were $10.53 billion.
And the constructional land was $1.2 billion.
Eric Howell
The multifamily five year fixed is $3.75 billion and with some really good deals So essentially the high threes.
Joseph DePaolo
And pushing higher…
Jared Shaw
Okay. And what did the utilization rates look like at the capital call lines, sorry to just starting to go back on that.
Joseph DePaolo
So there’s 65%, they’ve been 65% for several years now, hasn't changed at all. So remember in the capital core business, we're dealing with very, very well-established fund companies that are dealing with the best LPs out there.
So they're not going to panic and draw down lines. They’re not going to look to call from the LPs either.
I mean this the environment right where they’re looking for opportunities, right? And we think in a quarter to two quarters from now that’s when you'll see them draw on their lines in order to seize on those opportunities.
So right now it's pretty steady, but we do anticipate in a quarter or two as they see opportunities unfold in the marketplace. But that's when they’ll draw.
Eric Howell
In fact since the end of March all the way through currently in April, we're actually – utilization is actually down in the entire portfolio.
Jared Shaw
Okay. Great.
Thanks very much, guys.
Joseph DePaolo
Thank you.
Operator
Our next question comes from the line of Matthew Breese of Stephens Inc.
Matthew Breese
Just curious, on the New York City rent rolls, you mentioned 80% collection from market rate, 50% for rent stabilized. Could you give us the breakdown between your exposure to market rate and rent stabilized?
Joseph DePaolo
Yeah, it's right around 50/50.
Matthew Breese
Okay. And then fee income this quarter was pretty strong even outside the accounting change.
Can you just talk about the drivers there and prospects for future growth, I'd imagine Capital call lines in Kanno-Woods are helping but I'd like to hear your thoughts. And then as we look further out once these businesses get fully ramped up what proportion of revenues do you envision fees making up.
Joseph DePaolo
Well, I mean at 5% they are not much right and we've got a lot of work to do on that front and that's certainly going to be some of our focus over the course of this year and next year. Fund banking definitely with the unrealized fees that they obtain that's helping to move the needle.
Certainly specialized mortgage servicing in that group we absolutely think that they will be able to beat that line item as well. Foreign exchange is an area that we’re putting a significant emphasis on.
And we hope throughout the course of this year we'll start to really see the revenues move there. And then we've got credit cards which is something that we really don't make anything from.
I think we've made under $100,000 and fee income from credit cards last year that should be many, many millions of dollars. So that's going to be an emphasis for us in the later part of this year and through next year.
In DC, our Venture Banking group will be a pretty large contributor of fee income as well both in Fx and credit card. So we need to get those products up and running for them as well as many of our other existing teams.
So there's a lot of work to be done. We love to move that 5% to 10% but it is, turning the ship in the ocean, an aircraft carrier.
So It’s going to take some time. But we're pleased with the progress we've seen thus far, but there is a lot of work left at there.
Eric Howell
Yeah. We will be depending upon the new teams, the new initiatives because additional teams that we've had all along.
There is very little fee income being collected because they do a great job of having their clients keep suspicion to map sufficient amount of DDA and hence our DDA is 32% of total deposits. If we can have clients continue to keep that at that level, we waive the fees.
So that's why we are depending upon these other initiatives to drive that 5% that Eric said to 10%.
Matthew Breese
Understood. Okay.
Last one for me, just the deposit growth this quarter. How much of that was driven by revolver drawdown only to be redeposited.
Was there any of that going on?
Joseph DePaolo
A de minimus amount. The only area that we saw a little bit about in was in our bench or banking group.
But given that they’ve just started really it wasn’t a meaningful amount.
Matthew Breese
Great. Okay.
That's all I had. Appreciated taking my questions.
Thank you.
Joseph DePaolo
Thank you, Matt.
Operator
And thank you, ladies and gentlemen. This concludes our allotted time and today’s teleconference.
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