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spk15: Welcome to the Signature Bank's 2022 First Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DiPaolo, President and Chief Executive Officer, Eric R. Howell, Senior Executive, Vice President and Chief Operating Officer, and Stephen Marimsky, Senior Vice President and Chief Financial 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 open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the floor over to Joseph J. DiPaolo, President and Chief Executive Officer. You may begin.
spk08: Thank you, Ashley. Good morning and thank you for joining us today for the Signature Bank 2022 First Quarter Results Conference Call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.
spk00: 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 a result of the 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 banks speak only as of the date on which they were made. Now, I'd like to turn the call back to Joe.
spk08: Thank you, Susan. Before discussing this quarter's results, we are making a few changes to our earnings call. Along with our earnings release, you will find a presentation deck has been posted to the investor section of our website. I would also like to introduce Steve Waramsky, our Chief Financial Officer. Welcome, Steve. As always, I am joined here today by Eric Howell, our Chief Operating Officer. Good morning, Eric. Good morning, Jeff. Together, the three of us will provide an overview of the quarterly results. We will address your questions at the end of our remarks. Signature Bank continues to prove its earnings power, driving both profitability and efficiency at a rapid pace, while expanding the balance sheet and maintaining a robust risk management discipline. This is exhibited by strong profitability and growth metrics achieved across the board.
spk07: Let me take a step back one moment.
spk08: The quarter played out as we anticipated. Interest rates rose, and as a result, our deposit growth normalized but still remained strong. We deployed some of the excess cash into high-yielding assets and monetized our balance sheet, reducing excess cash for the first time in two years. For the quarter, net income increased 78% year-over-year to $338.5 million, and diluted earnings per share increased $2.06, or $0.64, to $5.30. The significant earnings expansion this quarter is in large part driven by the deployment of our cash into securities and loans, which drove revenues up 38% year-over-year. While we are actively spending to support our growing businesses, our revenue growth far outpaced expense growth. This resulted in operating leverage, where our efficiency ratio further improved to a low point, and our ROE expanded to a high 17.4%. Now, adjusting for these one-time tax items, ROE would still have been a high 15.2%. Not bad for a growth company. Moving on to the balance sheet, growth remains strong on all fronts. Total assets grew by $3.4 billion. We grew our securities portfolio by a record $4.1 billion, and our patient and prudent deployment is proven to be advantageous as we are now more active in a higher rate environment. We continue to see opportunities to grow across all lending verticals, and total loans expanded by $1.5 billion. Total asset goals of $3.4 billion means, as I just stated, we were able to reduce cash balances for the first time in two years. Now let's take a closer look at deposits, the core of our philosophy. Deposits increased $3 billion or 2.8% to $109 billion this quarter, while average deposits grew by $5.3 billion. Since the end of 2021, First quarter, deposits increased a remarkable $35.2 billion, or 47.6%, and average deposits increased nearly $37.1 billion. Of the $3 billion in growth of total deposits, non-interest-bearing deposits grew $2.4 billion to $46.7 billion, which represents a high 42.8% of total deposits, which will be extremely valuable in a rising rate environment. Let me repeat, 2.4 billion of the 3 billion total growth was in non-interest bearing. The quarter's growth was across the board with all of our businesses positively contributing. Essentially, we are seeing the power of diversification. Over the last two years, we have expanded to new geographies and industries. As a result, we have created a very stable franchise that is not reliant on any one business line for deposit growth, which was one of the vital goals of our transformation. On the digital front, we are seeing tremendous positive momentum. The business continues to grow as evidenced by the onboarding of a record 160 new clients. Also, we doubled the amount of major exchanges to eight out of the top 12. where we are now the primary bank, which should bode well for future growth. All of these exchanges are integrating onto Cignet in part due to our latest enhancement. This new feature allows for our clients to execute automated FedWires from within Cignet in addition to blockchain-based payments, creating efficiency for our client and streamlining their payments process. As one of the leading banks in this space, we listened to our clients and developed Signet into an all-in-one payment solution. Now I'd like to turn the call over to Eric.
spk18: Thank you, Joan. Good morning, everyone. I'd like to turn our attention to our lending businesses. We had success on several fronts, leading the growth in total loans of $1.5 billion, or 2.4%, to $66.4 billion. and core loan growth of $1.9 billion. For the prior 12 months, total loans grew $15.5 billion, or 30.3%. The largest driver of growth continues to be the fund banking division, which grew loans by $1.3 billion. Similar to deposits, the power of diversification is taking hold with our lending verticals, with numerous teams contributing to our growth this quarter. Corporate Mortgage Finance had a solid quarter with $160 million in growth, and already this quarter, they have grown over $300 million. Additionally, we saw $109 million out of Signature Financial, which is great to see, as the first quarter tends to be slower business for them. And our Venture Banking Group had a record quarter of $88 million in growth, and our West Coast CNI ABL Group and SBA Originations Platform all positively contributed to growth. Furthermore, commercial real estate grew by 157 million as we turned our attention back to growth in this space. The growth was all in multifamily CRE, which increased 300 million, so a very solid quarter in multifamily, but partially offset by a decline of 142 million in other CREs. Despite the strong growth this quarter, our concentration levels further declined below 300% and is now at 299%, which was a goal we finally reached, and we have now put the topic of CRE concentration behind us. In turning to credit quality, our portfolio continues to perform well. Non-accrual loans decreased $41 million to $178 million, or 27 basis points of total loans compared with 218 million or 34 basis points for the 2021 fourth quarter. Our past due loans remained within their normal range with 30 to 89 day past due loans at 100.6 million or 15 basis points of total loans and our 90 day plus past due loans remained very low at 10.8 million or just two basis points. Net charge-offs for the 2022 first quarter declined to 17.8 million or 11 basis points of average loans compared with 33.7 million or 22 basis points for the 2021 fourth quarter. The provision for credit losses for the 2022 first quarter was lower at 2.7 million compared with 6.9 million for the 2021 fourth quarter. This brought the bank's allowance for credit losses to 69 basis points, and the average ratio stands at a healthy 259. I'm sorry, the coverage ratio stands at a healthy 259%. I'd like to point out that excluding very well-secured fund banking capital call facilities and government-guaranteed PPP loans, the allowance for credit loss ratio would be much higher at 119 basis points. and now onto the expanding team front where we continue to realize success. We started onboarding teams early in the second quarter after bonuses were paid. Thus far, the bank onboarded six private client banking teams, including one in New York. On the West Coast, we further expanded our footprint to include Sacramento and the Central California region, adding three teams. Additionally, two teams are added to Reno, Nevada, marking our entry into this business-friendly state. Our overall West Coast presence now consists of 32 teams, 16 in Los Angeles, 9 in San Francisco, 5 in Central California, and 2 in Reno, as well as representation from all our national businesses. We're excited to see the significant level of opportunity to actively grow with teams on both coasts. In New York, we now have 96 teams serving the marketplace, and we are seeing renewed opportunities with numerous teams in the pipeline. Additionally, we will soon be announcing a new C&I lending vertical, as a few members of the team have already joined us, with the rest to follow shortly. In order to support our team expansion, we have hired extensively throughout our operations and support infrastructure so that we can continue to best serve our clients' needs. At this point, I'll turn the call over to Steve. Thank you.
spk02: Thank you, Eric, and good morning. I'll start by reviewing net interest income and margin. Net interest margin increased eight basis points to 1.99% compared with 1.91% for the 2021 fourth quarter. As we anticipated, our deposit growth moderated as interest rates rose, allowing us to put our cash balances to use. This led to margin expansion during the quarter, and we expect it will lead to further expansion over time. Excess cash balances remain elevated and continue to impact margin by approximately 36 basis points. Our deployment of cash also led to a meaningful increase in our net interest income, which for the first quarter reached $574 million, up $167 million, or 41%, when compared with the 2021 first quarter, and an increase of $38 million, or 7%, from the 2021 fourth quarter. We expect continued cash deployment and anticipated higher interest rates to drive net interest income growth in the upcoming year. Let's look at asset yields and funding costs for a moment. Interest earning asset yields for the 2022 first quarter increased six basis points from the link quarter to 2.22%. The increase this quarter was, again, driven by the cash deployment into higher interest earning loans and securities. Average cash balances for the quarter decreased $2 billion, while average total loans increased $4.6 billion, and average securities grew $3.3 billion. Yields on the securities portfolio increased 9 basis points link quarter to 1.61%, giving a much stronger market for reinvestment rates and slower CPR speeds on our mortgage-backed securities portfolio. Additionally, our portfolio duration increased 4.14 years due to the higher interest rate environment. New purchases during the quarter came in at a blended 2.39%. Many of these trades were executed to take advantage of the shape of the curve and came with a shorter term. Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined seven basis points to 3.33% compared with the 2021 fourth quarter. The decline in yields was driven by the substantial growth in lower yielding, very well secured capital call lines However, we are just beginning to see the early effects of this portfolio repricing higher. Since over 40% of our loans reset within 90 days or less, we expect loan yields to increase dramatically as short-term rates move higher this year. Now looking at liabilities. Our overall deposit cost this quarter decreased one basis point to 18 basis points. We are now at the bottom on deposit costs, as some of our rates have already begun to move slightly higher. During the quarter, average borrowing balances decreased by $89 million to a low $2.7 billion, and the cost of borrowings remained stable at 2.45%. The overall cost of funds for the quarter decreased two basis points to 25 basis points, driven by the reduction in deposit costs. As we have pointed out, the bank is significantly asset sensitive. The bank's focus on growing floating rate loans, which now comprise 51% of our loan portfolio, in addition to our core deposit funding and significant cash balances, make us extremely well positioned to take advantage of a rising rate environment. Onto non-interest income and expense. We continue to emphasize fee income. Non-interest income for the 2022 first quarter was $34.4 million, an increase of $1.7 million, or 5% when compared with the 2021 first quarter. The increase was generally across the board, as many of our fee income initiatives are taking hold. Non-interest expense for the 2022 first quarter was $193 million versus $166 million for the same period a year ago. The $27 million, or 16.2% increase, was principally driven by the addition of new private client banking teams and operational support to meet the bank's growing needs. Despite this significant team hiring and substantial investment in our operations, the bank continues to gain operating leverage. And as a result, our efficiency ratio improved to a best-in-class 31.8%, for the 2022 first quarter versus 37.9% for the comparable period last year. Quickly looking at taxes. This quarter we benefited from multiple one-time tax items which totaled 41.6 million and mostly relates to the impact of our annual restricted stock investing. This lowered our tax rate to 17.8% for the quarter. Excluding these benefits, the tax rate would have been 27.9%. Turning to capital, our capital ratios remain well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet as evidenced by a common equity Pier 1 risk-based ratio of 10.49% and total risk-based ratio of 12.58% as of the 2022 first quarter. Now I'll turn the call back to Joe. Thank you.
spk08: Thank you, Steve. This quarter, our results speak for themselves as we continue to do what we said we would do. We achieved an ROE of 17.4%. Backing out the one-time tax items just mentioned by Steve, it would have been a very strong 15.2%. Again, not bad for a growth story. Our efficiency ratio improved to 31.8%. We see banks with efficiency ratios over 60% being applauded. Deposit growth came from across the board. It slowed like we said it would, but it was still strong. And if you want to know more information, see slide four of the deck. In our loan portfolio, the CRE concentration fell below 300% for the first time in over a decade, and contributions came from eight different areas. See slide five of the deck. We continue to geographically diversify, particularly on the West Coast, where we have expanded to Central California and now Reno. We have seen tremendous consolidation and market disruption on both coasts. Recent M&A in New York has already resulted in more veteran banker prospects than seen in many, many years. We will continue to exercise discipline in selecting the very best bankers and teams, We will invest in all of our colleagues in the support and administrative functions in order to support strong growth. We will stay on top of the enhancements, both current and future, for SIGMET. We will continue to build infrastructure to support our clients' needs. Today, we are stimulated by the enormity of opportunities to continue to grow our franchise. Now, Eric, Steve, and I are happy to answer any questions you might have. Actually, I'll turn it back to you.
spk15: The floor is now open for questions at this time. If you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Again, we do ask that you, while you pose your question, that you pick up your handset to provide optimal sound quality. Thank you. And our first question comes from Anand Gosalia with Morgan Stanley. Please go ahead. Hi.
spk12: Good morning. I wanted to start with a question on fund banking loans since it's been one of the biggest drivers for loan growth. Can you talk about what you're seeing in demand since the first rate hike and maybe talk about what you expect for both the market overall as well as your market share gains in that segment given that interest rates are likely to rise pretty rapidly through the year?
spk18: I mean, we continue to really see strong demand in that market. We don't anticipate, you know, with the early moves that we'll see much of a fall off in demand at all. Really, I think you'd need to see, you know, meaningfully larger moves by the Fed and much higher rates before we really see the demand fall off in that space. And we continue to have the opportunity to take significant market share there, and we anticipate it will be a strong area of growth for us moving forward.
spk12: Got it. And then maybe one follow-up on your comments on expenses. Just given that you're one of the most asset-sensitive banks amongst peers, and with rates moving up, I think you've said your expense growth is likely to be in the mid-teens. But given that you're already at a 32% expense ratio, if I model that out, it seems that if you continue at this low-growth pace and the asset sensitivity comes through, your expense ratio will be comfortably sub-30%. Is there anything that we're missing here, any one-time investments or costs that you need to incur this year or next?
spk02: No, I mean, everything is in, you mentioned, teams of expense growth guidance. 16% is what we're forecasting. Certainly the asset sensitivity that we have is providing a significant amount of operating leverage and will continue to as rates continue to increase. So there's nothing missing in that, no one-time expenses. Everything is built into that 16% forecast.
spk08: And the funding is? One of the things that we don't have is a retail component. So our offices to service clients are in space that is on the upper floors, and we don't have a large teller area because they're privately held businesses, and usually we're picking up from them. So we don't have any real estate costs of a retail group, and we don't advertise. So advertising, marketing... And retail costs for locations on the street are very expensive. And you carve that out, and that helps us with the efficiency ratio.
spk07: Great. Thank you. We'll take a next question from Dave Rochester with CompassPoint. Please go ahead.
spk06: Hey, good morning, guys. Nice quarter.
spk15: Hey, Dave.
spk06: Good morning.
spk16: On the digital banking side, you mentioned the doubling of major exchanges in the customer base. Congrats on those ads. I was just wondering if all those associated deposits are actually reflected in the 1Q numbers. And then can you just give a breakdown of the digital asset deposit book at this point? If you have that detail on the components that you talked about before, that would be great.
spk08: The deposits of the aid are not reflected because some of them just came on. So that bodes well for us in the future of gathering deposits because they're not all in those numbers. Let's see. You wanted the balances?
spk16: Just to break out of that digital asset deposit book, yeah, if you guys have it.
spk08: Yeah, we had 7.2 in stablecoin issuers. The OTC desks and institutional trades was 5.6.
spk07: Digital asset exchanges is 12.8.
spk08: These are all in billions. And blockchain technology and digital miners is 3.6 billion.
spk07: Should add up to about 29. Oh, sorry.
spk06: Go ahead.
spk07: And our balance sheet is zero. Okay.
spk16: And the total of that, I mean, I can add it up.
spk08: It's about 29.2, 29.2, and 18.5 of the 29.2 is in DDA. Great.
spk07: Thanks for that detail.
spk16: And maybe just overall on deposits, it seems like we know you have a lot of drivers for growth going forward. Back in March, you highlighted that growth is normally slower in 1Q, but it looked like turns really picked up in March, just from an end of period basis. Can you just talk about the momentum you're seeing there on the deposit side? It sounds like you've got the exchanges that are still coming in. Anything else you guys can point to going forward, just on your thoughts?
spk08: It's really across the board. We had, you know, the New York banking teams We're excited about the California teams that not only have just come on board, we don't expect them to bring their deposits right away, but we have the situation where we hired a lot of the teams last year. They're starting to kick in. Specialized Mortgage Banking Solutions is starting to kick in even more. They had over $7 billion in deposits throughout the year, and we expect some larger ones to come in. throughout the second quarter and the fourth quarter. Fund banking is contributing.
spk07: It's coming from all over.
spk06: Great. That's good detail. Thank you.
spk16: Then switching to the asset side, you mentioned the new asset vertical that's coming. I think you already brought some of those guys over. Can you just give us an update on what you see as the growth potential in that vertical and then If you had any update on the payroll ecosystem that you've been working on, I know that's more of a deposit driver. But if you've gotten a test company up and running now, I know you were close to linking them into your significant network. And then, you know, how you see that ramping up from here this year, that would be great.
spk18: Sure. Yeah, the new loan vertical, we're probably looking at, you know, $200 million to $500 million in growth per quarter. You know, a couple members of the team on board are waiting on a few more to really join us really in the next month or really hopefully next couple weeks, but certainly within the next month. And then we'll have them up and running. And they should hit the ground running pretty quickly. You know, there's a potential to have some growth in the second quarter, but certainly the third and fourth quarter they should contribute nicely to our growth.
spk06: Technology, I guess, is already in place for that team?
spk18: Yeah, technology is in place for that vertical. It's nothing that we don't already have.
spk08: And for the payroll, the ecosystem, the payroll processors, we have them lined up and ready. And what they're doing now is trying to get their clients, their customers on board so they could use Cignet.
spk06: Great. Do you anticipate that panning out in 2Q, 3Q, or is it more of like a – Yeah, 2Q and 3Q.
spk08: Okay. 2Q and 3Q. Great. All right. Thanks, guys.
spk06: Appreciate it. Thank you. Thank you, Dave.
spk15: We'll take our next question from Matthew Brice with Stevens, Inc. Please go ahead.
spk14: Good morning. I wanted to go back to the quarterly asset growth guidance of $4 to $7 billion. Can you just comment on the breakdown of that guidance between loan and securities in light of higher rates and the shape of the yield curve at this point?
spk18: Yes, Matt. We're looking at probably $1 to $2 billion in loan growth, hopefully at the higher end of that range. And then securities growth should be $2 to $4 billion again, probably closer to the higher end of that range as well, given where the yield curve is shaped.
spk14: Okay. And then in your prepared remarks, you had mentioned NII growth and NIM expansion on the back of cash deployment. You still have $26 billion of cash on the balance sheet. How much of that over the next year are you anticipating easing up and deploying into loans and securities?
spk18: Super hard to predict, right? That really comes down to what deposit growth will be. And given the environment that we're in and the rapid rate rises that we're all anticipating, it's really hard to predict deposits right now. So it really comes down to that, Matt, is what is deposit growth going to be?
spk14: Okay. You know, just staying on the topic of deposits, you know, last quarter, Well, actually, in your prepared remarks, you had mentioned some of the deposits are actually already repricing higher. And then last quarter, you had mentioned that you are running a 40% deposit beta on total costs in your model. And that's higher than last cycle. I guess I'm curious as to why. So today versus last cycle, you have more in DDA. You have more specialized verticals. These verticals tend to have moats. I think you'd have better price control versus last cycle. What am I missing?
spk18: I think we're just trying to be conservative as it relates to that. We do have a couple new verticals in digital and mortgage banking solutions, so we're really trying to be conservative in modeling those out. Right now, you're absolutely right. A high level of DDA is going to be very protective for us. I mean, thus far, the deposit data has been extremely benign. We've seen five basis points of a pass-through with the Fed increase, and that's through April 11th. So, over approximately a month, we've seen about a 20% deposit beta thus far. But we do anticipate as, you know, there's more rate rises, if they're more severe, right, if we see the frequency and severity of those rate rises pick up, and we see more 50 basis point rate rises, that we'll see, you know, betas, you know, pick up substantially. So we're trying to be protective with that 40% assumption, but we're hoping for better. Okay.
spk14: The last one for me is on an older topic, but it's really around credit. I've been getting more questions, particularly on New York City office, and I was hoping you could remind us just of the size and the credit characteristics of that portfolio and whether or not either in office or generally across any of your real estate-oriented portfolios, Asset classes, you're seeing any sort of credit deterioration, and if so, where and how?
spk18: You know, to answer the latter part, we're really not, right? We saw all of our metrics improve this quarter. As it relates to office specifically, we've got about $3.9 billion in the portfolio with a 56% LTV and a 1.39% debt service coverage. So we feel well protected. You know, there's a lot of noise this quarter based on one of the big – lenders, you know, turning back the keys on a CMBS property. You know, our office looks nothing like that of a CMBS lender, right? You know, we have to own the risk as a balance sheet lender. They get to slice it up and sell it off, right? And we lend to well-established generational families who who are really expert in what they do, particularly in that office space. So thus far, we have zero non-accrual loans, right, and we have no loans in full deferral in office, right? We are, however, very aware of potential issues in this space, and we're monitoring it very closely. But fortunately, we've built up reserves throughout the pandemic, and we feel that we're adequately provided to be able to deal with whatever issues come along.
spk14: Perfect. That's all I had. Thank you for taking my questions. Thank you, Matt.
spk15: We'll take our next question from Casey Hare with Jefferies. Please go ahead.
spk13: Yeah, thanks. Good morning, guys. I guess some questions, some follow-up on the NIM. The new money yields on, I think, Steve, you said the reinvestment yields were 239. Where are reinvestment yields today? Okay.
spk02: Yeah, I mean, there's an increase from there on the securities side. We're investing in the low 3% range. CRE is in the low 4% range, four and a quarter about. And then on the fund banking, we're looking at a mid 2% range.
spk13: Okay, sorry. Those are the loan yields. Did you mention the securities reinvestment yields?
spk02: Yeah, I hit that up front. A little over 3%. Okay. Low 3%.
spk13: Okay, and just on the cash, can you just give us a reminder of what's an optimal cash balance rate as a percentage of earning assets? I think in the past you guys have said 10% to 15%. Just trying to figure out.
spk08: Yeah, it's still 10% to 15%.
spk13: Okay, very good. And thanks. That's all I had. Thank you.
spk07: Thank you, Jason.
spk15: And we'll take our next question from Steven Alexopoulos with J.P. Morgan. Please go ahead.
spk01: Hey, good morning, everyone.
spk08: Hey, Steve. Good morning.
spk01: Good morning. The new slide deck looks great. Thanks for that. Joe, I wanted to hit this issue, if we could, on the FDIC problem list. I mean, you know your stock was pretty weak once our report came out, right? The assets went up $120 billion, which is about your size. I've said publicly, I don't think it's you guys, but based on my conversations with investors through the quarter, there is still a concern out there. I know you can't comment specifically on the camel's rating, but can you give any color on this situation?
spk18: Yeah, Steve, I'll start this off and I'm pretty sure Joe's going to want to jump in at some point, but you know, we, by law, we're not allowed to talk about camel's ratings and such, as you know, but, uh, we are not aware of any bank, any bank, with capital ratios, credit metrics, growth, earnings, like ours, ever being anywhere near a troubled bank list.
spk06: I mean, nowhere near it.
spk08: Steve, I'm glad you asked the question so we have a chance to speak about it. So we were a little insulted by... marketplace and quite frankly embarrassed because of what Eric just said that people would think we could be on the list but we can't comment whether we are or not because we can't talk about our camel's rating but I'm the CEO and I would know and I know nothing
spk18: So hopefully that's helpful. And banks are expanding into California, into Nevada, into new markets, right? Typically, if a bank were to be on a troubled bank list, expansion would be out of the question, right?
spk01: Yeah, right, right, right. Yeah, no, it's good. I mean, it's funny. There are other banks out there with regulatory issues against them, which we know there's none for you guys, but it's good to hear you talk a bit about this because, like I said, I've heard it quite a bit. through the quarter, so I do appreciate some commentary that you're able to give. Thanks for that. Maybe shifting directions for a second. Jo, you made a comment on the digital asset front. I'm not sure if you said you were the primary bank for eight of 12 exchanges. Can you go into that a bit more? What did you mean by that?
spk08: They're moving their operating accounts from wherever they are to us. And we would primarily be the bank that handles their day-to-day banking operations with their treasury group. We had four of the top 12, and we've got another four this quarter. I mean, this is the first quarter. So now we have eight. They're moving on board, and it means that we'll have a lot more DDA, or at least more DDA, and they'll be on Cignet. That's really it. The operating accounts are the key and the DDA. That doesn't mean that they don't have other banks, but we would be considered the primary one.
spk01: Thanks. And then finally, regarding the extension into Nevada, is that just you guys being opportunistic with these two teams, or do you see more of an effort to grow that as a new market as well? Thanks.
spk18: A little bit of both, right? I mean, certainly when you look at Nevada, it's an extension of California these days. We're seeing a lot of business move along the I-80 corridor, moving out of San Francisco and Silicon Valley, right, where they're finding much cheaper operating facilities. opportunities in Sacramento and then a little bit further across into Reno, into a more tax-friendly state. So we're following our clients a little bit and we were opportunistic in that we found a leader in that market who could attract some really real high-quality bankers. You know, Steve, right now we're at a point where we've proven we can take the show on the road, where we can be opportunistic, and if we see opportunities in other cities and states, you know, particularly those ones that are growing, you know, rapidly right now in attracting business, we can act upon it.
spk07: Terrific.
spk01: Thanks for taking all my questions.
spk07: Thank you, Steve.
spk15: And we'll take our next question from Abraham Poonawalli with Bank of America. Please go ahead, sir.
spk05: Hey, good morning. Good morning.
spk09: So I just wanted to follow up on deposits. I know it's hard to handicap, but as we think about growth, one quarter in the first quarter was about $3 billion. Is that at least a steady state in terms of how we should think about baseline deposit growth, and it could be stronger than that? And secondly, maybe, Steve, if you can talk to a little bit about how you're thinking about the mix from DDA. Is that 43%? Should that move towards more interest-bearing as we move forward the next few quarters, given the Fed hikes? Or do you expect that mix to hold on pretty much steady-state?
spk08: On the deposits, the amount that we would project, it's hard to do that. You know, we put a lot of businesses that we have now on the books with new teams and new lines of businesses so that when one area is going short, the other areas can pick up. You know, the $3 billion in deposits that we had growth this quarter, we've been in business now about 84 quarters. This was the eighth highest of the 84 quarters, so it's... not anything that we would take lightly. I think $3 billion is a very good quarter. I think everyone, including us, got used to the $10 billion a quarter during 2021. And we don't expect that to happen. We expect it to be more moderated.
spk02: And then on deposit mix, we certainly expect clients to be seeking rate again. We're currently forecasting down into the 30-35% range that we may hit.
spk05: That's what you assume in terms of the DDAs moving to 30-35%?
spk10: Yeah, I mean, certainly... Sorry.
spk09: And I just want to ask, is that mostly driven by incremental growth probably comes in interest-bearing? as opposed to you actually seeing runoff in DDAs?
spk02: I think it would potentially be a mix of both, certainly new accounts, but even over a long period of time, we expect to see some migration from not interest-bearing to interest-bearing as well.
spk05: Understood. Nagas, just one follow-up. I know you... Go ahead.
spk08: I was just going to say that some of the deposit growth could come into your balance sheet. We've seen that in the past where we used to earn 3.25 million a quarter in fees on the off-balance sheet money markets. Now we earn a couple hundred thousand a quarter, three million less. So some of the balances, we go off-balance sheet, and that would be the reason why there would be more moderated growth in the on-balance sheet.
spk05: Go ahead.
spk09: Just going back to the question around expenses, Eric, you mentioned that you've tested the model. It works outside of New York. As we think about just the hiring pipeline, do you expect a meaningful ramp-up? Revenue growth is strong. Why not make more investments if you find the right talent? Just give us some perspective around the pipeline, and should we be surprised if we see you hiring in additional markets as we move through the year?
spk18: Well, I mean, I wouldn't be surprised. There's nothing really in the near term for additional markets, but we've got a very robust pipeline, numerous teams on the East Coast and West Coast, and it's great to see that renewed interest in the East Coast. Look, there's been a lot of large M&A that's taken place between Webster, Sterling, M&T, Peoples, Investors Bank. It's creating opportunities in the New York metropolitan area for us. And then you've got Bank of the West, Umpqua, Union, Opus, CIT, a lot of mergers that happen on the West Coast. And then the mega banks who continue to just be in turmoil. So that's created a lot of opportunities. So we've got a good four or five teams in the pipeline on both coasts, and we'll see where the next opportunity arises for us.
spk08: We're hiring teams from banks we've never hired from before, and they're really very professional. And the fact that we've not hired from these banks before, it gives us another source of teams.
spk05: Got it. Thanks for taking my questions and great detail in the slide deck.
spk10: Thanks. Thank you.
spk15: And we'll take our next question from Brock Sanderwhite with UBS. Please go ahead. Your line is open.
spk04: Hey, everyone. It's Velas Abraham. And for Brock, most of my questions have been asked and answered. But I did want to revisit the capital calls. lending, you know, some of the weakness in, you know, the private market has obviously been well documented the last few months. And, you know, I know you guys are kind of more of, you know, market share gain story there still. But, you know, is there any color you can give us, anything you're seeing that's changed, you know, utilization levels, shifting at all, anything around that?
spk18: Really, you know, not at all at this point. I mean, we've talked with the team around, you know, how will rates really affect them. And we think that, you know, if we see several hundred basis points higher, that we could see utilization rates come down, but not until then. Even at a much higher rate, interest rate. We're adding significant leverage to these transactions that really juice their returns. So we need meaningfully higher interest rates before we really saw an impact on that business. And we continue to hire talent in that space. We've added to that team.
spk07: We're just bringing more clients to us as well. Okay. And then maybe just on the crypto side,
spk04: At this point, you seem fairly well penetrated into that exchange customer segment based on your comments. You know, kind of the next leg of growth there, you know, where do you see that coming from? Is it, you know, is it a certain type of customer? Is it going to be, you know, more broad-based just from a customer growth perspective? How are you thinking about that?
spk08: Well, we do institutional. We really don't do client, personal client. We do institutional. I think just trying to bring on more of those exchanges, at least in the near term. The fact that we went from four being the primary bank to eight being the primary bank, that should give us a lot of runway to grow during this year. Then we have other enhancements that we're making, but they won't be coming on board until probably mid to end of the year.
spk07: But you know what we do?
spk08: We basically listen to the client. In this industry, we listen to the client very closely, and they kind of dictate what we should do next. That's why we made that one enhancement with the fed wires, and we're going to make some more. as the time goes along, like I said, mid to late year.
spk18: Those exchanges are critical to our growth as well. When we tie in with them and integrate our platform to their platform, it makes it much easier for their clients to trade and transact in business. So they're really leading us to their client base as well, which is helping us to grow along the entire ecosystem.
spk07: Okay. Okay. That's very helpful.
spk04: And, you know, are you guys able to give another update on the transaction volumes on Cigna that you saw last quarter? It seemed like it was trending pretty close to Q4 during the mid-quarter update.
spk08: Well, the transaction volume on digital was relatively flat. In the fourth quarter, it was $213.7 billion. And in the first quarter, it was $209.7 billion. So relatively flat. The market, different studies, was down between 20% and 40%. So we're feeling pretty good that we were just about flat, and the market was down 20% to 40% relatively.
spk18: And we also had our largest quarter of new client acquisition where we added 160 new clients in the quarter.
spk07: So that bodes well for the future as well.
spk08: To give you an idea of that 160, we did 147 clients. We grew in 2020. 2021, we grew 382. The 147 and 382, and already in the first quarter, we did 160. So that and the transaction volume, we feel pretty good about.
spk07: Yep, awesome. Thanks, guys. Thank you.
spk15: We'll take our next question from Mark Fitzgibbon with Piper Sandler. Please go ahead.
spk11: Hey, guys. Good morning. Most of my questions have been answered. I just had one. I'm curious. I know you're an organic growth company, but could you ever envision Signature doing an acquisition of maybe a fintech company or another digital payments player? Sure.
spk18: Yeah, never say never, right? You know, certainly a strategic acquisition in the fintech space or in the digital space could make sense. We've talked about tuck-on acquisitions in our specialty finance group or elsewhere in the bank. So there's always a potential to do acquisition. You know, it's just a very high hurdle for us to cross when you can grow organically in the way that we grow. Acquisitions typically don't make a tremendous amount of sense for us, but you can certainly see a tuck-on in a couple different spaces for us.
spk08: If you have a high-flying one that's a discount to book, we would look at it.
spk07: Sounds good. Thanks, guys. And we'll take our next question from Jared Shaw with Wells Fargo.
spk15: Please go ahead.
spk03: Hey, thanks. I guess just did you give an update on what the current spot deposit rate is and on the
spk06: the spot on the digital asset deposits?
spk07: Yeah.
spk18: I'm not sure what the spot rate is on digital deposits, but we're up about five basis points on our overall deposit costs. Digital is typically quite a bit lower than that.
spk06: So still a low performance for that 80% expectation early? Excuse me? What was that?
spk03: You're still outperforming that 80% data that you had highlighted earlier. Oh, yeah.
spk18: Oh, yeah.
spk03: Oh, yeah.
spk18: We're not even close. But, you know, we really don't expect data. Datas are muted. You know, we expect that to be the case for the first few moves. Okay. But the more frequent and more severe they are, then the datas will catch up over time. Okay.
spk08: And in general, they have to keep a minimum of 30%, a minimum of 30% in non-interference.
spk06: Okay, great.
spk03: And then when you talk about you bringing on those new exchanges, that's great. Where are you taking those operating accounts from? Is it from the biggest national banks, or is it other more digital specialty banks that are migrating towards you?
spk07: It's really across the board. Okay.
spk03: And I guess just finally for me, you referenced, I guess, what, 325 on the CRE multifamily book. Do you expect to see pricing there really stay pretty sensitive, pretty tied to what we're seeing with the five-year as we go forward?
spk02: Yeah, I mean, I don't know if you said 325, but 425 is really where we're at. I mean, yeah, the five-year is really what we spread. Again, as that moves, certainly our pricing would move as well.
spk18: And as we've seen in other rising rate cycles, we've seen credit spreads compress in the early part of the move. We anticipate over time that those will start to widen, and we should get even better pricing than that.
spk08: Yeah, you're right. Because at 425, the spread is very – it's like 160 over.
spk07: What if we get 200 over? Great. Thank you. Thank you. And we'll go next to Chris McGrady with KBW. Please go ahead.
spk17: Hey, good morning. Just a question on the borrowings on page 17 of the deck. Any reason to believe that we won't allow those almost a billion dollars the next quarter and a half to mature and reprice through the excess cash position?
spk18: Yeah, we're definitely going to replace that with Okay.
spk17: And then second, on fees, in prior quarters, you've given some expectations for year-on-year growth, given the build-out there. Any update on fee income growth, either relative to first quarter levels or full-year 21 levels? Thanks.
spk18: Yeah, I think if we look at prior year levels, we should see about a 50% increase in fee income over the prior year.
spk17: Okay, so 50% over 2021. Thanks.
spk18: Right, over Q2 2021, or Q2 2022. Got it.
spk07: Thanks, Eric. Thank you, Chris.
spk15: And this concludes our allotted time in today's conference call. If you'd like to listen to a replay of today's conference, please dial 800-723-1517. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your line at this time and have a wonderful day.
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