Signature Bank

Signature Bank's 2022 Fourth Quarter and Year-End 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 Wieromski, 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 star 2. We ask that while you pose your question, you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Susan Turkel, Corporate Communications for Signature Bank. You may begin.

Good morning, and thank you for joining us today for the Signature Bank 2022 Fourth Quarter Results Conference Call. Before I hand the call over to President and CEO Joseph DiPaolo, please note that comments made on this call by the Signature Bank management team may include forward-looking statements that can differ materially from actual results. For a complete discussion, please review the disclaimer in our earnings presentation dealing with forward-looking information. The presentation accompanying management's remarks can be found on the company's investor relations site at investor.signatureny.com. Now, I'd like to turn the call over to Joe.

Thank you, Susan. I will provide some overview into the quarterly results, and then my colleague Eric Howell, our Chief Operating Officer, and my colleague Steve Wieremski, our Chief Financial Officer, will review the bank's financial performance in greater detail. Eric, Steve, and I will address your questions at the end of our remarks. At the onset of 2022, we set several goals, including, one, the hiring of numerous private client banking teams, and the colleagues necessary to support our geographic expansion, which we did with the hiring of 12 teams. This includes five in New York and seven on the West Coast, of which three were in Nevada, marking our entry into that state. We also added hundreds of colleagues across various operational and support areas. Launching the healthcare banking and finance team, which we successfully onboarded during the 2022 second quarter. Three. Increasing our annual earnings, where we realized great success is evidenced by earning a record $1.3 billion in net income with a record return on common equity of 16.4%. Four. growing our loan and deposit portfolios substantially. Although we grew loans by a strong $9.4 billion, 2022 presented deposit challenges. While we expected continued deposit growth, albeit not at 2020 or 2021 levels, seven Fed hikes during 2022 totaling 425 basis points, coupled with quantitative tightening and the proliferation of off-balance sheet alternatives resulted in the most difficult deposit environment we have seen in our 22-year history. The arduous rate environment, along with the challenges in the digital asset space, led to deposit declines, which we overcame with little difficulty given our robust liquidity position. Please take note. Thus far in 2023, we are already up $1.8 billion in total deposit growth. This is driven by an increase of $2.5 billion in traditional deposits, offset by a decline of $700 million in digital deposits. Now taking a closer look at earnings. Pre-tax, pre-provision earnings for the 2022 fourth quarter were $451 million, an increase of $65 million, or 17%, compared with $385 million for the 2021 fourth quarter. Net income for the 2022 fourth quarter increased $29 million, or 11%, to $301 million, or $4.65 through the earnings per share, compared with $272 million, or $4.34 through the earnings per share, for last year. The increase in income was predominantly driven by margin expansion due to rising rates, which led to strong growth in net interest income over the last 12 months. Now, let's take a closer look at deposits. With the frequency and severity of the Fed rate increases, the deposit environment remains challenging. Total deposits decreased $14.2 billion, or 14% to $89 billion this quarter, while average deposits decreased $4 billion. Now let's discuss the elephant in the room. As a reminder, on December 6th, at a conference, we announced our plan to purposefully decrease total deposits in the digital asset banking space by reducing the size of relationships. This strategy results in a more granular deposit base, which leads to greater stability in this funding source. As part of the plan, we are focused on reducing high-cost excess digital deposits. Our strategy went as expected and resulted in a decline of $7.4 billion in digital deposits. Respectively, the bank will further reduce these digital deposits by an additional $3 to $5 billion by the end of 2023, however, most likely much, much sooner. Additionally, with the seventh Fed rate hike on December 15th and subsequent to the conference, we saw a large degree of irrational pricing from competitors on traditional deposits. In general, we decided not to increase rates to these levels on deposits that have the highest rate sensitivity. As a result, $2.3 billion in high-interest rate deposits left. Total contribution from both the digital asset reduction strategy and our decision to not match pricing on these rate-sensitive deposits aggregated to $9.7 billion of the deposit decline. These are deposits that we intentionally managed out or managed low. There were several other factors that contributed to the traditional decline. Our mortgage banking and solutions team experienced this seasonality due to taxes and escrow payments, which contributed $1.9 billion to the overall decline. We expect this to build back up over the course of 2023. And 1031 exchange commercial real estate transactions continued to decline industry-wide, and we saw a reduction to the tune of $1.2 billion. So there was a lack of for CRE transactions, and as a result, there will be less 1031 deposits available. During the quarter, noninterest-bearing deposits decreased $6 billion to $31.5 billion, which continues to represent a solid 36% of total deposits. The decline in DDA continues to be driven by the challenging deposit rate environment. Before I turn the call over to Eric, I'd like to say that although 2022 was a tough year for the deposit, we believe we are a growth story, and as we look beyond 2023, we firmly believe we will return to growing traditional deposits. Clearly, this is difficult given the current environment, but it remains in focus. It is encouraging to see inflows in traditional deposits of $2.5 billion thus far this year through January 13th. That's after only nine business days. Now I'd like to turn the call over to Eric.