Q2 2021 Signature Bank Earnings Call
Yes.
Welcome to signature Bank's 2021 second quarter results conference call hosting the call.
So for signature bank, and Joseph J, Depaolo, President and Chief Executive Officer and.
And Eric R. Howell Senior Executive Vice President and Chief operating Officer, today's call is being recorded on.
At this time, all participants have been placed in a listen only mode and the for will be up and for your questions. Following the presentation.
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Lastly, if you should require operator assistance. Please press star zero and it is now my pleasure to turn the floor over to Joseph J, Depaolo, President and Chief Executive Officer, you may begin.
Thank you Nicole good morning, and thank you for joining us today.
It's your bank 2021 second quarter results conference call.
For I begin my formal remarks, Susan Lewis will read the forward looking disclaimer. Please go ahead Susan.
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 for.
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.
And the strategy and the impact of the COVID-19 pandemic on each of the foregoing and our business overall.
As you consider forward looking statements you should understand that these statements are not guarantees of performance and results. They involve risks uncertainties and assumptions that could cause actual results to differ materially from those and the forward looking statements. These factors include those described in our quarterly and annual reports.
Filled 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.
Thank you Susan.
I will provide some overview and some quarterly.
Results and then Eric how are Chief operating Officer will review, the bank's financial performance and greater detail, Eric and I will address your questions at the end of our remarks.
The success of signature Bank single point of contact service model has resulted in yet another quarter of significant growth.
During the past several years for bank has grown dramatically and transformed organically.
He said and achieve specific goals of becoming asset sensitive.
Leasing both credit and geographic diversification.
And while continuing to grow core deposits.
As a result, we shifted to asset sensitivity sensitive from liability sensitive.
And 38 per cent of our loan portfolio now and variable rate.
We've reduced our CRE concentration from nearly 600 per cent for 345 per cent of capital.
On a loan to deposit ratio, which peak and.
104%.
Has moved to a low 64 per cent.
Additionally, we entered new markets through the hiring of bedroom and bankers from all west for West Coast.
Private client banking offices, while continuing to increase deposits of course on New York operations.
The speed at which we achieve these objectives organically is extraordinary within the banking industry.
It clearly demonstrates the power of on foundry.
Single point of contact entrepreneurial model.
Throughout the second quarter of 2021, we saw the same strong growth trends we witnessed during.
And the past several quarters.
Our record deposit growth of 11.6 billion emanates from all our business units and teams within the institution demonstrating the broad based strength of our franchise.
Record core loan growth of 3.6 billion was driven by a well established fund banking division and.
And we put more cash to use than ever before to record growth of 2.7 billion and our securities portfolio.
Our strong growth profile, coupled with the expansion of fee income and contained expenses, but true.
And third consecutive quarter of record net income and strong return on common equity of more than 13%.
We continue to focus on the pure organic growth that has made this institution successful.
Now, let's take a look at earnings pretax pre provision earnings for the 2021 second quarter were a record $308.6 million and increase of $60.6 million on 24, 5 per cent compared with $247.9 million.
For 2022nd quarter.
Net income for the 2021 second quarter was a record $214.5 million or $3.57 per diluted earnings per share compared with 11 point.
And 117.2 million or $2.21 per diluted earnings per share reported and the same period last year.
The increase and income was predominantly driven by substantial asset growth of $36.5 billion over the last 12 months as well as the decrease and the provision for credit losses, which is which was substantially impacted by COVID-19 and this.
Second quarter of 2020.
Looking at deposits.
Posits increased a record 11.6 billion or 15, 7%.
And $85.6 billion this quarter, while average deposits grew and record 11.9 billion.
This quarter's growth was driven by the digital asset banking team, which grew deposits $6.3 billion.
The specialized mortgage banking solutions team, which grew by $1.2 billion.
On venture banking group, which increased nearly 400 rate.
For West Coast banking teams grew nearly $200 million.
And on New York banking teams, which GUL and 3.6 billion, including 10 teams that each succeeding each exceeded 100 million for the quarter.
Since the end of the 2022nd quarter deposits increase the remarkable 35.3 billion.
For <unk>.
73% and average deposits increased 33 points for me.
During the quarter non interest deposits increased.
$6.1 billion to $28.7 billion, which represents a high 33.5% of tone on deposits.
On deposit growth plus capital raises as well as earnings retention.
For an increase of $36.5 billion on 65% and <unk>.
Total assets since the second quarter of last year.
That's the equivalent of acquiring the top 50 U S bank, while we didn't completely organic.
We believe this is by far the most efficient use of capital.
Now, let's take a look at on lending businesses core loans on loans, excluding PPP. During the 2021 second quarter increased to a record $3.9 billion on 8% to 52 billion.
For the prior 12 months core loans grew <unk> 9 billion or 27%.
The increase in margin this quarter was again driven primarily by new.
And if a keyword new fund banking capital call facility.
We are well positioned and all of our lending businesses to capitalize on opportunities based upon our pipeline and recovering economy.
Turning to credit quality.
Portfolio continues to perform well.
My first pointed out the bank COVID-19 related non payment modification and continue to trend positively.
As of year end 2020 day.
And 1.3 billion.
And April 15th day, with $983 million and as of July 15th day on now.
And $309 million.
Europe, 6% of total loans.
So that went from year end at $1.3 billion.
On slightly above 3 day.
And we knocked off a billion.
Non payment modification.
Non accrual loans.
Hundred $36.1 million, a 25 basis points of total loans compared with $133.7 million on 26 basis points from 2021 first quarter.
On past due loans remained within the normal range from 30 to 89 past due loans and $94.8 million.
And on 90 day, plus past due loans remained at a very very low $2.3 million.
Net charge offs for 2021 second quarter and decreased to $15.3 million on 12 basis points of average small.
And $17.92021 for Scott.
The provision for credit losses from 2021 second quarter declined to $8.3 million.
And with 39 million for the 2021 first quarter.
This supports the bank's allowance for credit losses, 0.94%.
And the coverage ratio stands at a healthy 378%.
I would like to point out that excluding very well secured fund banking loans.
And and government guaranteed PPP loans, the allowance for credit losses.
Ratio would be much higher and 141%.
Now.
Can you expand team front, and where we continue to realize success.
And the 2021 second quarter's bank on boarding to private client banking teams on the West coast.
And as well as the SBA lending team, which is 1 of our 2 new lending initiatives, we announced earlier in the quarter.
At this point I'll turn the call over to Eric and he will review the quarters financial results in greater detail.
Thank you Joe and good morning, everyone on.
I'll start by reviewing and net interest income and margin.
With our emphasis on growing net interest income for the second quarter reached $457.2 million and increase of $57 million or 12, 5% from the 2021 first quarter.
That is and the annualized growth rate of 50%.
Net interest margin declined 8 basis points to 2.0% to 2% compared with 2.1% for the 2021 first quarter.
And the entire decrease was due to massive excess cash balances from significant deposit flows which impacted margin by 55 basis points and again, we're focused on net interest income growth and not the margin.
And let's look at asset yields and funding costs for a moment.
Interest, earning asset yields for the 2021 second quarter decreased 17 basis points from the linked quarter to 237%.
The decrease in overall asset yields was again driven by the massive excess average cash balances, which grew 6.6 billion to 23.7 billion and during the quarter.
Yields on the securities portfolio decreased 16 basis points linked quarter to 172% due to lower reinvestment rates as well as the bank and investing and floating rate securities and.
And our portfolio duration decreased to 292 years, which was due to a decline in rates at the end of the quarter.
We were opportunistic throughout the quarter as we saw windows in which to invest and therefore, we were able to increase the securities portfolio by $2.7 billion.
And turning to our loan portfolio yields on average commercial loans and commercial mortgages increased.
For basis points for $3, 5.8% compared with the 2021 first quarter.
Excluding prepayment penalties from both quarters yields increased by 5 basis points.
Now looking at liabilities, our overall deposit cost this quarter decreased 7 basis points to 27 basis points due to the low interest rate environment as we gradually lower our relationship based deposit rates.
We anticipate this downward trend to continue on the coming quarters, albeit at a slower pace.
During the quarter average borrowing balances decreased by $276.4 million and the cost of borrowings decreased by 12 basis points to 2.8 per site.
The overall cost of funds for the quarter decreased 9 basis points to 38 basis points driven by the reduction in deposit costs.
And on to non interest income and expense.
With our focus on growing noninterest income, we achieved growth of $10.7 million or 84, 5% for $23.4 million when compared with the 2022nd quarter.
The increase was mostly due to a rise and fees and service charges and net gains on sales of loans.
Noninterest expense for the 2021 second quarter was $172 million versus 151.9 million and for the same period a year ago.
The $21 million for 13, 3% increase was principally due to the addition of new private client banking teams and operational support to meet the bank's growing needs.
And despite our significant team hiring and margin compression from substantial cash balances. The bank continues to gain operating leverage and as a result, the efficiency ratio improved to 35, 8% for the 2021 second quarter versus 38% for the comparable period last.
Year.
And now turning to capital.
All capital ratios remain well in excess of regulatory requirements and augment the relatively low risk profile and the balance sheet as evidenced by our common equity tier 1 risk based ratio of 10.0% to 3% and total risk based ratio of 12, 72% as of the 2021 second quarter.
Given our robust total risk base ratio, we redeemed $260 million of subordinated debt at a rate of 5.3% on April 19th which will further reduce our interest expense and coming quarters and now I will turn the call back to Joe. Thank you. Thanks, Eric.
The collective strength of our franchise led to an unbelievable quarter of record deposit growth.
Record core loan growth.
Record pre tax.
Pre provision earnings and record net income.
Bottom line, we delivered another strong quarter.
And we are well positioned for the future.
We've been bullish on New York City since the onset of the pandemic.
Clearly it is going to take some time to return to pre pandemic activity levels.
But it is encouraging to see the vibrancy return to this great city and country.
It's great to see Broadway show selling tickets again.
Restaurants at full capacity for extreme and most importantly, my colleagues and the office.
We look forward to a continued recovery and a bright future for signature bank.
Now we are happy to answer any questions you might have thought before I turn the call over to Nicole.
I just want to encourage everyone listening to please get vaccinated.
Now I'll turn the call over to Nicole.
The floor is now open for questions. At this time, if you have a question or comment. Please press star 1 on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound Keith.
Again, we do ask that why you pose your question that you pick up your handset to provide optimal sound quality.
Thank you. Our first question will come from the line of Steven Alexopoulos with Jpmorgan.
Hey, good morning, everybody.
Hey, good morning, Steve.
I want to start the digital assets side I know in the past you guys have said that as the price of crypto assets, such as bitcoin, a fall and you've actually seen an increase in volume drive its institutional customer step in and buy the dip and I think about your model right Youre an on ramp to the crypto economy. So we think about of that like a bridge keeper did the prices and.
Fluctuations of the crypto assets matter really at all as it relates to the growth potential of the business.
Okay.
We've seen absolutely no correlation to the price and our deposit flows whatsoever, and we've gone back over several years and taken a deeper dive and look at that and.
And there's just no correlation periods.
Early on when prices went off and on our deposits actually leveled off and went down but mostly over the last year and a half we are seeing the prices climb with clients and with the latest steps that we've seen we've seen our deposits continue to decline. So we're just not seeing a correlation between the price of <unk> and.
And the digital currencies and our deposit flows okay.
That's helpful.
And maybe can you give us assets how many customers are now on the platform and maybe what's the pipeline for new customers.
I don't have and we don't have a client total but the pipeline is certainly robust for new clients.
Okay.
And maybe a final question as it relates to the prior guidance rate the full year, 8% to $16 billion.
Multiple quarters in a row of being in that range each quarter.
And maybe 1 from your view why is it coming and so much stronger than expected. It seems like more is going on and the just the digital asset team and realistically how should we now think about full year deposit growth expectations. Thanks.
And so very hard question to answer because.
On the var.
Initiatives that now turning to fulfill and businesses are doing very very well.
And.
To answer the question.
Such a wide range.
Assets come in.
We would say that the normal expectation would be $2 billion to $4 billion and deposit growth for on a quarterly basis.
And we're very proud that we got 10 billion and 11 billion and the last 2 quarters, but the expectation is still for us between 2 and for.
Okay terrific. Thanks for taking my questions sure and Steve just to circle back on that.
On the question about number of clients were 812 clients.
Versus 741 last quarter.
Rate for 7 and 41, great. Thanks for the color.
The next question will come from the line of Brock Vandervliet with UBS.
Thank you.
If you could just.
Kind of appeal Peel away a bit on the.
On the total crypto deposit growth.
And what that is.
And what that is composed of whether it's mainly transaction accounts, whether its reserve accounts.
Operational deposits from exchanges and what that is.
Good day to quality.
Between the end of March and the end of June.
It was about $6.3 billion.
And.
It's stable coin reserves.
And it's OTC desks engines institutional traders digital asset exchanges, and blockchain technology and digital miners.
Broken down.
Stable credit reserves about $1.9 billion.
<unk> desks, and institutional traders and about $600 million.
Digital asset exchanges.
About $3.4 billion and.
And blockchain technology and digital.
Digital miners and.
It's about 300.
And people would take.
Got it okay.
And Steve covered the growth rates.
Just in terms of.
Further monetizing this could you talk about your.
And our securities lending initiative, where that stands and any further color you have.
We expect to do a fairly small and somewhere at the end of July beginning of August.
Could be the end of next week.
It's just 1 loan we're testing out.
The.
Patients.
Maybe we want and I said this before we want to crawl before we walk and walk.
And just walk not not walk to run.
And we'll be very cautious.
We're only picking selecting the very very best clients, we want this to be a normal business.
Got it okay ill step back in the queue. Thank you.
Thank you. Thank you.
The next question will come from the line of Jared Shaw with Wells Fargo Securities.
Hey, guys good morning.
And Joe.
Okay, and just looking at your.
Coupled really strong commercial loan growth with.
A stable commercial loan yield which.
You know has been tough for banks to pull off I guess can you comment on a little bit about what youre seeing in terms of loan pricing on the commercial side, I guess, how youre able to be.
Maybe is it just for your customers are a little less price sensitive are you able to hold up the spreads on better maybe just talk a little bit about your what youre seeing and commercial loan pricing.
Well I mean generally we're seeing that the runoff and our portfolios is pretty equal to the.
Yields that we're putting on now Jared and kind of come close to at least reaching a bottom there.
Had a little bit of a pickup and the and the 3 and 5 year.
And the belly of the curve and that is helpful to signature financial.
And so they were they were up about basis points per quarter.
Generally we're seeing some better spreads out there during the quarter, but unfortunately, the tenures pulled back down so we'll see how long that that last for them. We also did it did.
Get a little bit of a bump from some PPP fee amortization for the quarter.
And that starts to accelerate.
Okay. Thanks, and then.
On the commercial side I'm, sorry on the capital side.
Obviously, the strong liquidity is putting some pressure on our ratios here apart from the risk base ratio.
How comfortable are you with with.
Broader capital ratio is getting tighter based on just a lot of cash flow coming in or would you like to see them, a little stronger than than where they are trending here.
And we always like to see stronger ratios.
We have earnings.
And earnings.
Could sustain the growth that we expect on.
If we have.
Really some outsized sustained projections from for growth, we will not be shy about ladies and capital.
Okay.
Great. Thanks, and then just finally for me I guess, Eric what were the.
The yields on new securities purchases and the quarter share if I Miss that.
Probably and no 1.
30 to 150 range.
So which is inclusive of floating rate securities.
Okay. Thank you.
Okay.
The next question will come from the line of Ken Zerbe with Morgan Stanley.
Alright, great. Thanks.
Starting off for a really quick 1 Eric you mentioned higher PPP fees, what was that amount this quarter.
About $14 million.
Card versus $4 million I think it was last quarter right.
Yes that sounds right.
Got it okay.
I guess just in terms of growing the securities portfolio from here, obviously, you have a ton of cash, but just given the yields have come in and it feels like so much since last quarter. How are you thinking about investing and additional securities at this point.
We're going to be ultra selective for at this point.
We're hopeful that there is a pick up and rates, we don't really understand how the campaign given everything that's going on on the world but.
Where the tenure is right now and 5 year it doesn't make a whole heck of a lot of sense to invest much and we'll be opportunistic.
And do have a very robust treasury function.
Search for.
So investments that makes sense sales particular floating rate to the extent, we can get our hands on and but right now it's ultra ultra selective.
That's why we're earning on the.
More verticals on the lending side.
Got it and no no understood.
I would agree with the approach and then just my last question and it feels like some of the narrative around.
And sort of your digital banking business and deposit inflows and shifted away from the price of bitcoin and more towards the transaction volumes and honestly, maybe I just don't know enough about crypto transactions, but I've heard they've been coming down and maybe thats because of retail investors, possibly but when you think about.
Have you seen a similar trend and maybe a decline possibly and.
And then Mount of transactions going through Signet and me is there a correlation between.
Sort of broader crypto transaction volume from Cigna.
It's.
It's really tough to correlate because its such a growing ecosystem and we're garnering more and more of our share of that ecosystem on our <unk>.
Year to date volumes are more than double what our full year volume was for 2020.
So we've seen significant volume pick up.
But again it's.
It's hard to say.
Just because of the acceptance of signature bank and that space.
Got it okay alright, thank you.
Sure.
The next question will come from the line of Dave Rochester with Compass point.
Hey, good morning, guys nice quarter.
Hi, Thank you good morning, good morning, and.
Definitely appreciate all the detail on the digital deposit side, that's a $6.3 billion and you talked about that's all on balance sheet rate.
That's right, yes and.
And how much do you have on balance sheet.
About $2.5 billion.
Okay, great. So you've kind of kept it around that area it sounds like.
Can you talk about any benefits you've seen from the expanded circuit relationship you announced last quarter and then if I'm just looking at U S. D. C. Total issuance right now it's about maybe $27 billion today.
And the most recent circle deck, they estimated circulation of back and go to $35 billion this year and to grow to a $194 billion by 2023.
And so just given your expanded relationship there and can you just talk about what that could mean for signature.
Well, we're getting new operating accounts that silver and the process and billing and that.
Give us more non interest bearing deposits.
And then on the interest bearing side.
We're keeping a cap on it and.
Having the excess deposits if they wanted to give us any more.
Go on to the off balance sheet money market, which at some point, we will be paying more than on basis points.
So we're not putting anymore, we're not planning right now and putting in a more stable coin reserves.
On other than the.
<unk>.
The operating accounts, which we expect to be pretty substantial.
What do you think it would take to get you to change and decision there and add some more of that stable point piece.
The on balance sheet portfolio.
But only 25 billion and excess cash.
It's not prudent to.
Take more on balance sheet deposits.
And sort of prudent for us to take off balance sheet, where we can collect and fee income.
Yes.
So that's something that you could source later on as you bring the cash balance is down.
Longer term.
Yes.
Perfect.
And then maybe switching.
And the clients that have stable coin.
With us and reserves and they keep them and DDA.
So not every not every day.
<unk>.
Stable quote and Liza Liza and and interest bearing account.
Okay.
I appreciate that and then maybe just switching to the loan side. How do you guys feel about the loan growth guidance given you've got these 3 verticals coming online here in the back half. It seems like you have all kinds of capacity to sort of blow through that 1 to 2 billion and that you've talked about at least maybe starting in the fourth quarter.
And then if you could just give any updates on that front just regarding your expectations for each of those segments on the growth side that'd be great I think.
More recently, you talked about mortgage warehouse, contributing 200 million too and maybe $1 billion and growth per quarter. So any updates on that as you've done some more work on those verticals that would be great to hear.
Yes.
For the third quarter, specifically will be and that $1 billion to $2 billion.
Range, we've seen that.
Third quarter is usually our slowest quarter of loan growth.
Given that people were not able to really take vacations last year and sooner.
Due to the pandemic, we expect that there is a lot of people that will be out in the months from July and August and we'll see that affect on.
Our loan growth a bit.
So we are holding for a $1 billion to $2 billion for the third quarter for the fourth quarter, we're hoping to be at the high end of that range.
And do anticipate that the mortgage warehouse business will kick in a little bit.
There is hope for the third quarter that we can do $2 million to $250 million in.
And that mortgage warehouse space, and I think thats certainly possible and.
And then we can do and equal to or potentially even greater amount and the fourth quarter, so that will be beneficial.
The growth for sure on the SBA side, we anticipate that they'll start up mostly in the fourth quarter for scope, putting our systems and processes in place.
Very important and that space to really have your system and the paperwork and everything in line with the government to ensure that you have that government guarantee on your loans.
So.
And it'll take us a little bit longer to get that up and running but it should be beneficial to growth and.
And the fourth quarter.
Albeit to a much lesser.
And the mortgage warehouse business.
Alright, great. Thanks, guys.
And thank you Steve.
Yeah.
The next question will come from the line of Ebrahim <unk> with Bank of America.
Good morning.
Morning Ebrahim.
I guess just on the first question and if we could talk a little bit about give us an update on the west coast expansion, where thing stand both on the <unk>.
Hiring of teams and just growing debt portfolio on deposits and loans.
We hired.
Several teams are on the first quarter and then we've hired another.
2 teams and the second quarter and then and then in addition to the SBA business that we brought on board that's headquartered.
And in Sacramento and so.
Pretty pleased there is a few more teams and the pipeline and we anticipate the higher for this year and then we're really setting the stage for.
For 2022.
We are.
Something we've also done is we've added a number of group directors to existing teams. So we're very pleased with the with the hiring to date and the pipeline that we have to continue.
To build that out.
We've got about $1 billion and half for deposits.
On the West Coast and <unk>.
And once their approach about $500 million and loans there.
Nick on the terrific job.
Under the circumstances most of them have never been a signature bank when there wasn't a pandemic.
And so they've had to.
Especially now and then going back to and Los Angeles.
Masks again.
So.
<unk> been able to.
For the business.
Not so positive.
Circumstance and the environment.
And I guess tied to that Erik you always talked about the first billions is going to be very difficult and you get the brand recognition and the market.
If we look forward should we expect a pretty decent pick up in terms of what <unk> course.
Of course started delivering for you book in terms of deposit growth and maybe loan growth.
Yes, yes, yes.
Yes.
Got it and I guess on the I just think given what Joe said about the fact that we really started our la and franchise during a pandemic.
So we're anticipating we'll see pretty good pick up from them from the course from the next several years, we've been meeting clients on the west coast to teleconferencing.
And perhaps on just.
Understood.
Thanks for the color and I guess, just back home any signs of life and the New York multifamily space are you seeing.
And the activity pick up or how are you thinking about just debt book I know, you're targeting sort of retaining your relationship based clients, but give us a sense of the market.
We're seeing a pickup from that.
<unk>.
Clearly a pickup and activity.
The government wasn't involved and there would be better.
We had a nice deal fairly substantial deal.
And the government gave them on at 2.5% 10 years interest on.
Bob.
So it's very competitive got it.
And 1 last question.
We've talked previously about the use case for signet beyond crypto customers any headway, there or is that still and desk fees.
I would say, it's soon to come out of test phase and still in the testing phase.
Got it thanks for taking my questions.
Thank you for him.
The next question will come from the line of Casey Haire with Jefferies.
Yes, thanks, good morning, guys.
Question.
The crypto deposit franchise can you just where is that overall today balance wise and and and is there is there a concentration limit that you guys, where you don't want that to go any higher as a percentage of overall deposits.
Okay.
Moving on to $18 billion.
Spit out.
Amongst all the different categories and digital assets.
World.
And we wouldn't be able to give you the.
If we had 1 and we wouldn't be able to tell you what the limit.
There's been a competitive and as we know what we go on.
Understood, Okay and that $18 billion.
Much of that is <unk>.
You mentioned earlier Theres $2.5 billion off balance sheet, how much is off balance sheet.
It's 2 billion and Thats off balance sheet right now.
Okay and.
What's preventing you from from utilizing the off balance sheet vehicle more because that certainly would help.
And I know your risk weighted ratios are in great shape, but the TCE tier 1 leverage would certainly benefit from.
We would certainly use it more but to return.
Based on.
So if they can get a little bit more of and return from another institution.
And then they're going to do it.
It's a substantial amount of money, we're talking about on the.
Balance sheet and money market funds.
And on 1 basis 0.2 basis points right.
Got you, okay. So as rates rise as rates rise whenever that is whenever millennium and <unk>.
And we will.
We will use the off balance sheet money market for us that will rise quicker.
And the on balance sheet interest products that we have so we will use that.
And we're getting less and $200000 and fee income on a quarterly basis.
For 2 years ago, we were getting like 3 to 5.
Our quarter. So we can earn substantial fee income on putting it off balance sheet and we certainly would do it.
100 <unk> circumstance.
Got you. Thanks, and then just last 1 on the <unk>.
And side I'm assuming.
For the expenses came in very much in line with your guidance.
Do we do we continue to grind and the lower <unk>.
Digits from here and does that.
Third quarter 'twenty included on that.
Shelby charge I'm, assuming that that gets stripped out of the.
The math for the guide.
No. It's I mean, it's on.
All in would that include we're probably looking at.
12, and 13 expense growth for the third quarter.
And we will see it go down so in 11 of 12 and on tons of 11 and continuing to decline.
Okay excellent. Thank you.
Thank you Casey.
And next question will come from the line of Matthew Breese with Stephens, Inc.
And then.
Hey, I appreciate the overall crypto balances at this point could you just break it out and to the various buckets perhaps.
Whats and the operating accounts for Signet accounted on a stable point.
Yes, we've got it.
On that already Matthew.
Mr. But we're happy to go through and again.
We've got about $4.4 billion and stable coin to for and OTC desks and institutional traders 9.
9.7 and digital asset exchanges, and 1 point to overall and.
Blockchain technology and digital miners with 2.5 <unk>.
Almost $2.6 billion of that.
And Cigna.
Got it okay and.
And as you think about these various categories, we've never seen them rate tested.
And what do you expect to be the most kind of.
Sensitive to rate changes deposit betas, what would be the least sensitive.
Yes.
Could you give Alaska and exchanges problems and we lease centered.
Alright.
I'd like to stable coin reserves, we had so we have we have 5 staple quantities or clients.
And for them, keeping money and non interest bearing and 1 is keeping money and interest and so it's kind of hard right now is it true.
And we will.
Most sensitive.
Understood Okay.
And then Eric you mentioned and you're in your prepared remarks.
And I'll focus on NII growth.
And over the last handful of quarters, its come and annualized at about 17, or 18% can you give us some range or predict.
Estimated outcome or.
Where do you think and I can go or the next handful of quarters is stable or do you expect acceleration.
Acceleration would be tough to to say given the rate environment that we're up against so we will see continued growth.
Something that we've given guidance on on the past.
Okay.
Thanks.
1 of the things that will help which we have more runway and most bank.
And so our ability to continue to drop interest upon interest on deposits.
We had.
Quarter, where we were down to 27 debt and.
And we were 34 for the first core and so that's a drop of 7 basis points.
And the month of June and that 25 basis points.
And we're trending lower than that and the month of July.
So we're at 27 for the quarter, we can get it down to below 25 basis points and the third quarter and we're hoping to get it down for long 20 basis points and the.
Fourth quarter Slash first quarter 2022.
Coupled with our continued growth and interest bearing.
Interest, earning assets I should say will be able to reduce costs with others.
And have not been able and T cell and have already done so.
And then last 1 for me it feels like the West Coast expansion is successful what's going well does.
Does this confidence gives you does it give you the confidence to introduce the model to additional markets and and where on the map do you feel like your single point of contact model would be most successful.
And its most successful with and big Big players are.
And the cities, where the big players.
Whether you're talking about Chicago Dallas.
Places like that and.
And.
We are.
California is a very large state.
And.
And.
And moving around in that state.
And Rick mentioned Sacramento.
Los Angeles, and San Francisco, we're already there.
We have we are we have plans to go into other states.
That all off and makes sense, along with California on the West Coast and.
And we're not going to and we'll be talking about where we're going right now until the debt.
Alright understood. We can certainly we can certainly at this point and be opportunistic as we have always been rate, but more opportunistic geographically.
And we've proven that we can take this model to different geographies and that it works alright. So it's.
Densely populated metropolitan areas that the Mega banks dominate right. That's what we built our bank to compete with so.
We've done and in California, and now and we're going to do on again elsewhere.
And as we think about the $25 billion for cash and the deployment of that cash does that accelerate the timeframe in which you might deploy it and go after new markets.
No I think.
Again.
When we look at new markets and we've circled a number of them would rather not give away our secret sauce, but theres a number of markets that we're looking at it really comes down to finding the talent.
We can find the bankers are a group of bankers with a book of business and.
That makes sense and we can go there now and.
And we've shown its not quite frankly difficult for us to do alright, So open up on location to onboard new bankers and to execute our model.
We can do it.
Without too much of a.
On the strain on our on our resources.
I.
That's all I had thank you.
Thank you.
The next question will come from the line of Chris Mcgratty with Cole capital Debbie.
Hey, good morning.
And maybe a question on non interest income.
And the tax rate kind of the.
A movement there can you help us with what the other income on and the tax rate there are some.
Pretty big swings in the quarter.
Yes. The other income line was affected by a mark to market on some derivative contracts that we had so hopefully that'll that'll normalize a bit next quarter.
If we look out.
Third quarter to third quarter of last year, we anticipate anticipate will be and a 10% to 20% growth and non interest income.
But there was some noise around some derivative contracts of cash.
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So that should get back to normal as for the tax rate and use a 28% effective tax rate going forward.
Great.
And then.
Just 1 more on the on the funding given the momentum and the deposit growth you talked about the debt.
And you retired and the quarter any.
Anything else on on the horizon or is this just kind of longer duration stuff that's out there.
There is there is some borrowings that will be able to repay and the short term and not a significant amount book.
There are some borrowings of that world that will come true.
Approximately $100 million is coming due and the.
And next quarter.
And then after that we've got about $1 billion coming due 3 to 12 months out.
So we're.
We'll probably let them run off although we are assessing now whether it makes sense for us to prepay some of those.
Alright, great. Thanks.
Thank you for interest.
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Okay.
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