Q4 2021 Signature Bank Earnings Call
Standby.
[music].
Welcome to signature bank's 2021 fourth quarter and year end results conference call hosting the call today from signature Bank are Joseph J, Depaolo, President and Chief Executive Officer, and Eric Our House.
Senior Executive Vice President and Chief operating Officer today's call is being recorded at this time all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one 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 yeah set 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 Joseph J, Depaolo, President and Chief Executive Officer, you may begin.
Thank you Brittany.
Good morning, and thank you for joining us today for the signature Bank 2021 fourth quarter and year end results conference call before I begin my formal remarks, Susan Lewis will read the forward looking disclaimer. Please go ahead Susan.
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 maybe 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 goals should well wood plants.
We 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 many as a result of many possible events or factors not all of which.
Unknown to us or in our control. These factors include those described in our quarterly and annual reports filed with the FDIC, which you should read 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 into the quarterly results and then my colleague John Powell, our Chief operating officer.
Well, we view the bank's financial performance in greater detail, Eric and I will address your questions at the end of Alba marks.
2021, which marks Didnt meet your bank's 20th anniversary.
You have growth and achievements all our businesses contributed to the lower performance, whether it be tomorrow established New York banking franchise and emerging West coast presence.
Who are newer nationwide businesses.
The performance includes a multitude of accomplishments.
Record growth in deposits of 43 billion, which comes on the heels of about 2020 record deposit growth of 23 days.
Additionally growth in noninterest bearing deposits.
Loans and investment Securities all reached record levels.
These all founding client centric model that drives this robust organic growth and when combined with the inherent best in class operating deficiencies signature bank resulted in record.
Revenue growth.
And record net income.
Yeah.
Well 20 years, we have been in business, we sell them take time to acknowledge our achievements such as our recent inclusion in the S&P 500 index for which we are very young.
We remain focused on a bright future and commitment to staying at the forefront.
Innovation.
As the financial services industry continues to undergo digital transformation.
Now, let's take a look at earnings pretax pre provision earnings grew to 2021 fourth quarter were a record 385 million an increase of 124 million or.
47% compared with 262 million in the 2024th quarter.
Net income for the 2021 fourth quarter increased 99 million.
57% to a record 272 million.
$4.34 diluted earnings per share compared with 173 million or $3.26 per diluted earnings per share from last year.
The increase in income was predominantly driven by substantial asset growth of 45 billion over the last 12 months.
What was the decrease in the provision for credit losses, which is which was substantially impacted by COVID-19, and the fourth quarter of 2020.
Looking at deposits deposits increased $10 6 billion or 11%.
Two 106 billion this quarter, while average deposits also boots and booties.
This quarters growth was driven by the digital asset banking team, which grew deposits by $5 7 billion, including $2 4 billion of growth on the signet what payments what.
Our New York banking teams grew by $6 9 billion.
For the year.
I was increased a remarkable 43 billion a 68%.
Average deposits increased 35.
Our growth for 2021 can be broken down as follows.
King grew 21, four b a specialized mortgage banking solutions team grew $3 9 billion.
Our venture banking group grew nearly 991 banking grew 700 and the West Coast grew nearly $400 million and on New York banking teams grew $15 4 billion, which includes 18 genes that were over 100 million and grew out each.
This growth led to a further reduction in our loan to deposit ratio, which now stands at 61% lowering our loan to deposit ratio in the primary and initiatives, we are starting to achieve that goal.
During the quarter noninterest bearing deposits increased 10 billion to $44 4 billion, which represents a high 42% of total deposits.
There's tremendous growth in DDA can largely be attributable to the attraction of our students payments platform, which grew by $2 4 billion to $7 7 billion this quarter.
In fact, we just surpassed 10 billion several times and the Signet platform the first weeks.
January .
Our substantial organic deposit growth led to an.
And increase led to an it led to an increase of $44 6 billion or 60% in total assets.
For the fourth quarter of last year.
The bank has increased in deposits by nearly 66 billion over the web.
Last two years, which is the equivalent of acquiring top tier U S bank in each of the last two years, we did a completely organically no goodwill.
This is by far the most efficient use of capital not bad for a 20 year old Bank.
Now, let's take a look at our lending businesses loans during the 2020 with fourth quarter increased a record $6 3 billion or 11%.
For the year loans increased 16 billion or 33%.
Well that could close in loans. This quarter was again driven primarily by the fund banking Cole capital call facility, which was $5 4 billion.
This includes a $1 3 billion purchase of a high quality loan portfolio from a money Center bank that is comprised of loans to well known borrowers most of whom are already clients of the bank.
Moreover, our commercial real estate team grew loans by $707 million or we expect them to begin growing again. This marks the end of a multiyear plan slowed down for that business, where we substantially reduced our CRE concentration from a peak of 593% to 312%.
This was another major initiatives successfully accomplished.
So coastal west coast banking teams signature financial in a new corporate and mortgage finance and SBA origination businesses.
Turning to credit quality.
Our portfolio continues to perform well.
Let me point out.
Sounds rehab put full nonpayment COVID-19 modifications behind us.
I'll say it again, we have essentially put full nonpayment COVID-19 modifications behind us as we now have only 8 million remaining.
That is down from $1 3 billion at the end of 2020.
Non accrual loans with 218 million or 34 basis points total loans, compared with $165 million or 28 basis points.
2021.
Sure.
Our past due loans remained in their normal range with no.
30 to 89 day past due loans at $97 million in 90 days plus past due loans at 17 million.
Net charge offs for the 2021 fourth quarter with $33 7 million or 22 basis points of average loans compared with $17 3 million for the 2021 third quarter.
Provision for credit losses for the 2021 fourth quarter decreased slightly to $6 9 million compared with 4 million for the 2021 third quarter.
The bank's allowance for credit losses to 73 basis points. Your coverage ratio continues to stand at a healthy 17%.
I would like to point out.
Excluding variable secured fund banking capital call facilities and government guaranteed P. P. P loans the allowance for credit losses ratio would be much higher at 124 basis points.
Yeah.
Now on to the expanding team front, where we continue to realize success during 2021 the bank onboard at eight private client banking teams in total.
Two in New York for on the West Coast as long as the corporate mortgage finance team and the SBA origination fee.
This should leave the bank added numerous group directors, two existing T and signature financial and its simple executive sales offices across the Nashville.
Footprint.
Geographic diversification was another initiative that we successfully executed on.
At this point I'll turn the call over to my colleague, Eric and he will review the quarters financial results in greater detail. Thank.
Thank you Joe and good morning, everyone.
I'll start by reviewing net interest income and margin.
With our emphasis on growing net interest income the fourth quarter for the fourth quarter reached $536 million, an increase of $55 million or 11% from the 2021 third quarter, and an increase of $141 million or 36% from the 2024th quarter <unk>.
<unk> growth in net interest income during 2021 can be attributed to a record deployment of cash, which led to an increase of $27 5 billion across our securities and loan portfolios.
Net interest margin on tax equivalent basis increased three basis points to 191% compared with $1 eight 8% for the 2021 third quarter.
The increase was primarily driven by the continued decrease in deposit costs as well as the decrease in pressure on overall asset yields as rates throughout the quarter were favorable.
Massive excess cash balances from significant deposit flows continue to impact margin by 53 basis points.
Our focus is on net interest income growth.
Well, let's look at asset yields and funding costs for a moment.
Interest, earning asset yields for the 2021 fourth quarter decreased two basis points from the linked quarter to $2 one 6%.
The rate of decline in asset yields has significantly slowed and it appears that we are at or near the bottom. However.
However, asset yields continue to be affected by the excess average cash balances, which grew $1 $3 billion to $30 5 billion. During the quarter. This is despite asset growth of 10 6 billion.
Yields on the securities portfolio increased three basis points linked quarter to 152% due to higher reinvestment rates as well as the slowdown in CPR speeds on our mortgage backed securities portfolio.
Additionally, our portfolio duration increased to three six years due to the higher interest rate environment.
Turning to our loan portfolio yields on average commercial loans and commercial mortgages decreased five basis points to three 4% compared with the 2021 third quarter, excluding prepayment penalties from both quarters yields decreased by 70 basis points.
Now looking at liabilities.
Overall deposit cost this quarter decreased three basis points to 19 basis points due to both the low interest rate environment as we gradually lower our relationship based deposit rates and our very robust DDA growth.
At this point, we think we're near the bottom on deposit cost and it will be difficult to lower further, but obviously we will try.
During the quarter average borrowing balances decreased by $14 million to a low of $3 4 billion and the cost of borrowings remain stable at two 8%.
The overall cost of funds for the quarter decreased five basis points to 27 basis points driven by the reduction in deposit costs.
As we have pointed out the bank has significantly asset sensitive which is another of our initiatives that we executed on the <unk>.
Banks focus on growing floating rate loans, which now comprise 49% up from 10% of our loan portfolio, coupled with our core deposit funding make us extremely well positioned to take advantage of a rising rate environment.
And on to noninterest income and expense.
With our plans to grow noninterest income, we achieved growth of $9 3 million or 38, 3% to $33 5 million when compared with the 2024th quarter. The increase was generally across the board as many of our fee income initiatives are taking hold.
Noninterest expense for the 2021 fourth quarter was $183 9 million versus $157 7 million for the same period, a year ago to $26 3 million or 16, 7% increase was principally due to the addition of new private client banking teams.
And operational support to meet the bank's growing needs.
And despite our significant team hiring and margin compression from substantial cash balances. The bank continues to gain operating leverage and as a result, our efficiency ratio improved to 32, 3% for the 2021 fourth quarter.
Versus 37, 6% for the comparable comparable period last year.
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 tier one risk based ratio of 958% and total risk based ratio of 11, 73% as of the 2021 fourth quarter and now I'll turn the call.
Back to Jeff. Thank you.
Thanks, Eric I'd like to thank my colleagues, who have demonstrated their dedication to our clients.
And their needs during this pandemic times like these our clients truly by the level of care and advice that my colleagues provide and our performance for the year reflects the extraordinary efforts and the strength of our franchise as we continue to execute on many fronts.
2021 was truly an astonishing year of growth and achievement to signature bank we.
We delivered staggering record deposit growth of 43 billion or 68% on top of record deposit growth in 2020, 'twenty tweak day.
Demand deposits increased a record $25 6 billion for the year remain at a high 42% of total deposits, which is in large part due to the adoption of our signet platform.
And most importantly, our deposit growth was across the board.
Some of our existing teams to all of our newer national businesses we.
We had record loan growth of nearly 16 billion.
Furthermore, we have returned to calling on commercial real estate portfolio during the fourth quarter.
<unk> loans increased by 770, because securities portfolio by a record 11 thing to see.
Some up our balance sheet grew by $44 6 billion or 60% truly astonishing.
Our growth propelled the bank's pretax pre provision earnings by $318 million.
32% for the year.
Net income substantially increased.
By $390 million of 74% to a record 918 million for the year. We had a strong return on average common equity of 13, 8% despite margin compression due to excess balances.
I'd tell you that's extraordinary to have that'd be current while the bank was growing by leaps and bounds.
Fee income.
Noninterest income grew by 61% of $45 6 million for the year, we improved our already best in class efficiency ratio trying to get to 35% and we.
Set the stage for continued growth.
The hiring of a private client banking teams consisting of two in New York.
The West Coast.
In addition to Onboarding, the SBA lending team the corporate mortgage finance team.
It has been a number of transformative goals and initiatives that we have looked to achieve over the last several years.
We lowered our loan to deposit ratio from Ohio.
104 to 61, we significantly increased floating rate loans as a percentage of assets and we are now firmly asset sensitive and well positioned for a rising rate environment.
We lowered our CRE concentration level from a high 593% to 312%.
Geographically diversified with our expansion into the west coast as long as the Onboarding of several national businesses.
We've increased our fee income substantially.
Lastly, we have become the recognized leader in the digital banking arena.
So did you buy against this 2022 has a strong financial institution, we very much look forward to the years to come.
Now we are happy to answer any questions you might have Britney I'll turn it back to you.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad.
Any point. Your question has been answered you may remove yourself from the queue by pressing the pound key again, we do ask that well question. While you pose your question that you pick up your handset to provide optimal sound quality.
Thank you and we will take our first question from Dave Rochester with Compass point. Your line is now open.
Hey, good morning, guys nice quarter.
Yeah.
On the cigarette deposits I just want to make sure I got the numbers right that you gave did you say that you were at $7 7 billion in saying that at the end of the year and now you're up over 10 billion now in the first few weeks of January did I hear that right yes.
Yes, we have 10 day several times during several days during the first.
First several weeks here in in January its not a consistent at $10 billion, but its moving toward that number.
Yeah, Okay. That's a great start to the quarter do you happen to have the end of period breakdown, so that our digital asset deposit book.
Yeah.
Yes sure.
Okay.
So stable coin issuers, we had $6 9 billion in deposits.
Of which $4 8 billion, where operating balances and $2 1 billion were reserves.
OTC desks and institutional traders were at $4 5 billion.
Digital asset exchanges, we're at $14 billion.
And blockchain technology and digital monitors were at $3 4 billion.
Perfect. Thanks for that.
I had mentioned.
Essentially are doing some upgrades to cig that.
This year earlier this year I guess.
Are there any updates on that front and as a part of that are you anticipating that you'll be issuing stable coins on behalf of customers at some point.
Well, we the enhancements that we referred to will be joining this first quarter.
And everything you asked will be announced as part of what we're doing with the enhancements.
Right. So that is coming this quarter definitely.
Yes.
Yes right.
And so the answer would be yes, right now.
It sounds good Oh, what does the customer pipeline look like for the digital asset group at this point.
Yeah, it's pretty robust.
Has that been increasing is it higher than it was previously.
Yes, it's been growing we surpassed 1000, a while ago.
1000 active clients.
Great maybe just one last one could you just give an update on the use cases of saying that I know you've been working on the payroll company.
But when do you expect that will be fully online in an integrated with your platform and what is your thought on how large that ecosystem can ultimately be for you guys over time.
Oh, it's fully integrated and some of the payroll companies are already using.
We expect.
To grow this year in 2022.
We had some success during the fourth quarter.
But we haven't you haven't hit our stride yet.
Is that that's what kind of deposits.
I'm sorry, that's that's great. That's great that's great to hear what what level of deposits do you have in that segment at this point.
Is that I'd, rather not say.
Because I know there are competitors on the phone.
[laughter] Alright fair enough sounds good thanks, guys.
Uh huh.
[laughter] right [laughter].
And we will take our next question from Matthew Breese with Stephens, Inc. Your line is now open.
Hey, good morning.
Hey, Matt good morning.
Just hoping for a little bit of color. Obviously 2021 was impressive on multiple growth fronts, but if you could give us some some color as to what you expect for loan securities deposit growth this year and whether or not your guidance on that front has changed.
Well, we expect that on the asset side.
Guidance will get we think we will grow.
In the second third and fourth quarters somewhere between four and 730 in that range. That's a combination of loans and investment securities for the price.
This quarter, we think it'll be three 7 billion.
Probably on the low end because the.
The first quantities.
Difficulty little activity.
And part of our growth in the fourth quarter by $1 3 billion was the purchase that we made.
In the one banking.
So.
Three to seven being the first quarter and 47 days for the second third and fourth quarters.
We think it will be primarily funded by deposits.
Either.
The growth or what we have in cash right now, but primarily our growth.
And that's about as much as I can give you on the asset side.
Got it I appreciate that and then maybe just on the on the interest rate sensitivity society. It now feels like it's a matter of when and how many rate hikes, we're going to get this year all else equal I know cash is it a separate.
Variable here, but all else equal you know per 25 basis point hike what is your expectation for margin expansion.
Yeah.
I think it's if you look at a 100 basis point ramp scenario, we go up.
Little over 10% and it's pretty linear so each 100 basis point move we're going up an additional 10%. So it's 223 out of around 30% and so forth.
So for 25 basis point move I think it would be 2% to 3% range increase.
Yeah Okay.
And thats the growth.
Net interest income.
And that's on a static balance sheet so.
Obviously growth and hopefully the mix shift of moving.
Cash into securities or loans will also be very beneficial to that.
Understood. Okay last one for me you know in December you. Your your blockchain real time payments provider task that they did a demo real time payments using stable coin not interbank, but between two banks just understanding your relationship with them I was curious if this is something you're interested in joining one of.
Their interbank network and in your mind, what are the potential use cases of blinking alarms and sharing a stable point and what are some of the benefits.
Well first let me say that it's.
Very good partner Fintech partners.
The relationship very much so.
But what we do is which dictates what we're doing is that we listen to our clients and what our clients have told us is certain things that allow us to.
Set out priority agenda, and some of the things we're working on now which sit in that.
It is a priority and we really haven't.
Given much thought about the.
Uh huh.
Taxi tests at a platform.
So we will be doing that and looking at it.
But let me say that in working with us on the improvements, we're making with Cigna.
Yeah.
Great I appreciate it I'll leave it there thank you.
Thank you.
We will take our next question from Jared Shaw with Wells Fargo. Your line is now open.
Hey, good morning, guys. Thanks for the questions.
Maybe circling back on to the Crypto side, you know great growth. There can you give a rough breakdown of what is from new customers versus.
Volume from additional or additional volume from existing customers.
We don't we don't have that breakdown Jared.
Okay Alright.
And I guess shifting when you look at the allowance and credit.
Any color around the growth in Npls was that did.
Does that reflect any of the final move out of other deferrals and when do we look at the allowance ratio here is that probably a good floor given given the growth outlook.
Yes, I mean, we took a hard look at year end given the end of our ability to extend the COVID-19 deferrals. So we we took a conservative approach and put loans on non accrual or mostly got them back to paying us Jared. So we think we're at a at a near term.
Our peak on on non accruals I mean, we could see it tick higher but I wouldn't think it would be meaningful and we're working on resolution on many of those credits.
So hopefully we can.
Keep it at or below the levels that we're at today.
Okay.
And then.
What are you seeing for new money yields and the in the loan book and the securities purchases here.
And we're generally seeing on floating rate LIBOR plus 200.
And the CRE front, but mid threes now Joe.
Probably so.
Yeah, I think we're like 350.
On multifamily and higher obviously on the other forums, whether it be retail or office, but we have in the pipeline right now.
Put on the books will be put on the books this month and next month.
Yeah.
Okay.
And.
When you look at the when you look at that the CRE portfolio in New York outside of multifamily.
Yes, yes.
The growth specifically, there and what's your view in terms of.
The outlook for the year in terms of the health of that that sector.
Well, we think that you will.
Well.
Somewhere between a quarter of a billion and a few quarters ago.
On a quarterly basis.
I would say that 707 million primarily multifamily.
It's a good time right now to make loans decreased.
Yeah.
How big out there.
You know what.
At bottom.
And in Bad Times, you can tell me a good time to make loans because you know the current situation.
I can get any worse.
So we expect them to.
Two business.
Yeah.
We haven't had a fourth quarter well, if we hadn't had that since the third quarter of 2018.
So it's been quite a while.
And if we can get back to that that pace that would be very good for us.
And just finally for me you know capital the balance sheet growth as a as an exceptional capital ratios are.
Lower than what we've seen recently what are your views on capital sufficiency here and not just for where we are today, but for the growth.
Jared you know if we see an extended period of growth in our future, we're not going to be shy about raising capital.
Okay, great. Thanks for the questions. Thank.
Thank you.
We will take our next question from Mark Fitzgibbon with Piper Sandler Your line is now open hey.
Hey, guys good morning.
Good morning, Bruce.
But think about the outlook for expense growth in 2022.
Yeah.
Yeah, Yeah, I think we are.
Had some anomalies in the fourth quarter of last year, which led to us being up a bit.
This fourth quarter. If you look at the first quarter versus the 2021 first quarter will probably be in a 14% to 16%.
Range.
I would I would think closer to the higher end of that range and then we should trend down as we've done many years before you know trend down over the course of the year and bring that expense.
Expense growth rate down each quarter.
Okay, Great and then I'm curious fun banking loans I assume it had pretty good growth again this quarter.
Which would probably push it up to roughly 40% of total loans I guess I'm curious how large you are comfortable letting that line of business grow too.
We really havent set an official target or internal level, I mean, we're pretty comfortable letting that grow quite a bit from where it is it's an extremely well secured and well diversified portfolio, whether it be the underlying type of fund Lps that were lending to the geographic.
Areas, it's well diversified geographically, so theres tremendous diversification with that within that portfolio that gives us a lot of comfort and clearly it's got a long history of.
Little to no loss, so we feel very good about growing that portfolio.
Okay, and then lastly, I know you've been hesitant to say, where the next geography is likely to be but I'm curious if you can give us a sense for what the timing on expanding into a new geography might be and also if you could also share with us what the number of teams in the pipeline look like for 2022. Thank you.
Oh, well the predominant growth we'd be western Mississippi.
And teams.
Although we do expect to open up an office in New Jersey.
In 2022.
We'll have an office, we actually doing a lot of business in New Jersey that makes sense for us to have placed not gonna stay where it is right now, but I will.
We'll be entering New Jersey, and then west of the Mississippi.
Uh huh.
Let me close.
In California.
Yeah and on the team front, where we've got a number of.
Ongoing discussions with with teams in various stages of the pipeline.
But I think you'd have some pretty robust growth, especially given some of the new geographies that we are looking to enter.
So talking anywhere from eight to potentially 20 teams on the high end.
Thank you.
Thank you. Thank you.
And so we will take our next question from Brock Vandervliet with UBS. Your line is now open.
Great Good morning.
Good morning, Rob.
On the securities lending.
I know that it started.
Started slow with a $25 million loan that was upsized to $100 million I believe.
Where does that where does that initiative stand right now.
We have two loans.
And the pipeline that we are very much along in the pipeline for 100 million a piece.
And then we have long is we haven't worked on yet that are in the pipeline maybe somewhere about a dozen.
Our clients I don't know how much we'll book this quarter, it's likely we'll book the two 100 dollar ones $100 million months excuse me.
Uh huh.
Right.
I would assume.
But it's not going to be a driver.
Our loans with the fund banking.
A new mortgage.
Mortgage warehouse business and the SBA business and CRE coming back it will be a very very low end of our generation business.
Is that.
I remember you're framing the potential there into the billions in terms of the demand.
Has that had.
Has that changed or is there a change in you know.
Our risk appetite or.
What's what.
Can you tell us a little bit more about what the thinking is behind the curtain I guess well.
So the appetite is he's very much there.
We want to go slowly.
We want to make sure that.
They should be having about third party.
It manages the collateral for us.
We like the way, we set things up we've seen movements up and down and we've seen settlements being done every Friday, because we true up every Friday.
No.
At least.
Now.
And.
There's no there's no.
No hidden agenda that it's basically we said we would we would really.
Crawl before we walk.
And then we said we'd walk before we run and then we changed that and said we would walk before we walk so we're never going to run this business I know there are some clients that are willing to wait.
For us, but we have clients that we want to launch with and we won't stop doing business with us on the Signet platform.
It feels the need.
To do something that were not yet 100% comfortable.
We do all the peace.
Okay and.
Not too.
Try and push into areas that youre not comfortable talking about it yet, but it sounds like.
We should expect a broader.
Broader disclosure on on a plan around Sigma at sometime in the.
And other digital initiatives sometime in the first quarter.
That's all planned.
Absolutely.
Okay, great. Thanks for the questions. Thank you.
Thanks.
And we will take our next question from Casey Haire with Jefferies. Your line is now open.
Yeah. Thanks, good morning, guys.
Hey, guys.
So question on the.
On the securities build and loan growth guide, So you know $4 billion to $7 billion per quarter and in the later part of the year. It feels like there's an opportunity to be a little bit stronger on the security side of things would that $30 billion cash position I was just wondering what what is what is kind of.
Holding you back there, even though there was a nice step up this quarter.
Yeah.
We are being a little bit more aggressive Casey, but we do anticipate that rates are going to continue to rise and rise and rise so.
Given that we want to be smart about how we deploy and.
Make sure that we have enough to deploy it to even higher rates in the future and there is quite frankly, only so much that our treasury group is able to deploy in any given quarter as well.
Gotcha, Okay, and then just following up on that Erika I heard you on the loan yields, but I'm not sure I heard you on the new money yields for for Securities placements, where where are those coming on today.
Oh right around 2%.
Okay very good.
And then just on a couple of questions on the asset sensitive profile.
Number one.
The deposit beta.
You know what what are you guys baking in your and your stimulation and then to the.
Loans at 49% of them floating rate is there a level, where you would not want to see that.
Go any higher or or is that not not in play at all.
It's I wouldn't say, it's not in play at all something that we continue to look at.
Being where we're positioned now and the expectation that rates will continue to rise and we're happy with that level of floating rate even pushing it higher.
But there will be a point as we see.
<unk> start to level off that we'll look to be even more aggressive in our CRE portfolio again to help balance that out.
You really haven't had CRE April it's about we all.
On demand initiative.
C O rebalancing it out.
Well for the last three years, but now that will change.
Okay, very good and just that the deposit beta.
[laughter] assumptions in your stimulation.
While our last time through when we saw fed tightening we.
We had a 34% beta on our total deposits I think we're modeling around a 40% beta.
A little bit more conservative.
Okay very good thank you thank.
Thank you Candace.
Yeah.
And we will take our next question from Steven <unk> with Jpmorgan. Your line is open.
Good morning, everyone.
Good morning, Steve.
I wanted to start bigger picture. So if you look at period end assets sorry, Your 45 billion for the year. So the run rate pretty consistently is above $10 billion a quarter and regarding the four to 7 billion asset growth beyond the first quarter are you just being conservative with the guidance and I do recognize you basically beat the guidance every quarter in 2021.
Or do you see yourself, the more specific which should cause asset growth to slow a bit in 2022.
Well, we're not trying to cry Wolf.
We've had like you said four corners zone.
10 billion and growth and.
We expected.
That's been less each quarter.
Not from a consensus standpoint from what we see and even though we have more initiatives that are starting up.
Mortgage warehouse.
S. P. A we don't expect there to be billions in growth from each of those businesses.
We expect to help teach a nice vacation.
Our balance sheet.
Yes no.
Yeah.
Crystal ball.
And plus the interest rate's going to go up I mean, we've seen interest rates go up we see deposits being used for other things.
Sometimes.
And the C.
See how these investments in their buildings.
And for our other businesses.
They are using the deposits we have a little.
They don't.
Transfers.
Positive to the off balance sheet.
And then you know you have some headwinds with some interest bearing deposits will be going to.
Other institutions, where they have we have some flop.
So not knowing what the environment is going to be like the next 12 to 24 months.
She's our best projection.
And we're happy that with better execution that we are in protection [laughter].
That's good color Joe.
In terms of the digital active customers how many I know you said you went over 1000, but how many did you add in the quarter and how is the fall in the price of crypto prices had any impact on the pace of institutional adoption.
We haven't seen the full effect of adoption at all so I'm just to add to that.
We added 139 clients during the quarter. So we're not a 1042.
Okay.
That's helpful. Thank you and then final question on the just following up on Mark's question on expenses, it's almost mind blowing to see the efficiency ratio down to 32% given the expense guide of rates going up it would appear that this is going to go even lower.
So one is that the right way Eric to think about it the deficiency should just goes down from here and just given the asset level, where you're moving to do you see a need at some point to ramp just expense growth from a regulatory compliance view. Thanks.
Not so much from a regulatory compliance view I mean, there are some things that we're obviously doing there on that front and we'll continue to spend there, but it's not.
It won't be the primary driver I mean, we're working on a number of initiatives as Joe pointed out in the digital front.
There's a lot that we have to do just in our operations or our existing infrastructures to shore that up and get it online with 100 plus billion dollar banks infrastructure should look like so we're going to be spending a lot on human capital and in technology to support all the growth that we've put on.
I think that if it weren't for the growth we'd be well below the.
14% to 16% guidance that we've been talking about.
But really our ability to move the efficiency ratio down.
Strongly predicated upon a higher interest rate environment, where we're going to see.
See our NIM actually expand that menu expansion or just three basis points is pretty meaningful this quarter.
It looks like we're at or near a bottom right well see what happens with the interest rate environment as we all know it can be volatile.
But if we see a similarly situated yield curve to what we have today and we should see further NIM expansion and we'll drive that efficiency ratio down.
That.
Okay great.
Great. Thanks for taking all my questions. Thank you Judy.
And we will take our next question from Chris Mcgratty with K B W. Your line is now open.
Hey, good morning.
Most of my questions have been addressed I was interested if you could spend a minute on our noninterest income.
40% year on year growth.
I guess two parts of it.
Should we be thinking about the sources.
And the trajectory of growth going forward.
Well I think if we look at 2022 versus 2021 overall, we see 20 or 30% increase.
The increase in fee income.
There.
If you look at just the first quarter of 2022 versus the first quarter last year, it's probably more of a 10% growth. We did have a really strong quarter first quarter of 2021 as it related to loan sales and some trading income.
Which you know which.
Which is a bit more volatile and harder to predict so so the first quarter's growth would be around 10% and in future quarters, 20% to 30% now we've got a number of initiatives there that are truly taking hold foreign.
Foreign exchange has been steadily climbing over the course of the last two years.
Just barely started on a credit card.
So hopefully we'll see that take off.
And then fund banking and the continued growth there is driving the unused fees.
So that that should be a further driver for us and we've had a lot of success in our S. P. A.
<unk>, a business, where we're starting to drive fee income.
We've spent a lot of time, focusing with all of our private client banking teams on their fee income generation and getting them to see the value of the stellar services that they get to their clients and that there should be paid for that and that's that's driven our fee income as well.
Yeah.
That's great color. Thanks, Eric just a just a clarification on alone on the asset growth of three to seven.
What's assumed mix of bonds and loans in that guidance.
We haven't we haven't given it for good reason, it's really hard to predict both of those and it's.
Based on really the interest rate environment.
And as well as many other factors that come into play. So we're just gonna give guide on overall asset growth at this point.
Yeah. Thanks.
Got it.
And so we will take our next question from David Long with Raymond James Your line is now open.
Good morning, everyone.
Pointed.
Eric I think earlier you answered the question about NIM upside to 25 basis points in that in that discussion I think you said, 10% upside to net interest income and 100 basis point parallel shift.
I think it was 15% last quarter has anything materially changed with your asset sensitivity.
It's it's come down ever so slightly.
There are a lot of moving pieces to that equation, David but we we've it's come down a little bit. So it's probably it's not quite 15%, it's not 10% either probably closer to 12% to 13%.
Okay. Okay got it and then second question.
Did you disclose the dollar transfer volume and the digital currency ecosystem.
In the fourth quarter.
We had not but our volume transfers where.
A record high for us at $213 7 billion.
And for reference what was it in the third quarter.
In the third quarter was $127 nine.
Awesome, great. Thanks, guys I appreciate it.
Thank you.
And so we will take our next question from Abraham Pune Love with Bank of America. Your line is now open.
Okay.
Hey, good morning.
Good morning.
Just had one follow up question on the capital.
The one 1% it would be up 5% given the point you had.
Do you mind us Eric internal capital generation, what's the level of asset growth that you can support and why not do a pre empted my equity raise given how strong the growth momentum is stocks at an all time high just give us a better thought process around the capital planning.
Yeah.
But I mean, I think our capital generation you know roughly.
Generate $1 billion capital depends on what ratio I put out it's going to support it at the time.
$1 billion of growth so.
And.
I mean, I'm going to stick to the script every game if we see an extended period of time, where we're going to have.
Lots of growth in our future, we're going to we're going to go raise capital.
Oh.
And do you still.
For equity or what anything else in terms of shoring up capital is that fair yes.
Yeah, we like a clean capital structure, so comments, probably makes the most sense for us.
But that's all I had.
Thank you brain.
And so we will take our next question from David Bishop with Seaport Research. Your line is now open.
Yes, good morning, gentlemen, best.
Most of my questions are answered it Eric I wasn't sure if maybe as Joe had mentioned.
The allowance for loan losses to loans did I hear that that may have hit a floor here.
Just given the growth outlook here into 2022 wasn't sure if I heard that correctly earlier on the call.
I think I think we're clearly closer to the floor I wouldn't necessarily say that we set a floor yet though.
We're clearly getting closer to the floor.
Great. Thank you.
Yeah.
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