Q1 2022 Signature Bank Earnings Call
[music].
Welcome to the signature bank's 2022 first quarter results conference call hosting the call today from signature Bank are Joseph J, Depaolo, President and Chief Executive Officer, Eric Our Howl Senior Executive Vice President and Chief operating Officer and Stephen.
I mean ski 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 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.
Yes could you please pickup 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 Ashley good morning, and thank you for joining us today for the signature.
<unk> 2022 first quarter results conference call before 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, 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.
<unk> 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 and business strategy and the impact of the COVID-19 pandemic on each of the foregoing.
And in our business over all forward looking statements often include words, such as May believe expect anticipate intend potential opportunity could project seek target goal should well would plan estimate or other similar expressions as you consider forward looking statements you should understand that these statements are not guarantees.
The performance of 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 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 before discussing this quarters 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 investors section of our website.
I would also like to introduce Steve Williams, Chief Financial Officer Welcome Steve.
As always I'm joined here today by Eric Howell, our Chief operating officer, Good morning, Eric.
Together the three of US will provide an overview on our quarterly results well, we've always dress your questions at the end of our remarks.
Did you buy 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.
As exhibited by strong profitability and growth metrics achieved across the board.
Let me take a step back one moment.
The quarter played out as we anticipate interest rates rose and as a result, our deposit growth normalized but still remained strong.
We deployed some of the excess cash into higher yielding assets and monetize 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 and success with 64 cents to $5.30.
Forget 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.
This resulted in operating leverage our efficiency ratio further improved to a low point in our ROE expanding to a high of 17, 4%.
Adjusting for these one time tax items are already would still have been a high 15, 2%.
Not bad for a growth company.
Moving onto the balance sheet remained strong on all fronts total assets grew by three 4 billion. We grew our securities portfolio by a record $4 1 billion and our patient and prudent deployment is proving to be advantageous that's really now more active at a higher rate environment, we continue to see opportunities.
To grow across all lending verticals and total loans expanded by $1 5 billion.
Total total ethical to $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 two 8% to 109 billion this quarter, while average deposits grew by $5 3 billion.
Since the end of 2021.
First quarter deposits increased.
$35 2 billion up 47, 6% and that was increased nearly $37 1 billion.
3 billion in growth of total deposits.
Non interest bearing deposits grew $2 4 billion to $46 7 million.
Which represents our highest 42, 8% of total deposits, which is will be extremely valuable in a rising rate environment.
With $2 4 billion of the 3 billion total growth was in non interest bearing.
Reported growth was across the board in all of our.
Businesses positively contributing essentially we are seeing the power of diversification.
The last two years, we have expanded into new geographies and industries. As a result, we have created a very stable franchise that is not reliant on any one business line.
Isaac Ro, which was one of the vital goals for transformation.
On the digital front, we are seeing tremendous positive momentum the business continues to grow as evidenced by the on boarding of a record 160 new clients.
Also we doubled the amount of major exchanges to eight.
Top 12, where we are now the primary bank, which should bode well for future growth.
All of these exchanges are integrating onto cigna.
In part due to our latest enhancement. This new feature allows for our clients execute instead of automated why it's been sitting there in addition to blockchain based.
Payments create.
Creating efficiency for our clients and streamlining their payments process.
One of the leading banks in this space, we listened to our clients and develop cigna into an all in one payment solution now I'd like to turn the call over to Eric.
Thank you Joe and 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 two 4% to $66 4 billion.
Core loan growth of one 9 billion.
For the prior 12 months total loans grew 15 5 billion or 33%.
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 and mortgage finance had a solid quarter with $160 million of 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.
Venture banking group had a record quarter of $88 million in growth in our West Coast C&I ABL group and SBA originations platform all positively contributed to growth.
Furthermore, commercial real estate grew by $157 million as rich as we've turned our attention back to growth in this space.
Growth was all in multifamily CRE, which increased 300 million, so very solid quarter in multifamily, but partially offset by a decline of $142 million in other CRE.
Despite the strong growth this quarter, our concentration levels further declined below 300% and is now at 399%, which was a goal. We finally reached and we've now put the topic of CRE concentration behind us.
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 the 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 and 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 P. P. P loans the allowance for credit loss ratio would be much higher at 119 basis points.
And now onto the expanded team front, where we continue to realize success.
We started onboarding teams early in the second quarter asset bonuses were paid.
Thus far the bank Onboarding six private client banking teams, including the one in New York on the West Coast. We further expanded our footprint to include Sacramento, and the Central California region, adding three teams.
Actually two teams or 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 nine in San Francisco, five in Central, California, and two in Reno as well as representation from all our national businesses.
We are excited to see the significant level of opportunity to add 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 and the pipeline. Additionally, we will soon be announcing a new C&I lending vertical as a few members of the <unk>.
Team and have already joined us with the rest to follow shortly.
In order to support our team expansion, we've hired extensively throughout our operations and support infrastructure. So that we can continue to best serve our clients' needs at this point I will turn the call over to Steve. Thank you.
Thank you Eric and good morning, I'll start by reviewing net interest income and margin.
Net interest margin increased eight basis points to 199% compared with $1 nine 1% for the 2021 and 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.
167 million or 41% when compared with the 2021 first quarter and an increase of $38 million or 7% from the 2021 and fourth quarter.
We expect continued cash deployment and anticipated higher interest rates to drive net interest income growth in the upcoming here.
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 linked quarter.
2.22%.
The increase this quarter was again driven by the cash deployment into higher interest bearing loans and securities.
Average cash balances for the quarter decreased 2 billion well.
Average total loans increased $4 6 billion in.
And average securities grew $3 3 billion.
Yields on our securities portfolio increased nine basis points linked quarter to $1 six 1%.
Given 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 to three 9%.
Many of these trades were executed to take advantage of the shape of the curve and came with a shorter term.
Okay.
Turning to our loan portfolio yields on average commercial loans and commercial mortgages declined 70 basis points to 333% 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 moved higher this year.
Now looking at liabilities.
Our overall deposit cost this quarter decreased one basis point to 18 basis points. We're now at the bottom on deposit costs at some of our rates have already begun to move slightly higher.
During the quarter average borrowing balances decreased by 89 million two allowed $2 7 billion and the cost of borrowings remains stable at 245%.
The overall cost of cost of funds for the quarter decreased two basis points 25 basis points driven by the reduction in deposit costs.
As we have pointed out the bank has significantly asset sensitive bank.
<unk> focus on growing in floating rate loans, which now comprise 61% of our loan portfolio.
In addition to our core deposit funding.
And that's again cash balances to make us extremely well positioned to take advantage of a rising rate environment.
Onto noninterest income and expense, we continue to emphasize fee income.
Noninterest 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.
Noninterest 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 borrowing needs.
Despite the significant team firing and substantial investment in our operations. The bank continues to gain operating leverage as a result, our efficiency ratio improved to a best in class 31, 8% for 2022 first quarter Firstly.
First is 37, 9% for the comparable period last year.
Okay.
What are you looking at taxes.
This quarter, we benefited from multiple onetime tax items, which totaled $41 6 million.
And mostly relates to the impact of our annual restricted stock vesting.
This lowered our tax rate to 17, 8% for the quarter. Excluding these benefits tax rate would've 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 our common equity tier one risk based ratio of.
10, 49%.
And total risk based ratio of 12 five 8%.
And then the 2020 to first quarter.
Now I'll turn the call back to Joe. Thank you. Thank.
Thank you Steve this quarter our results speak for themselves as we continue to do what we said we would do we achieved an all army of 17, 4%.
Backing out the onetime tax items, just mentioned by Steve It would've been a very strong 15, 2% again not bad for a growth story.
Efficiency ratio improved to 31, 8%, we see banks with efficiency ratios over 60% being applauded.
Deposit growth came from across the board. It's slowed like we said it would but it was still strong and if you want to know more information and see slide four of the deck.
Our loan portfolio.
CRE concentration fell below 300% for the first time in over a decade and contributions came from eight different areas see slide five for the desk.
We continue to geographically diversify particularly on the West coast, where we have expanded to central California, and now we know we have seen tremendous consolidation of market disruption on both coasts recent M&A and New York has already resulted in more then went back to prospects and 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 and the support and administrative functions in order to support strong growth will stay on top of the enhancements, both current and future to sit in that and we.
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.
Uh huh.
So 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, yes at any point. Your question has been answered you may remove yourself from the queue by pressing the Pouchy again, we do ask that you. While you pose your question that you pick up your handset to provide optimal sound quality.
And our first question comes from Milan, <unk> with Morgan Stanley . Please go ahead.
Hi, 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.
Could you talk about what you're seeing in demand since the first rate hike and.
Maybe talk about what you expect for boss.
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.
I mean, we continue to really see strong demand in that market.
We don't want to anticipate.
The early moves that we'll see much of a fall off in demand at all and I think you'd need to see a meaningfully larger moves.
Moves by the fed at.
Much higher rates before before we really see the demand fall off in that space and we continue to have the opportunity to take significant market share there.
We anticipate it will be a strong area of growth for us moving forward.
Got it and then maybe one follow up on your comments on on expenses.
Given that you're one of the most assets asset sensitive banks amongst our peers.
You know with rates moving up.
Yeah, I think you 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 if I may.
Zero that out it seems that if you can.
This loan growth paths and the asset sensitivity comes through your expense ratio will be comfortably sub 30%.
Is there anything that we're missing here you know in any one time investments or costs that you need to incur this year or next.
No I mean everything is in you mentioned.
Teens expense growth guidance, 16% is what we're forecasting is certainly the asset sensitivity that we have is providing a significant amount of operating leverage and we'll continue to as rates continue to increase so there's no nothing missing and that no one time.
Everything is built into that 16% forecast.
And if I may add.
One of the things that we don't have as a retail component.
So our offices to service clients I think space that is on the upper floors.
And we don't have a large telco area. The Christa private privately held businesses and usually we're picking up from them. So we don't have any real estate costs of our retail group and we don't know we don't advertise.
Advertising marketing and retail cost for locations on the street.
A very expensive.
You called that out and that helps us with the efficiency ratio.
Okay.
Great. Thank you.
Yeah.
Well take our next question from Dave Rochester with Compass point. Please go ahead.
Hey, good morning, guys nice quarter.
Good morning.
On the digital banking side, you mentioned the doubling of the major exchanges when your customer base rents on those ads are was just wondering if all of those associated deposits or are actually reflected in the <unk> numbers and then can you just give a break out of a digital asset deposit book at this point do you have that detail on that.
Components that you talked about before that would be great.
The deposits of the eight are not reflected because some of them just came on so that bodes well for us in the future.
Gathering deposits because they're not all in those numbers.
The right, let's see what what you wanted the balances.
Just like out of the bat didn't laugh at the possible. Yeah. If you guys have yeah, we had a seven point to stable coin issues.
The O T O T C desks and institutional trade it was five six.
Digital asset exchanges is 12.8.
These are all in billions.
Alas chain technology, and digital minuses three six study.
It could end up using all 49.
Oh, sorry go ahead.
And off balance sheet is zero.
Okay.
The total of that.
I can add it up it was about 29 point too.
29.2, and $18 five of the $29 two was in DDA.
Okay.
Right.
Thanks for that detail and maybe just overall on deposits it seems like we.
And we know you have a lot of drivers for growth going forward back in March you highlighted that growth is normally slower than <unk>, but it looked like it sounds.
We 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 too going forward that's not on your thoughts.
It's really across the board we had you know the retail banking teams.
We are 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 it starting to kick in even more and they had all the 17 in deposits throughout the year and we expect some large and wants to come in throughout the second quarter and the fourth quarter.
Banking is a is contributing.
It's coming from all of them.
Right.
That's good detail. Thank you and switching to the asset side, you mentioned, the new assay protocol, but it's coming it's something you've already brought some of those guys over can you just give us an update on what you see as the growth potential.
And that are 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 that test company up and running now I know you were you were close to linking them then into your let's take that network and then how you see that ramping up from here this year that'd be great.
Sure Yeah, the new loan vertical, we're probably looking at a $200 million to $500 million in growth per quarter.
A couple of members of the team on board or waiting on a few more to really join join us.
The next month or really hopefully in a couple of weeks, but certainly within the next month.
And then we'll have them up and running they shouldn't hit the ground running pretty quickly.
There's potential will have some growth in the second quarter, but certainly the third and fourth quarter, there should contribute nicely to our growth.
Great technology, that's already in place and that team.
Yep Yep technologies in place for that vertical smoking that we don't already have right.
And for the payroll the ecosystem the paywall processes, where you have been lined up and ready and what they're doing now is trying to get their clients their customers onboard so they could uh huh.
You sit in that.
Yeah.
Right now do you anticipate that are panning out into Q3, Q or is it more of like.
<unk>.
Thank you.
Right Alright, thanks, guys appreciate it.
Thank you Dave.
Well take our next question from Matthew Breese with Stephens, Inc. Please go ahead.
Good morning.
Okay.
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.
Yeah, you know.
Yes, Matt will be looking at probably $1 billion to $2 billion as loan growth hopefully at the higher end of that range.
And then securities growth should be two to 4 billion again.
Probably closer to the higher end of that range as well given where the yield curve is shaped.
Okay and then in your prepared remarks, you had mentioned.
NII.
Growth and NIM expansion on the back of cash deployment.
Still have $26 billion of cash on the balance sheet, how much of that over the next year or are you anticipating using up and deploying into loans and securities.
Super hard to predict right that that really comes down to what deposit growth will be and given the environment that we're in and the <unk>.
Rapid rate rises that we're all anticipating.
Anticipating it's really hard to predict deposits right now.
So it really comes down to that to that Matt is what what is deposit growth going to be.
Okay.
Just staying on the topic of the deposits 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 pricing control versus last cycle.
Am I missing.
You know I think we're just trying to be conservative.
Rates that we do have a couple of new verticals in digital and in mortgage banking.
Solutions so.
We're really trying to be conservative in modeling those out right now, but you're you're absolutely right a high level of DDA is gonna be very protective for us in and thus far the deposit beta 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.
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.
They're more severe right if we see the frequency and severity of those rate rises pick up and we see more of a 50 basis point rate rises that we'll see.
You know betas.
Pick up substantially.
So we're trying to be protective with about 40%.
Sure.
But we're hoping for better.
Okay.
The last one from me is on an older topic, but it's really around credit you know I've been getting more questions, particularly on New York City Office and I was hoping you could remind us just what the size and the credit characteristics of that portfolio and whether or not either an office or generally across any of your your your real estate oriented.
Asset classes, Youre seeing any sort of credit deterioration and if so you know we're in now.
Yes.
So absent a lot apart really not right. So we saw all of our metrics.
Proof of.
This quarter as it relates to office specifically.
We've got about $3 9 billion in the portfolio with a 56% of LTV and a 1.39% that that service coverage. So we feel well protected you know theres a lot of noise. This quarter based on one of the one of the big.
Lenders turning back the keys on C N V S property.
Our office looks nothing like.
That is C MBS lender right.
We have to own the risk as a balance sheet lender they get the slice it up and sell it off.
And we went through well established generational families.
Who are really expert in what they do and particularly in that office space. So.
So thus far we have zero non accrual loans.
And we have no loans in full deferral and office Alright, 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.
A wall.
Perfect. That's all I had thank you for taking my questions. Thank you Matt.
Well take our next question will come from Casey Haire with Jefferies. Please go ahead.
Yeah. Thanks, good morning, guys.
Yes.
I guess some some questions on some some follow up on the NIM the new money yields.
I think Steve you said, the the reinvestment yields were $2, 39, where where our reinvestment yields.
Today.
The increase from there on the security side, we're investing in in the low 3% range.
CRE is in the low 4% range for the quarter about and then on the fund banking, we're looking at a mid 2% range.
Okay.
Okay. Sorry did you mention there was a loan yields did you mentioned that the securities reinvestment you already put all over.
That upfront a little over 3% growth on both groups.
Okay and just on the on the cash could you just give US a reminder of what's 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 I'm just trying to figure out yeah, yeah, it's still 10% to 15%.
Okay very good.
And sure. Thanks, that's all I had thank you. Thank.
Thank you Lucy.
And we'll take our next question from Steven Alexopoulos with Jpmorgan. Please go ahead.
Good morning, everyone.
Hey, Steve Good morning morning, a new slide deck looks great. Thanks for that.
Joe I wanted to hit this issue if we could on the FDIC problem list.
Your stock was pretty weak once a report came out right. The assets went up 120 billion, which is about your size I've said publicly I don't think 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 camels rating, but can you give any color on this situation.
Yeah.
Yeah, Steve I'll start this off of it and I'm pretty sure. It Joe is going to want to jump in at some point, but we.
By law, we're not allowed to talk about camels ratings and such as you know but.
We are not aware of any bank.
Andy back with capital ratios credit metrics growth.
Earnings like ours ever being anywhere near a troubled backwards nowhere near it.
Hi, Steve.
I'm glad you asked the question so we have a chance to speak.
Speak about it.
So are we.
A little insulted by.
The marketplace.
And quite frankly embarrassed.
Because of what Eric just said.
Uh huh.
People would think we could be on the list but.
But we can't comment whether we are or not.
No because we can't tell but that'll camels rating.
But.
I'm the CEO .
I would now.
No I don't I know nothing.
So that's all.
Okay. That's helpful.
Expanding into California, and Nevada into new markets rates typically if a bank were to be on a troubled bank with expansion would be out of the question right. Yeah right right right. Yes, no. It's good I mean, it's funny there are other banks out there with the regulatory issues against them, which we know there is 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.
Shifting directions for a second Joe 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 could you go into that a bit more what did you mean by that.
If they're moving their operating accounts from wherever they are to us and.
And we will primarily be the bank that handles their day to day banking operations with.
With the Treasury group.
Four of the top 12, and we've got another four this.
This quarter I mean this isn't it.
First quarter now we have a.
Yeah, moving on board and it means that we'll have a lot more DDA well at least more DDA.
And you'll be honest sitting at.
And.
That's really it.
Really the operating accounts is a key and then E D.
Yeah, Okay that does it does.
It doesn't mean that they don't have other banks, yes.
But yeah. Please.
We considered the primary one mhm.
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.
Little bit of both right I mean, certainly when you look at Nevada, It's a it's.
As an extension of California. These days, we've seen a lot of business move along the I 80 corridor moving out of San Francisco.
Silicon Valley, right, where they're finding much cheaper operating.
Opportunities in Sacramento, and then a little bit further across into arena right into into it more tax friendly state.
So we're following our clients a little bit and we were opportunistic and that we found a leader in that market, who could attract some real high quality bankers.
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 particular, particularly those ones that are growing.
In a rapidly right now and attractive business. We can we can act upon it.
Perfect. Thanks for taking all my questions. Thank.
Thank you Steve.
Yeah.
And we will take our next question from Ebrahim <unk> with Bank of America. Please go ahead Sir.
Hey, good morning.
Good morning so.
I just wanted to follow up on deposits. So I know, it's hard to handicap, but as we think about growth one quarter and the first quarter. It was about $2 billion.
Is that at least a steady state in terms of how we should think about baseline deposit growth then 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 BD is that 43% should that move towards more than just bidding as you move forward. The next few quarters, given the fed hikes or do you.
That mix to hold on I'm pretty much steady state.
Hum.
Deposits.
<unk>.
Yes.
It's hard to do that.
So we put a lot of our businesses.
We have now on the books with new teams and new lines of businesses. So that 1111 area is falling short.
The other areas can pick up another 3 billion in deposits that we had growth this quarter. We've been in business now about 84 quarters and this is the highest.
The 84 corners. So it's it's it's a it's.
It's not anything that we would not.
Take lightly.
3 billion. It is a very good quarter, I think everyone, including us got used to the 10 million a quarter.
During 2021.
We really don't we don't expect that to happen.
Expect it to be a.
More moderate.
And then on the deposit mix, we certainly expect clients to be seeking rate again, we're currently forecasting down into the 30% to 35% range that we make it.
Yeah.
That's what you assume in terms of the GDS moving to 30% to 35%.
Certainly.
Sure.
And then I just wanted to ask is that mostly driven by incremental growth probably comes in interest bearing as opposed to you actually seen runoff in DDS.
But I think it would potentially be a mix of both certainly new accounts, but even over a long period of time, we might see some of them. We expect to see some migration from noninterest bearing to interest bearing as well.
Understood and I guess, just one follow up I know you go ahead.
I was just going to say that.
Some of the deposit growth.
Coming to your off balance sheet, we've seen that in the past, where we used to earn three to 5 million a quarter.
On the off balance sheet money market now we are in a couple of hundred thousand a quarter 3 million less.
So some of the some of the balances would go off balance sheet and that would be the reason why there would be more moderated growth in the <unk>.
On balance sheet.
Yeah.
Got it and just going back.
To the question around expenses, Eric you.
You mentioned that you've tested the model works outside of New York.
As we think about just the hiring pipeline like do you expect a meaningful ramp up.
Revenue growth is strong why not make more investments if you find that I didn't just give us some perspective around the pipeline and should we be surprised if you see you are hiring an additional markets as we move through the year.
Well I mean, I wouldn't be surprised that there's nothing really in the near term for additional markets, but we've got you know.
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 and.
There's been a lot of large M&A, that's taken place between Webster Sterling I'm, a T peoples investors bank, it's creating opportunities in the New York Metropolitan area for Us and that they've got bank of the west Umpqua a year on year in Opus two.
A lot of mergers that happen on a on the West Coast and then the Mega banks, who continue to just be in turmoil right. So that's created a lot of opportunity. So we've got a good four to five teams and the pipeline on both coasts.
And we'll see where the next opportunity arises for us yeah.
Hiring twosome, Thanks, Lee Hi from before.
And it really is very professional.
And the fact that we've got fired from these banks before it gives us another sauces.
Oh geez.
Yeah.
Got it thanks for taking my questions in great detail in the slide deck.
Okay.
Thank you.
And we will take our next question from Brock Vandervliet with UBS. Please go ahead. Your line is open.
Okay, everyone that that'd be less Abraham and for Brock.
My questions have been asked and answered okay.
Did want to revisit the capital call lending.
Some of the weakness in the private market.
Lots of people well documented the last few months and you know I know you guys are kind of more market share gain story, there still but you know is there is there any color you can give us anything you're seeing that it's changed out your utilization levels shifting at all.
So anything around that.
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.
Interest rate, we're adding significant leverage to these transactions that really juice their returns so.
We'd 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 or just bringing more clients to us as well.
Okay.
Okay.
Okay.
And then maybe just on the crypto side.
At this time, you've seen fairly well penetrated in that exchange.
Customer segment based on that based on your comments.
You know kind of the next leg of.
Of growth there.
Do you see that coming from is it you know you get a.
A certain type of customer there's going to be you know more broad based I'm, just from a customer or a customer growth perspective, how you're thinking about that.
At what level, we do institutional really don't do.
Client.
Clients do institutional.
I think just trying to bring on more of those exchanges is at least in the near term on the fact that we went from four being the primary bank to 18.
That should give us some some.
A lot of runway to grow during this here and.
And we have other enhancements that we're making but they won't be coming on board until probably mid to end of year.
Well you know, we do we basically listened to the client.
And this in this industry they listened to the client very closely and they kind of dictate what we should do next.
And that's why we've made the one enhancement with just said.
Wires and will then make some more.
As the time goes along like I said mid to late year.
And those those those exchanges are critical to our growth as well.
When we time with them to integrate our platform through our 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 has helped which is helping us to grow along the entire ecosystem.
Yeah.
Yeah.
Yeah.
Okay. That's.
That's very helpful and you know you Gotta go.
But to give you another update on of.
The transaction volumes on a picking up what you saw last last quarter. It seemed like it was trending pretty close to.
Q4, I'm getting a good quarter okay.
Well the.
The transaction volume on digital.
Well it's a.
Relatively flat.
Flat it was down in the fourth quarter was $213 7 billion.
And in the first quarter it was $209 7 billion.
So a relatively flat market.
Different studies was down between 20 and 40%.
So we're feeling pretty good.
We were just about flat and the market was down 20% to 40% relative.
Yeah.
And we also had our largest quarter of new client acquisition, where we added 160, new clients in the quarter.
That bodes well for the future as well.
To give you an idea that 160.
We did 147 clients.
And they grow in 2000 22021 three.
382.
So $1 47, and 382 and already in the first quarter, we did 160.
So that in the transfer bot.
E transaction volume.
We feel pretty good about.
Yeah.
Okay.
Awesome. Thanks, guys. Thank.
Thank you.
Yeah.
Well take our next question from Mark six given with Piper Sandler. Please go ahead.
Hey, guys good morning.
Mark most of my questions have been answered I just had one I'm curious I know you were an organic growth company, but could you ever envision signet, you're doing an acquisition or maybe a fintech company or another digital payments player.
Yes, never say never right.
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 bag. So there's always the potential to do acquisition.
It's just a very high hurdle for us to cross when you can grow organically and the way that we grow acquisitions typically don't make tremendous amount of sense for us, but you could certainly see a tuck on them and in a couple of different spaces for us.
High flying.
That's a discount to book, we look at it.
Sounds good thanks, guys.
Right.
Okay.
And we'll take our next question from Jared Shaw with Wells Fargo. Please go ahead.
Hey, Thanks, I guess, just did you give an update on what the and with the with the current spot deposit rate is and you know on the.
The spot on.
The digital assets deposits.
Yeah.
Okay.
Yeah.
I'm not sure where the spot rate is digital deposits, but were up about five basis points on our overall deposit costs.
Digital's, typically quite a bit lower than that.
Okay, So still a still high level performance for about 80% expectation right.
Excuse me what was that.
[noise] outperforming that 80% data that you had highlighted earlier Oh, yeah, Oh, Yeah, Oh, yeah, we're not even not even close.
Yeah, we really don't expect the betas are muted we expect that to be the case for the first few months.
But the more the more frequent and more severe they are then the betas will catch up over time.
Okay, Great and then they have to keep a minimum of 30% minimum 30% non interest bearing.
Okay, Great and then.
Yeah. When you talk about the you bring on those new exchanges, that's great where are the where are you taking those operating accounts from is it from the biggest national banks or is it other.
Digital specialty banks that are that are migrating towards you.
It's really across the board.
Yeah.
Okay.
Just finally for me.
I guess about 325 on the CRE multifamily book do you expect to see pricing there.
Stay pretty sensitive pretty tied to what we're seeing with the five years as we go forward.
Yeah.
I don't know if you said 325 to $4 25 Israeli River.
Five years really what we spread against the November certainly are a person would move as well.
And as we've seen in other rising rate cycles, we've seen credit spreads compressed in the early part of the move we would anticipate over time that those will start to widen and we should we should get even better pricing than that yeah, you're right at 425, but it's very it's like 160, although we used to.
$200.
Right.
Okay.
Great. Thank you.
Thank you.
Right.
Well go next to Chris Mcgratty with <unk>. Please go ahead.
Hey, good morning.
Okay just to.
Just a question on the on the borrowings on on page 17 of the deck.
Any reason to believe.
That we won't allow those almost $1 billion.
One quarter, and a half to mature and reprice to the excess cash position.
Oh, Yeah, we're going to we're going to definitely have to replace that.
Cash so we don't anticipate renewing those.
Okay.
And then second on season than in prior quarters, you've given some expectations for year on year growth given the build out there any any update on fee income growth.
Either relative to first quarter levels or the full year 'twenty one levels yeah.
I think if we look at prior year levels, we should see about a 50% increase in fee income over the prior year.
Okay.
Alright, so 20, 50% over 2021 right.
Over Q2 2021 for Q2 2022.
Okay.
Got it thanks, Eric.
Thank you Chris.
And this concludes our allotted time and today's conference call, if you'd like to listen to a replay of today's conference. Please dial 870 315171.
It passed archive of this call can also be found at Www Dot thing signature NY Dot com. Please disconnect. Your lines at this time and have a wonderful day.
Okay.
[music].
Hum.
[music].
Yeah.
[noise] [music].
Hum.
[music].
Okay.
[music].
Uh huh.
Uh huh.
Uh huh.
Okay.
Hum.
Okay.
Right.
Uh huh.
Okay.
Okay.
Yes.
Okay.
Uh huh.
Okay.
Uh huh.
Uh huh.
Uh huh.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Yes.
Yes.
Yeah.
Okay.
Yeah.
[noise].
Okay.
[noise].
Okay.
Okay.
Okay.
Yeah.
Right.
Okay.
Yeah.
Okay.
Yeah.
[noise].
Uh huh.
Uh huh.
[noise].
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.