Will record earnings become the norm at Signature Bank?


Signature Bank (NASDAQ: SBNY), which operates in the cryptocurrency arena, generated record diluted earnings per share of $ 3.88 in the third quarter, compared to record earnings per share of $ 3.57 in the second quarter. The bank has now generated record profits for four consecutive quarters, with Signature’s differentiation in the crypto space proving to be a huge growth engine for the entire business. Will record earnings at Signature become the norm? We will take a look.

It should be easier to deploy excess cash

Signature is one of the few banks to cater to institutional cryptocurrency traders and crypto exchanges. Its Signet real-time payment platform allows customers to make instant transactions with each other, which is advantageous for crypto traders as cryptocurrencies are traded 24 hours a day. ” bring lots of very inexpensive, zero-cost deposits that Signet can then deploy in loans and securities.

Signet was so successful in attracting deposits that it was difficult for Signature to keep up with the rollout. In the third quarter, the bank increased non-interest-bearing deposits by $ 5.7 billion, while total deposits increased by about $ 10 billion in the quarter. In terms of deployment, Signature increased total loan balances by approximately $ 4 billion and then invested $ 2.2 billion in securities.

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In total, the bank still has around $ 28.6 billion in cash and is generating very little return at the moment. During the bank’s third-quarter earnings call, COO Eric Howell noted that the bank would like to see its cash balances in the $ 10 billion to $ 15 billion range. The good news is that with rising interest rates on long-term Treasury yields and other securities, the bank will likely feel better about deploying more cash in securities. Howell said the bank deployed $ 1 billion of the $ 2.2 billion in total cash it deployed in the third quarter, the last day of the quarter, when rates rose significantly. The bank is also ramping up its lending business, with total lending up nearly 8% in the quarter, thanks in large part to Signature’s venture capital and fund team. Signature is deploying new US Small Business Administration mortgage and loan warehousing teams, which should help increase total loan balances.

The other element that should give Signature a boost is the recent surge in the price of Bitcoin and other cryptocurrencies. Bookmark is powered by crypto traders, so the more volatility and transactions there is, the more likely the bank is to see use of the platform. Howell said Signet usage increased from $ 149 billion in the second quarter to $ 128 billion in the third quarter, but I suspect the volume will pick up again in the fourth quarter as the price of Bitcoin goes up from around $ 48,000 on October 1 to $ 66,000 on October 20. Bookmark is really the engine that drives the entire Signature strategy. When there is more volume, it will likely result in more deposits. And more activity could attract new customers to Signet and new customers to whom the bank could sell other products.

More soon

At the very least, Signature Bank should be able to reap more income by deploying liquidity in higher yielding securities, which it will hopefully have already taken advantage of in October. The rise in the price of Bitcoin is expected to boost activity and flow on Signet, while the continued rise of the bank’s venture banking team and the launch of its SBA and mortgage teams should help the bank. to better deploy all its excess deposits. . And of course, if the Federal Reserve increases its federal funds rate at some point in 2022, that would be a huge boon to the bank as well. With all of these factors in play, I could see the bank making record profits for a while.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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