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Keep an Eye on Signature Bank (SBNY) With Minimal FTX Exposure
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In light of theFTX-inflicted turmoil in the cryptocurrency market, Signature Bank (SBNY - Free Report) provided an update on its exposure to bankrupt digital money broker FTX and related companies, and the overall digital asset banking business.
The company noted that it only has a deposit relationship with FTX. FTX makes less than 0.1% of the company’s overall deposits as of Nov 14, 2022. Shares of the company rallied 6.6% in yesterday’s trading hours on this news of limited exposure to the crypto exchange.
As of Nov 14, 2022, SBNY’s deposit balances in the digital asset space remained stable relative to $23.5 billion at the third-quarter 2022 end.
SBNY’s dynamic in the digital asset space can be characterized as traditional deposit banking, including treasury and cash management services to institutional entities. This has likely reassured investors as the same underlines the resiliency of the digital deposit franchise in the wake of FTX turmoil.
Following the revelation of FTX’s CEO Sam Bankman-Fried’s trading firm Alameda Research investment in the FTX exchange's FTX Token (FTT) and Binance’s CEO Changpeng Zhao announcing the sale of his FTT token holdings, the native token price crashed.
More drama ensued when Binance backed away from rescuing FTX days after CZ announced his intention to acquire FTX. These developments spooked investors, leading to a major sell-off and insolvency issues at FTX. Following the liquidity crunch, FTX, which was the fourth-largest crypto exchange in the world, filed for bankruptcy on Nov 11.
While investor confidence in the digital asset space remains fragile, SBNY management noted that the bank is a well-diversified institution, which employs appropriate risk management strategies to help it navigate the current challenging digital asset landscape.
Also, its robust capital position, solid earnings capacity and overall diversification should be seen as positives for its depositor clients.Investors should note that Signature Bank’s deposit base (excluding digital assets) has grown significantly over the past few years.
Deposits and net loans witnessed a five-year (2017-2021) compound annual growth rate (CAGR) of 33.5% and 18.7%, respectively. The company has achieved growth in deposits every year since its inception in 2001. It stays focused on increasing deposits across its New York operations.
Markedly, the company’s lending momentum has been benefiting from expansion and diversification efforts. Signature Bank has geographically diversified its expansion into the West Coast. In addition to onboarding eight private client banking teams in 2021, the bank has continued with the private banking team expansion process in 2022. Loan growth from new lending verticals and teams is expected to continue to aid the bank’s prospects.
Moreover, continued cash deployment and anticipated higher interest rates will drive net interest income growth in the upcoming quarters. The bank’s focus on growing floating-rate loans and onboarding national businesses enhances its revenue growth profile. Also, management expects fee income to increase a few million quarter over quarter in the near term.
Hence, we believe that the company is well-positioned to maintain its increasing revenue trend going forward, given its client-centric business model and expansion in strategic markets.
However, rising expenses due to private client banking team expansion might hinder Signature Bank’s bottom line, whereas capital deployment plans do not seem sustainable, given its high debt-equity ratio.
Our Take
While shares of the company have declined 54.3% in the year-to-date period, underperforming the industry’s loss of 14.2%, it seems that investors have overlooked its strength in the rapidly growing traditional business.
Image Source: Zacks Investment Research
The company’s stock bore the brunt of crypto jitters merely due to its exposure to the digital asset business. Additionally, as the company does not invest, lend on or custody digital assets (cryptocurrencies) for any of its clients, it should be able to tide through the FTX-Binance fiasco.
Moreover, the bank’s solid balance sheet strength and organic growth momentum indicate its operating resilience. Hence, this beaten-down stock should be on investors’ radar.
Similar to SBNY, crypto bank Silvergate Capital announced last week that its FTX's deposits accounted for less than 10% of the $11.9 billion in total deposits from all digital asset customers. SI also clarified that it only has deposit relationships with FTX and no outstanding loans or investments in the crypto exchange.
Image: Bigstock
Keep an Eye on Signature Bank (SBNY) With Minimal FTX Exposure
In light of theFTX-inflicted turmoil in the cryptocurrency market, Signature Bank (SBNY - Free Report) provided an update on its exposure to bankrupt digital money broker FTX and related companies, and the overall digital asset banking business.
The company noted that it only has a deposit relationship with FTX. FTX makes less than 0.1% of the company’s overall deposits as of Nov 14, 2022. Shares of the company rallied 6.6% in yesterday’s trading hours on this news of limited exposure to the crypto exchange.
As of Nov 14, 2022, SBNY’s deposit balances in the digital asset space remained stable relative to $23.5 billion at the third-quarter 2022 end.
SBNY’s dynamic in the digital asset space can be characterized as traditional deposit banking, including treasury and cash management services to institutional entities. This has likely reassured investors as the same underlines the resiliency of the digital deposit franchise in the wake of FTX turmoil.
Following the revelation of FTX’s CEO Sam Bankman-Fried’s trading firm Alameda Research investment in the FTX exchange's FTX Token (FTT) and Binance’s CEO Changpeng Zhao announcing the sale of his FTT token holdings, the native token price crashed.
More drama ensued when Binance backed away from rescuing FTX days after CZ announced his intention to acquire FTX. These developments spooked investors, leading to a major sell-off and insolvency issues at FTX. Following the liquidity crunch, FTX, which was the fourth-largest crypto exchange in the world, filed for bankruptcy on Nov 11.
While investor confidence in the digital asset space remains fragile, SBNY management noted that the bank is a well-diversified institution, which employs appropriate risk management strategies to help it navigate the current challenging digital asset landscape.
Also, its robust capital position, solid earnings capacity and overall diversification should be seen as positives for its depositor clients.Investors should note that Signature Bank’s deposit base (excluding digital assets) has grown significantly over the past few years.
Deposits and net loans witnessed a five-year (2017-2021) compound annual growth rate (CAGR) of 33.5% and 18.7%, respectively. The company has achieved growth in deposits every year since its inception in 2001. It stays focused on increasing deposits across its New York operations.
Markedly, the company’s lending momentum has been benefiting from expansion and diversification efforts. Signature Bank has geographically diversified its expansion into the West Coast. In addition to onboarding eight private client banking teams in 2021, the bank has continued with the private banking team expansion process in 2022. Loan growth from new lending verticals and teams is expected to continue to aid the bank’s prospects.
Moreover, continued cash deployment and anticipated higher interest rates will drive net interest income growth in the upcoming quarters. The bank’s focus on growing floating-rate loans and onboarding national businesses enhances its revenue growth profile. Also, management expects fee income to increase a few million quarter over quarter in the near term.
Hence, we believe that the company is well-positioned to maintain its increasing revenue trend going forward, given its client-centric business model and expansion in strategic markets.
However, rising expenses due to private client banking team expansion might hinder Signature Bank’s bottom line, whereas capital deployment plans do not seem sustainable, given its high debt-equity ratio.
Our Take
While shares of the company have declined 54.3% in the year-to-date period, underperforming the industry’s loss of 14.2%, it seems that investors have overlooked its strength in the rapidly growing traditional business.
Image Source: Zacks Investment Research
The company’s stock bore the brunt of crypto jitters merely due to its exposure to the digital asset business. Additionally, as the company does not invest, lend on or custody digital assets (cryptocurrencies) for any of its clients, it should be able to tide through the FTX-Binance fiasco.
Moreover, the bank’s solid balance sheet strength and organic growth momentum indicate its operating resilience. Hence, this beaten-down stock should be on investors’ radar.
Similar to SBNY, crypto bank Silvergate Capital announced last week that its FTX's deposits accounted for less than 10% of the $11.9 billion in total deposits from all digital asset customers. SI also clarified that it only has deposit relationships with FTX and no outstanding loans or investments in the crypto exchange.
SBNY and SI currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.