Early in the digital assets space, and part of the Forbes Blockchain 50 2021, Signature Bank (OTC:SBNY) is developing a specialty in serving institutional crypto customers, providing fast and convenient ways for its customers to deposit money in crypto trading accounts through the bank's Ethereum-based (ETH-USD) platform, known as Signet™. Notably, in 2020, deposits from crypto customers increased from $2 billion to approximately $10 billion.
J.P. Morgan (JPM) recently added SBNY to its focus list noting, among other things, that the bank's digital assets deposit balance hit $10 billion in 2020, reflecting a huge victory for the bank's digital assets team and a 500% increase in deposits since the end of 2019. Such digital assets deposits balance has, according to JPM, far exceeded the deposits of competitor Silvergate Capital Corporation (SI).
Signet™, the bank's digital payment platform, is designed to enable real-time payments for clients. The platform leverages Ethereum blockchain technology in order to permit bank clients to make payments 24 hours a day, seven days a week, 365 days a year. Transactions made on the Signet platform settle in real time, are safe and secure, incur no transaction fees and are transferred between bank clients. In its Q4 press release, the company proudly hailed the fact that "[w]e have been at the forefront, as evidenced by the first to launch a blockchain-based payments platform, and we intend to keep it that way. Hence the reason we invested in developing Signet before most investors -- and even our clients -- recognized the emergence of and massive changes in the digital payments economy.” Signature Bank "gets it," is ahead of the curve and its investments in Ethereum based blockchain technology are paying dividends.
In short, on a relative basis, SBNY is an under the radar play in the digital assets space. In my view, this innovative bank is a long-term buy. I have taken an initial position at roughly $210. I like too that the company provides a dividend, paid quarterly and currently aggregating $2.24 per share on an annual basis.
Similarly, I continue to believe Ethereum (ETH-USD) is a long-term buy (see my prior article here), and SBNY is an example of how this protocol/technology is being used effectively by commercial enterprises in the real world. Frankly, this was an eye opener for me and lends credence to the assertion made by Raoul Pal that Ethereum's market capitalization could potentially exceed the market capitalization of Bitcoin (BTC-USD) in 10 years.
Founded in 2001, SBNY is a New York-based full-service commercial bank which includes private client offices throughout the metropolitan New York area, as well as offices in Connecticut, California and North Carolina.
According to its website, in 2018 the Bank expanded its footprint to the West Coast with the opening of its first full-service private client banking office in San Francisco and, since then, the bank's California presence has grown to four offices. The Bank targets the needs of privately owned business clients, their owners and senior managers, offering a wide array of personal banking products and services as well as investment, brokerage, asset management and insurance. SBNY’s seasoned private client teams are capable of meeting and anticipating client needs, including digital asset needs.
Q4 2020 earnings were solid for SBNY - key points from the CEO in the recent fourth quarter earnings call:
Pre-tax pre-provision earnings for the 2020 fourth quarter were $261.5 million, an increase of $45 million or 21%, compared with $216.3 million for the 2019 fourth quarter. Net income for the 2020 fourth quarter was a record $173 million or $3.26 diluted earnings per share, compared with $147.6 million or $2.76 diluted earnings per share reported in the same period last year. The increase in income was predominantly driven by substantial asset growth of $23.3 billion, offset by the investments we made in new businesses, including our West Coast expansion.
Looking at deposits; deposits increased a record $9 billion or 16.5% to $63.3 billion this quarter, while average deposits grew a record $10.4 billion. For the year, deposits increased a record $22.9 billion and average deposits increased a record $12.5 billion. Non-interest-bearing deposits of $18.8 billion represented a high 30% of total deposits. Our deposit and loan growth led to a record increase of $23.3 billion or 46% in total assets for the year, which reached nearly $74 billion." [Emphasis supplied.]
Per the CEO, the bank is also investing in future growth:
And most importantly, we set the stage for future growth with the hiring of 20 private client banking teams and the opening of five new offices in the Los Angeles marketplace. .. Our [organic] growth for 2020 was equivalent to acquiring the Top 50 Bank. . . Signature Bank enters 2020 as a strong financial institution and we very much look forward the years to come." [Emphasis supplied.]
Of course, SBNY, while innovative, still does have traditional banking business lines. Rather than describe those here, I refer readers to recent SA articles from Stephen Simpson and Brad Thomas, respectively, both of whom were (correctly) bullish back in January.
Of course, as a bank, SBNY is subject to regulatory, market, credit and other risks. Not surprisingly, in light of the pandemic, loans categorized as non-performing have been increasing. Moreover, as the pandemic lingers and many businesses start to enter the insolvency stage, charge-offs are expected to increase. Also, the bank has meaningful exposure to NYC, which has clearly not been thriving during the pandemic (although recent data suggests things may be stabilizing). Furthermore, all of the deposit growth has made it hard for SBNY to put that money to work quickly enough and, as a result, a portion of its "excess deposits" are actually costing the bank more than they are earning on those deposits.
In addition to ongoing COVID risks, a full list of risks can be found in Item 1A of the bank's most recent 10-K/Annual Report. Finally, the stock has appreciated materially since the start of 2021 and, as of this writing, was up more than 50% year to date.
I consider SBNY a long-term buy, with the emphasis on long-term, because of its innovative culture and its investment in blockchain technology. I will look to add to my current position on pullbacks.
I also maintain my Buy rating on Ethereum (ETH-USD) as it is good to see, in the case of SBNY, successful real-world applications of this protocol/ technology.
Of course, do your own due diligence. Cheers!
This article was written by
Disclosure: I am/we are long SBNY, ETH-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The digital assets/blockchain space is very volatile. Between the time of writing and the time of publication, large swings in the prices of some of the securities/commodities referenced in this article may occur.