Crypto-Friendly Signature Bank Sees a 30 Per Cent Drop in Income

Crypto-Friendly Signature Bank Sees a 30 Per Cent Drop in Income

Published: May 1st, 2020

Signature Bank, one of the first full-service commercial banks to make digital currency a core part of its business, reported a 30 per cent drop in net income for Q1 2020 over the same period last year.

The bank’s net income in the first quarter was $99.6 million, a steep descent from the $143.5 million it posted in Q1 2019. In a press release, bank officials attributed the drop to credit losses valued at $60.5 million.

Provision for the losses ‘was entirely because of COVID-19,’ the bank said.

New York-based Signature Bank is America’s 40th-largest. It's been lauded by crypto enthusiasts as digital currency pioneer.

Founded in 2001, it was the first commercial bank with FDIC backing to launch a blockchain-based payment system. The bank took its regulator-approved digital payments platform – Signet – live on New Year’s Day 2019.

Q1 earnings per share (EPS) were also notably lower than last year at $1.88 vs $2.63. Analysts had estimated a first-quarter EPS of $2.18.

More positively, Signature’s net interest income grew by 9.2 per cent, an increase the bank attributed to growth in average interest-earning assets. Deposits also rose to $42.24 billion in Q1 2020, a 15 per cent jump 2019.

Bank President and CEO Joseph DePaolo told analysts that Q1 2020 was the second-best quarter in terms of deposit growth the bank had ever recorded, and the third consecutive quarter with more than a billion dollars in average deposit growth. Deposits grew by $5.6 billion, and average deposits increased by $4.7 billion.

Loans also increased in the quarter by 5 per cent year-on-year to $41 billion.

DePaolo said that new fund banking capital call facilities drove growth in its lending business. Q1 was the sixth consecutive quarter where commercial and industrial loans outpaced commercial real estate, diversifying the bank’s credit portfolio with more floating-rate assets.

Earnings before taxes and the provision for loan losses also increased by 5 per cent to hit $218.5 million, compared to $207.9 million in Q1 last year. That increase was down to asset growth of $4.5 billion following the bank’s West Coast expansion earlier this year, when it launched a new private client banking unit.

Whither Signet?

Signature’s Q1 results left out critical details about how its blockchain-based payments platform Signet is performing. DePaolo told analysts that Signet is one of the bank's three new 'transformational groups’ and key to its future. However, he left unclear how many clients the bank onboarded to the service and what the platform's transaction volume was in Q1.

Signet was launched to much fanfare on 1st January 2019. The service gives business clients with balances of $250,000 or more the ability to make instant payments – so long as the payee is also a Signature commercial client. The system operates 24/7, and settlement happens in real-time.

The system uses a digital currency called a Signet, which represents one US dollar on-chain and makes instant settlement possible.

Why bring blockchain to the commercial payments space? Signature believed it had found a way to use blockchain to mimic the fast intra-bank transfers that European banks had been offering for years.

The service has an interesting lineage. It was built in partnership with trueDigital and its founder Sunil Hirani. Hirani is co-founder of Digital Asset Holdings and the entrepreneur behind Creditex Group, the inter-dealer market for credit default swaps and bonds sold to ICE in 2008 for $625 million.

At its launch in 2019, Hirani said that Signet is designed to addresses the need for different payment environments to simplify the exchange of funds with the same counterparty. Using blockchain will significantly reduce counterparty risk, costs and settlement times, he added.

The service would draw new clients initially from sectors with large transactions that benefit from real-time payments capabilities, such as OTC institutional trade and settlement and wholesale energy distribution. Signet is comparable to Ripple -- though that service operates as a general interbank payments platform. A project called the Utility Settlement Coin initiative promises to give Signet more direct competition when it launches later in 2020.

What’s next for the blockchain-friendly bank?

With Signature Bank underperforming this year and possibly set to see further losses as the COVID-19 pandemic inflicts more damage on its lending business, crypto watchers and investors will be wondering what its next steps will be.

Alongside the income loss, shares in the bank have lost more than 37 per cent since the start of the year, well beyond the S&P 500's average 13.4 per cent decline.

Despite the coronavirus crisis, Signature Bank’s Chairman of the Board Scott A. Shay said in a statement that the bank intends to position itself more strongly as a “sleep-at-night” bank for depositors.

‘As soon as the pandemic began, we understood that the country would be looking for liquidity. In response, we maintained exceedingly high cash levels and solidified our balance sheet.

‘We want to assure any clients who need to use their credit lines that they don’t need to draw early and pay unnecessary interest. The bank has plenty of funds available whenever they require,’ he added.

In other measures of the bank’s financial health, its leverage and total risk-based capital ratios were well in excess of regulatory requirements. This reflects a relatively low-risk profile for the bank's balance sheet.

Signature declared a cash dividend in Q3 2019 of $0.56 per share, payable on or after 15th November 2019 to common stockholders. Also in Q3, the Bank paid the previous quarter’s cash dividend of $0.56 per share and repurchased 629,503 shares of common stock for a total of $75.0 million.

Show Results