Signature Bank (SBNY) 2021 Q4 法說會逐字稿

Welcome to Signature Bank's 2021 Fourth Quarter and Year-end Results Conference Call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer; and Eric R. Howell, Senior Executive Vice President and Chief Operating Officer. Today's call is being recorded. (Operator Instructions)

It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. You may begin.

Thank you, Brittany. Good morning, and thank you for joining us today for the Signature Bank 2021 Fourth Quarter and Year-end 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 and may be 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, business strategy and the impact of the COVID-19 pandemic on each of the foregoing and on our business overall. Forward-looking statements often include words such as may, believe, expect, anticipate, intend, potential, opportunity, could, project, seek, target, goals, should, will, would, plan, estimate or other similar expressions.

As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or 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 many -- as a result of 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 read 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. I will provide some overview into the quarterly results, and then my colleague, Eric Howell, our Chief Operating Officer, will review the bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

2021, which marks Signature Bank's 20th anniversary, was a sensational year of growth and achievements. All our businesses contributed to the bank's stellar performance, whether it be from our established New York banking franchise and emerging West Coast presence to our newer nationwide businesses. The performance includes a multitude of accomplishments, such as record growth in deposits of $43 billion, which comes on the heels of our 2020 record deposit growth of $23 billion. Additionally, growth in noninterest-bearing deposits, loans and investment securities all reached record levels. It is our founding client-centric model that drives this robust organic growth, and when combined with the inherent best-in-class operating efficiencies of Signature Bank, it results in record revenue growth and record net income.

Throughout the 20 years that we have been in business, we seldom take time to acknowledge our achievements such as our recent inclusion in the S&P 500 Index, for which we are very honored. Instead, we remain focused on our bright future and commitment to staying at the forefront of innovation as the financial services industry continues to undergo digital transformation.

Now let's take a look at our earnings. Pretax, pre-provision earnings for the 2021 fourth quarter were a record $385 million, an increase of $124 million or 47% compared with $262 million for the 2020 fourth quarter. Net income for the 2021 fourth quarter increased $99 million or 57% to a record $272 million or $4.34 diluted earnings per share compared with $173 million or $3.26 diluted earnings per share for last year. The increase in income was predominantly driven by substantial asset growth of $45 billion over the last 12 months as well as the decrease in the provision for credit losses, which was substantially impacted by COVID-19 in the fourth quarter of 2020.

Looking at deposits. Deposits increased $10.6 billion or 11% to $106 billion this quarter, while average deposits also grew $10 billion. This quarter's growth was driven by the digital asset banking team, which grew deposits by $5.7 billion, including $2.4 billion of growth on the Signet payments platform. Additionally, our New York banking teams grew by $6.9 million. For the year, deposits increased a remarkable $43 billion or 68% and average deposits increased $35 billion.

Our growth for 2021 can be broken down as follows: our digital team grew $21.4 billion, our Specialized Mortgage Banking Solutions team grew $3.9 billion, our Venture Banking Group grew nearly $900 million, Fund Banking grew $700 million, the West Coast grew nearly $400 million and our New York banking teams grew $15.4 billion, which includes 18 teams that were over $100 million in growth each. This growth led to a further reduction in our loan-to-deposit ratio, which now stands at 61%. Lowering our loan-to-deposit ratio was a primary initiative, and we have certainly achieved our goal.

During the quarter, noninterest-bearing deposits increased $10 billion to $44.4 billion, which represents a high 42% of total deposits. This tremendous growth in DDA can largely be attributable to the attraction of our Signet's payments platform, which grew by $2.4 billion to $7.7 billion this quarter. In fact, we just surpassed $10 billion several times in the Signet platform in the first weeks of January.

Our substantial organic deposit growth led to an increase of $44.6 billion or 60% in total assets since the fourth quarter of last year. The bank has increased in deposits by nearly $66 billion over the last 2 years, which is the equivalent of acquiring a top 50 U.S. bank in each of the last 2 years. We did it completely organically, no goodwill. We believe this is by far the most efficient use of capital; not bad for a 20-year-old bank.

Now let's take a look at our lending businesses. Loans during the 2021 fourth quarter increased a record $6.3 billion or 11%. For the year, loans increased $16 billion or 33%. The record growth in loans this quarter was again driven primarily by the Fund Banking capital call facilities, which rose $5.4 billion. This includes a $1.3 billion purchase of a high-quality loan portfolio from a money center bank that is comprised of loans to well-known borrowers, most of whom are already clients of the bank.

Moreover, our commercial real estate team grew loans by $707 million, and we expect them to begin growing again. This marks the end of a multiyear planned slowdown for that business, where we substantially reduced our CRE concentration from a peak of 593% to 312%. This was another major initiative successfully accomplished. We also saw growth for our West Coast banking teams, Signature Financial and our newer corporate and mortgage finance and SBA originations businesses.

Turning to credit quality. Our portfolio continues to perform well. First, let me point out. We essentially have put full nonpayment COVID modifications behind us. I'll say it again, we have essentially put full nonpayment COVID modifications behind us, as we now have only $8 million remaining. That is down from $1.3 billion at the end of 2020. Nonaccrual loans were $218 million or 34 basis points of total loans compared with $165 million or 28 basis points in 2021 third quarter. Our past-due loans remained in their normal range with 30- to 89-day past-due loans at $97 million and 90-day plus past-due loans at $17 million. Net charge-offs for the 2021 fourth quarter were $33.7 million or 22 basis points of average loans compared with $17.3 million for the 2021 third quarter. The provision for credit losses for the 2021 fourth quarter increased slightly to $6.9 million compared with $4 million for the 2021 third quarter. This brought the bank's allowance for credit losses to 73 basis points. The overall coverage ratio continues to stand at a healthy 217%.

I would like to point out that excluding very well secured Fund Banking capital call facilities and government-guaranteed PPP loans, the allowance for credit losses ratio would be much higher at 124 basis points.

Now on to the expanding team front where we continue to realize success. During 2021, the bank onboarded 8 private client banking teams in total; 2 in New York, 4 on the West Coast as well as the corporate mortgage finance team and the SBA origination team. Additionally, the bank added numerous group directors to existing teams and Signature Financial added several executive sales officers across the national footprint.

Geographic diversification was another initiative that we successfully executed on. At this point, I'll turn the call over to my colleague, Eric, and he will review the quarter's financial results in greater detail.

Thank you, Joe, and good morning, everyone. I'll start by reviewing net interest income and margin. With our emphasis on growing net interest income, the fourth quarter -- for the fourth quarter reached $536 million, an increase of $55 million or 11% from the 2021 third quarter and an increase of $141 million or 36% from the 2020 fourth quarter.

Our robust growth in net interest income during 2021 can be attributed to our record deployment of cash, which led to an increase of $27.5 billion across our securities and loan portfolios.

Net interest margin on a tax-equivalent basis increased 3 basis points to 1.91% compared with 1.88% for the 2021 third quarter. The increase was primarily driven by the continued decrease in deposit costs as well as the decrease in pressure on overall asset yields as rates throughout the quarter were favorable. Our massive excess cash balances from significant deposit flows continue to impact margin by 53 basis points. And again, our focus is on net interest income growth.

Let's look at asset yields and funding costs for a moment. Interest-earning asset yields for the 2021 fourth quarter decreased 2 basis points from the linked quarter to 2.16%. The rate of decline in asset yields has significantly slowed, and it appears that we are at or near the bottom. However, asset yields continue to be affected by the excess average cash balances, which grew $1.3 billion to $30.5 billion during the quarter. This is despite asset growth of $10.6 billion.

Yields on the securities portfolio increased 3 basis points linked quarter to 1.52% due to higher reinvestment rates as well as a slowdown in CPR speeds on our mortgage-backed securities portfolio. Additionally, our portfolio duration increased to 3.6 years due to the higher interest rate environment.

And turning to our loan portfolio, yields on average commercial loans and commercial mortgages decreased 5 basis points to 3.4% compared with the 2021 third quarter. Excluding prepayment penalties from both quarters, yields decreased by 7 basis points.

And now looking at liabilities. Our overall deposit cost this quarter decreased 3 basis points to 19 basis points due to both the low interest rate environment as we gradually lower our relationship-based deposit rates and our very robust DDA growth. At this point, we think we're near the bottom on deposit costs, and it will be difficult to lower further, but obviously, we will try. During the quarter, average borrowing balances decreased by $14 million to a low $3.4 billion, and the cost of borrowings remained stable at 2.8%.

The overall cost of funds for the quarter decreased 5 basis points to 27 basis points, driven by the reduction in deposit costs. As we have pointed out, the bank is significantly asset-sensitive, which is another of our initiatives that we executed on. The bank's focus on growing floating rate loans, which now comprise 49%, up from 10% of our loan portfolio, coupled with our core deposit funding, make us extremely well positioned to take advantage of a rising rate environment.

And on to noninterest income and expense. With our plan to grow noninterest income, we achieved growth of $9.3 million or 38.3% to $33.5 million when compared with the 2020 fourth quarter. The increase was generally across the board as many of our fee income initiatives are taking hold. Non-interest expense for the 2021 fourth quarter was $183.9 million versus $157.7 million for the same period a year ago. The $26.3 million or 16.7% increase was principally due to the addition of new private client banking teams and operational support to meet the bank's growing needs. And despite our significant team hiring and margin compression from substantial cash balances, the bank continues to gain operating leverage and, as a result, our efficiency ratio improved to 32.3% for the 2021 fourth quarter versus 37.6% for the comparable period last year.

And 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 a common equity Tier 1 risk-based ratio of 9.58% and total risk-based ratio of 11.73% as of the 2021 fourth quarter.

And now I'll turn the call back to Joe. Thank you.

Thanks, Eric. I'd like to thank my colleagues who have demonstrated their dedication to our clients and their needs during this pandemic. In times like these, our clients truly value the level of care and advice that my colleagues provide and our performance for the year reflects their extraordinary efforts and the strength of our franchise as we continue to execute on many fronts.

2021 was truly an astonishing year of growth and achievement for Signature Bank. We delivered staggering record deposit growth of $43 billion or 68% on top of record deposit growth in 2020 of $23 billion. Demand deposits increased to record $25.6 billion for the year and remain at a high 42% of total deposits, which was in large part due to the adoption of our Signet platform. And most importantly, our deposit growth was across the board from our existing teams to all of our newer national businesses. We had record loan growth of nearly $16 billion. Furthermore, we have returned to growing our commercial real estate portfolio. And during the fourth quarter, CRE loans increased by $707 million. We grew our securities portfolio by a record $11 billion.

To sum up, our balance sheet grew by $44.6 billion or 60%, truly astonishing. Our growth propelled the bank's pretax, pre-provision earnings by $318 million or 32% for the year. Net income substantially increased by $390 million or 74% to a record $918 million for the year. We had a strong return on average common equity of 13.8% despite margin compression due to excess balances. I got to tell you that's extraordinary to have that return while the bank was growing by leaps and bounds.

Fee income or noninterest income grew by 61% or $45.6 million for the year. We improved our already best-in-class efficiency ratio during the year to 35%, and we set the stage for continued growth with the hiring of 8 private client banking teams consisting of 2 in New York, 4 on the West Coast, in addition to onboarding the SBA lending team and the corporate mortgage finance team.

There has been a number of transformative goals and initiatives that we have looked to achieve over the last several years. We lowered our loan-to-deposit ratio from a high of 104 to 61. We significantly increased floating rate loans as a percentage of assets, and we are now firmly asset-sensitive and well-positioned for a rising rate environment. We lowered our CRE concentration level from a high 593% to 312%. We have geographically diversified with our expansion into the West Coast as well as our onboarding of several national businesses, and we've increased our fee income substantially. And lastly, we have become the recognized leader in the digital banking arena. Signature Bank enters 2022 as a strong financial institution. We very much look forward to the years to come. Now we are happy to answer any questions you might have. Brittany, I'll turn it back to you.

(Operator Instructions) And we will take our first question from Dave Rochester with Compass Point.

Nice quarter. On the Signet deposits, I just want to make sure I got the numbers right that you gave. Did you say that you were at $7.7 billion in Signet at the end of the year and now you're up over $10 billion now in the first few weeks of January? Did I hear that right?

Yes. We've hit $10 billion several times during -- several days during the first several weeks here in January. It's not a consistent $10 billion, but it's moving towards that number.

Yes. Okay. That's a great start to the quarter. Do you happen to have the end-of-period breakdown for that digital asset deposit book at year-end?

Yes.

Yes. Sure, Dave. So stablecoin issuers, we had $6.9 billion in deposits, of which $4.8 billion were operating balances and $2.1 billion were reserves. OTC desks and institutional traders were at $4.5 billion. Digital asset exchanges were at $14 billion and blockchain technology and digital miners were at $3.4 billion.

Perfect. You guys had mentioned potentially doing some upgrades to Signet this year, early this year, I guess. Are there any updates on that front? And as a part of that, are you anticipating that you'll be issuing stablecoins on behalf of customers at some point?

Well, the enhancements that we referred to will be during this first quarter. And everything you asked will be announced as part of what we're doing with the enhancement.

Great. So that is coming this quarter definitely.

Yes. If I had to give you an answer, the answer would be, yes, right now.

Sounds good. What does the customer pipeline look like for the digital asset group at this point?

It's pretty robust.

Has that been increasing? Is it higher than it was previously?

Yes. It's been growing. We surpassed the 1,000 a while ago, 1,000 active clients.

Great. Maybe just one last one. Could you just give an update on the use cases of Signet? I know you've been working on the payroll company. When do you expect that would be fully online and integrated with your platform? And what is your thought on how large that ecosystem can ultimately be for you guys over time?

It's fully integrated and some of the payroll companies are already using it. We expect to grow this year in 2022. We had some success during the fourth quarter, but we haven't hit our stride yet...

That's great. That's great to hear. What level of deposits do you have in that segment at this point?

I'd rather not say because I know there are competitors on the call.

All right. Fair enough. Sounds good.

And we will take our next question from Matthew Breese with Stephens, Inc.

Just hoping up for a little bit of color. Obviously, 2021 was impressive on multiple growth fronts. But If you could give us some color as to what you expect for loan, securities, deposit growth this year and whether or not your guidance on that front has changed.

Well, we expect that on the asset side, that's the guidance we'll give. We think we'll grow in the second, third and fourth quarters somewhere between $4 billion and $7 billion, that range. That's in combination of loans and investment securities. For the first quarter, we think it would be $3 billion to $7 billion, probably on the low end because the first quarter is difficult and little activity. And part of our growth in the fourth quarter, about $1.3 billion was the purchase that we made in the Fund Banking agreement. So $3 billion to $7 billion in the first quarter and $4 billion to $7 billion in the second, third and fourth quarters. We think it will be primarily funded by deposits, either growth or what we have in cash right now but primarily growth. And that's about as much as I can give you on the asset side.

Got it. I appreciate that. And then maybe just on the interest rate sensitivity side, it now feels like it's a matter of when and how many rate hikes we're going to get this year. All else equal -- I know cash is a separate variable here, but all else equal, per kind of 25 basis point hike, what is your expectation for margin expansion?

Well, I think it's -- if you look at a 100 basis point ramp scenario, we go up a little over 10% and it's pretty linear. So each 100 basis point move, we're going up an additional 10%. If it's 200, we're going up 20%; 300, we're going up 30% and so forth. So for a 25 basis point move, I think it would be a 2% to 3% range increase.

(inaudible) net interest income.

And that's on a static balance sheet. So obviously, we'll have growth. And hopefully, the mix shift of moving cash into securities or loans will also be very beneficial to that.

Understood. Okay. Last one for me. In December, your blockchain real-time payments provider, Tassat, they did a demo of real-time payments using stablecoin, not intra-bank but between 2 banks. Just understanding your relationship with them, I was curious if this is something you're interested in, joining one of their interbank network. And in your mind, what are the potential use cases of linking arms and sharing a stablecoin? And what are some of the benefits?

Well, first, let me say that they're a very good partner, fintech partner. We like the relationship very much so. But what we do is -- what dictates what we're doing is that we listen to our clients. And what our clients have told us is certain things that allow us to set our priorities and our agenda. And some of the things we're working on now with Signet is our priority, and we really haven't thought -- given much thought about the Tassat platform. And so we will be doing that and looking at it. But let me say that they are working with us on the improvements we're making with Signet.

We will take our next question from Jared Shaw with Wells Fargo.

Maybe circling back on to the crypto side. Great growth there. Can you give a rough breakdown of what is from new customers versus volume from additional -- or additional volume from existing customers?

We don't have that breakdown, Jared.

Okay. All right. And I guess shifting, when you look at the allowance in credit, any color around the growth in NPLs. Was that -- do that reflect any of the final move out of deferrals? And when we look at the allowance ratio here, is that probably a good floor given the growth outlook?

Yes. I mean we took a hard look at year-end given the end of our ability to extend the COVID deferrals. So we took a conservative approach and put loans on nonaccrual or mostly got them back to paying us, Jared. So we think we're at a near-term peak on nonaccruals. I mean we could see it tick higher, but I wouldn't think it would be meaningful, and we're working on resolution on many of those credits. So hopefully, we can keep it at or below the levels that we're at today.

And then what are you seeing for new money yields in the loan book and in the securities purchases here?

We've generally seen on floating rate LIBOR plus 200, and at the CRE front, about mid-3s now, Joe?

Probably mid-3s you could...

Yes. I think we're like 350 on multifamily and higher, obviously, on other forms, whether it be retail or office.

Well, we have in the pipeline right now in that we've put on the books -- what we've put on the books this month and next month probably are 3.25.

Okay. And when you look at the CRE portfolio in New York outside of multifamily, I guess, how is the growth specifically there? And what's your view in terms of the outlook for the year in terms of the health of that sector?

Well, we think that they will grow somewhere between $0.25 billion and $0.75 billion on a quarterly basis. I would say that $707 million will be primarily multifamily. It's a good time right now to make loans because with COVID out there, you know what, they are at bottom, and bad times is totally good time to make loans because you know the current situation, [which we would] not like to get any worse. So we expect them to do business this year. We haven't had -- [it is the fourth quarter of growth]. We hadn't had that growth since the third quarter of 2018. So it's been quite a while. And if we can get back to that pace, that would be very good for us.

Just finally for me. Capital, the balance sheet growth has been exceptional. Capital ratio is a little lower than we've seen recently. What are your views on capital sufficiency here and not just for where we are today but for growth?

Jared, if we see an extended period of growth in our future, we're not going to be shy about raising capital.

We will take our next question from Mark Fitzgibbon with Piper Sandler.

I would like you to help us think about the outlook for expense growth in 2022.

Yes. I think we had some anomalies in the fourth quarter of last year, which led to us being up a bit this fourth quarter. If we look at the first quarter versus the 2021 first quarter, we'll probably be in a 14% to 16% range, I would think closer to the higher end of that range and then we should trend down as we've done many years before, trend down over the course of the year and bring that expense growth rate down each quarter.

Okay. Great. And then I'm curious, Fund Banking loans, I assume, had pretty good growth again this quarter, which should probably push it up to roughly 40% of total loans. I guess I'm curious how large you're comfortable letting that line of business grow to.

We really haven't set an official target or internal level. I mean we're pretty comfortable letting that grow quite a bit from where it is. It's an extremely well secured and well diversified portfolio, whether it be the underlying type of fund, the LPs that we're lending to, the geographic areas, it's well diversified geographically. So there's tremendous diversification within that portfolio that gives us a lot of comfort. And clearly, it's got a long history of little-to-no loss. So we feel very good about growing that portfolio.

Okay. And then lastly, I know you've been hesitant to say where the next geography is likely to be, but I'm curious if you can give us a sense for what the timing on expanding into a new geography might be. And also, if you could also share with us what the number of teams in the pipeline look like for 2022?

Well, the predominant growth would be West of the Mississippi in teams, although we do expect to open up an office in New Jersey in 2022. We'll have an office -- we're actually doing a lot of business in New Jersey that makes sense for us to have place. We're not going to say where it is right now, but we would be entering New Jersey and then West of the Mississippi, very close to California.

Yes. And on the team front, we've got a number of ongoing discussions with teams in various stages of the pipeline. But I think we'd have some pretty robust growth, especially given some of the new geographies that we are looking to enter. So talking anywhere from 8 to potentially 20 teams on the high end.

And we will take our next question from Brock Vandervliet with UBS.

On the securities lending, I know that it started slow with a $25 million loan that was upsized to $100 million, I believe. Where does that initiative stand right now?

We have 2 loans in the pipeline that we are -- very much along in the pipeline for $100 million apiece. And then we have loans we haven't worked on yet that were in the pipeline, maybe somewhere about a dozen clients. I don't know how much we'll booked this quarter. It's likely we'll book the two $100 million loans rather soon, but it's not going to be a driver of our loans with the Fund Banking and with the new mortgage warehouse business and the SBA business and CRE coming back. It will be at the very, very low end of our generation of business.

Is that -- I remember you framing that the potential there into the billions in terms of the demand. Has that changed? Or is there a change in risk appetite? Or what's -- what -- can you tell us a little bit more about what the thinking is behind the curtain, I guess?

Well, the appetite is very much there. But we want to go slowly. We want to make sure that the relationship we have with our third party that manages the collateral for us. We like the way we set things up. We've seen movements up and down, and we've seen settlements being done every Friday because we true up every Friday at least for now. And there's no hidden agenda there. It's basically we said we would really crawl before we walk. And then we said we walk before we run and then we changed that and said we would walk before we walk. So we're never going to run in this business. I know there are some clients that are willing to wait for us. But if we have clients that we won't do loans with, they won't stop doing business with us on the Signet platform. We don't feel the need to do something that we're not yet 100% comfortable with all the pieces.

Okay. And not to try and push into areas you're not comfortable talking about yet, but it sounds like we should expect a broader disclosure on a plan around Signet sometime -- and other digital initiatives sometime in the first quarter.

That's our plan. Absolutely.

And we will take our next question from Casey Haire with Jefferies.

So question on the securities builds and loan growth guide. So $4 billion to $7 billion per quarter in the later part of the year. It feels like there's an opportunity to be a little bit stronger on the security side of things with that $30 billion cash position. I was just wondering what is kind of holding you back there, even though there was a nice step-up this quarter.

We are being a little bit more aggressive, Casey, but we do anticipate that rates are going to continue to rise and rise and rise. So given that we want to be smart about how we deploy and make sure that we have enough to deploy into even higher rates in the future. And there is, quite frankly, only so much that our treasury group is able to deploy in any given quarter as well.

Got you. Okay. And then just following up on that, Eric. I heard you on the loan yields, but I'm not sure I heard you on the new money yields for securities placements. Where are those coming on today?

Right around 2%.

Okay. Very good. And then just on -- a couple of questions on the asset-sensitive profile. Number one, the deposit beta, what are you guys baking in your simulation? And then two, the loans at 49% of them floating rate, is there a level where you would not want to see that go any higher? Or is that not in play at all?

I wouldn't say it's not in play at all and it's something that we continue to look at being where we're positioned now and the expectation that rates will continue to rise. I mean we're happy with that level of floating rate and even pushing it higher. But there will be a point as we see rates start to level off, that will look to be even more aggressive than our CRE portfolio, again, to help balance that out.

We really haven't had CRE able to -- (inaudible) initiative, we didn't have CRE balancing it out at all for the last 3 years, but now that will change.

Okay. Very good. And just the deposit beta assumptions in your simulation?

Well, last time through, when we saw a Fed tightening, we had a 34% beta on our total deposits. I think we're modeling around a 40% beta, to be a little bit more conservative.

And we will take our next question from Steven Alexopoulos with JPMorgan.

So I wanted to start at bigger picture. So if you look at period-end assets, right, you're $45 billion for the year. So the run rate pretty consistently is above $10 billion a quarter. And regarding the $4 billion to $7 billion asset growth beyond the first quarter, are you just being conservative with the guidance? And I do recognize that you basically beat the guidance every quarter in 2021. Or do you see something more specific which should cause asset growth to slow a bit in 2022?

Well, we're not trying to cry wolf. We've had, as you said, 4 quarters of $10 billion in growth, and we expected that to be less each quarter, not from a conservative standpoint but from what we're seeing. And even though we have more initiatives that are starting with mortgage warehouse in SBA, we don't expect there to be billions in growth from each of those businesses. We expect to help the diversification of our balance sheet. There is no crystal ball and plus the interest rate is going to go up.

And when we see interest rates go up, we've seen deposits being used for other things, sometimes investments in -- CRE investments in their buildings. And for other businesses, they're using their deposits. We have a little bit of transfers on the deposits to the -- off balance sheet. And then you have some headwinds where some interest-bearing deposits will be going to other institutions where they have some fluff. So not knowing what the environment is going to be like for the next 12 to 24 months, it is our best projection. And we're happy that we're better at execution than we are at projection.

That's a good color, Joe. In terms of the digital asset customers, how many -- I know you said you went over 1,000, but how many did you add in the quarter? And how is the fall in the price of crypto prices had any impact on the pace of institutional adoption?

We haven't seen the full effect of adoption at all, just to answer that. We added 139 clients during the quarter. So we're now at 1,042.

That's helpful. And then final question. On the -- just following up on Mark's question on expenses. It's almost mind-blowing to see the efficiency ratio down to 32%. Given the expense guide and rates going up, it would appear that this is going to go even lower. So one, is that the right way, Eric, to think about it that the efficiency ratio just goes down from here?

And just given the asset level where you're moving to, do you see a need at some point to ramp just expense growth from a regulatory compliance view?

Not so much from a regulatory compliance view. I mean there are some things that we're obviously doing there on that front, and we'll continue to spend there, but it's not -- it won't be the primary driver. I mean we're working on a number of initiatives, as Joe pointed out, in the digital front. There's a lot that we have to do just in our operations, our existing infrastructures to shore that up and get it in line with what a $100-plus billion bank's infrastructure should look like. So we're going to be spending a lot on human capital and in technology to support all the growth that we've put on.

I think that if it weren't for the growth, we'd be well below the 14% to 16% guidance that we've been talking about. But really, our ability to move the efficiency ratio down is strongly predicated upon a higher interest rate environment where we're going to see our NIM actually expand, right?

And that NIM expansion of just 3 basis points is pretty meaningful this quarter. It looks like we're at or near a bottom, right? We'll see what happens with the interest rate environment. As we all know, it can be volatile. But if we see a similarly situated yield curve to what we have today, we should see further NIM expansion, and we'll drive that efficiency ratio down with that.

And we will take our next question from Chris McGratty with KBW.

Most of the questions have been addressed. I was interested if you could spend a minute on noninterest income, 40% year-on-year growth. I guess 2 parts. How should we be thinking about the sources and the trajectory of growth going forward?

Well, I think if we look at 2022 versus 2021, overall, we'll see a 20% to 30% increase in fee income there. If you look at just the first quarter of 2022 versus the first quarter last year, it's probably more of a 10% growth. We did have a really strong quarter -- first quarter of 2021 as it related to loan sales and some trading income, which we -- which is a bit more volatile and harder to predict.

So the first quarter's growth will be around 10% and future quarters, 20% to 30%. And we've got a number of initiatives there that are truly taking hold. Foreign exchange has been steadily climbing over the course of the last 2 years. We just barely started on our credit card. So hopefully, we'll see that take off. And then fund banking and the continued growth there is driving unused fees. So that should be a further driver for us. And we've had a lot of success in our SBA business, where we're starting to drive fee income.

And really, we've spent a lot of time focusing with all of our private client banking teams on their fee income generation and getting them to see the value of the stellar services that they give to their clients and that they should be paying for that. That's driven our fee income as well.

That's great color. Just a clarification on the loan -- on the asset growth, the 3% to 7%. How -- what's assumed mix of bonds and loans in that guidance?

We haven't given it for good reason. It's really hard to predict both of those, and it's based on really the interest rate environment as well as many other factors that come into play. So we just kind of guide on overall asset growth at this point.

And we will take our next question from David Long with Raymond James.

Eric, I think earlier you answered the question about NIM upside to 25 basis points. In that discussion, I think you said 10% upside to net interest income and a 100 basis point parallel shift. I think it was 15% last quarter. Has anything materially changed with your asset sensitivity?

It's come down ever so slightly. There are a lot of moving pieces to that equation, David. But we've -- it's come down a little bit. So it's probably -- it's not quite 15%, it's not 10% either, it's probably closer to 12%, 13%.

Okay. Okay. Got it. And then second question, did you disclose the dollar transfer volume in the digital currency ecosystem that you had in the fourth quarter?

We had not but our volume transfers were a record high for us of $213.7 billion.

And for reference, what was it in the third quarter?

In the third quarter, it was $127.9 billion.

We will take our next question from Ebrahim Poonawala with Bank of America.

I just had one follow-up question on the capital (inaudible) down 1%. It should be up 5%, given the print you had. Remind us, Eric, internal capital generation, what's the level of asset growth that you can support? And why not do a preemptive equity raise, given how strong growth momentum is, stocks at an all-time high? Just give us a better thought process around the capital planning.

I mean I think our capital generation roughly generated $1 billion in capital, depends on what ratio I put on it, it's going to support $8 billion to $10 billion in growth. So -- and I'm going to stick to the script, Ebrahim, if we see an extended period of time where we're going to have lots of growth in our future, we're going to go raise capital.

And you still prefer equity over anything else in terms of shoring up capital? Is that fair?

Yes. We like a clean capital structure. So (inaudible) probably makes the most sense for us.

And we will take our next question from David Bishop with Seaport Research.

Most of my questions have been answered. Eric, I wasn't sure if maybe Joe had mentioned, the allowance for loan losses to loans that I hear that, that may have hit a floor here just given the growth outlook here into 2022. I wasn't sure if I heard that correctly earlier on the call.

I mean I think we're clearly closer to the floor. I wouldn't necessarily say that we hit the floor yet though, but we're clearly getting closer to the floor.

This concludes our allotted time and today's conference call. If you would like to listen to a replay of today's conference, please dial 1800-938-1598. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your line at this time, and have a wonderful day.