Deposit costs weigh on Signature Bank

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Sharply higher deposit and borrowing costs contributed to a disappointing first-quarter at Signature Bank in New York.

The $49 billion-asset bank’s net income was $144.1 million. In the year-earlier period, Signature wrote down the value of about $134 million in taxi-medallion loans. Excluding the impact of those write-downs, the bank’s net income declined 2% from a year ago.

Earnings per share of $2.65 was 12 cents short of the mean estimate of analysts compiled by FactSet Research Systems. Signature shares fell 5%, to $129.28, in early afternoon trading.

Net interest income rose 76%, to $313 million. The sharp rise was due to a steep decline in the loan-loss provision, which fell 96% to $6.3 million, as the year-ago period included the taxi-medallion loan write-down.

Signature’s deposit costs jumped 90%, to $104 million, as customers shifted money into accounts that pay higher interest. In addition, expenses tied to the bank’s Federal Home Loan bank borrowings, which also count toward interest expense, rose 81% to $33.1 million.

The average rate the bank paid on all deposits and borrowings increased 57 basis points, to 1.39%.

Bank of New York Mellon also reported on Wednesday that a spike in deposit costs was one factor that affected its first-quarter earnings.

“We’re confronted by a challenging deposit environment,” CEO Joseph DePaolo said during a Wednesday conference call.

Signature also reported a 64% drop, to $2.4 million, in income from prepayment penalties on commercial loans. DePaolo said that was the bank’s lowest level of loan-prepayment penalties in seven years.

Noninterest income fell 15%, to $6.1 million, primarily due to a $3.3 million loss from low-income housing tax credit investments.

Noninterest expense fell 9%, to $144.1 million, on lower FDIC assessment fees, as well as the absence of $24 million of write-downs on repossessed New York taxi medallions.

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