Cryptocurrency was "the Wild West" nearly a decade ago, said Scott Shay, co-founder and chairman of Signature Bank . It's now an engine of growth for the New York-based institution. "I think bitcoin is interesting," Shay told CNBC's "Closing Bell" in a December 2013 appearance on the show. On that day, the cryptocurrency traded around $900, according to CoinDesk. "I think the means of transactions that it does are very interesting," he said. "But I don't think we're there yet in terms of a cyber currency that has backing people can rely on." Now, bitcoin is trading above $48,000, and Signature provides banking services for some of the largest institutional players in digital assets. Signature was the first FDIC-insured bank to launch a real-time blockchain-based digital payments platform called Signet in January 2019. As Wall Street titans like JPMorgan Chase develop their own cryptocurrency initiatives , Signature has carved out a niche in the digital assets ecosystem — and hopes its first-mover advantage will hold its position as an industry leader. "We're a small bank compared to the big guys. That has the advantage of allowing us to really jump into something," Shay said in an August 2021 interview. "We saw this early. We organized ourselves and were determined to build an infrastructure." While other banks have struggled to expand, Signature's overall deposits rose by a record $11.6 billion in the second quarter, a 70% year-over-year increase. Crypto business drives much of Signature's fast growth, as digital assets banking brought in $6.3 billion of those deposits last quarter. Investors have taken notice. Shares of Signature are up more than 93% this year as of Wednesday afternoon, while the iShares U.S. Regional Banks ETF is up 30% in 2021, and the Russell 1000 is nearly 19% higher. All but one of the 15 Wall Street analysts covering Signature have a buy rating on the stock, and analysts on average think shares will reach $315.67 in the next 12 months, a 22.5% rally from Tuesday's closing price. "You can think of Signature as two companies within one. There's the traditional company that provides banking services of all types to business owners and their principals... and then you have this digital asset play," Mark Fitzgibbon, head of financial services research at Piper Sandler, said. Digital payments platform as entry to crypto Signature was founded in 2001 and focused on commercial real estate and multifamily banking for much of its history. Now the firm offers digital asset, fund and venture banking and is expanding on the West Coast. The bank's digital asset clients include cryptocurrency exchanges, stablecoin developers, over-the-counter desk and institutional traders, and blockchain miners, executives said on Signature's second-quarter earnings call. The bank reached 812 institutional customers in the second quarter, up from 741 in the prior quarter. The Signet digital payments platform is key to Signature's success in reeling in crypto players. The proprietary platform is an "on and off ramp for institutional customers looking to engage in the crypto economy," JPMorgan senior equity analyst Steven Alexopoulos said in a July note. While typical bank payment processes require time for payments to be settled, Signet's ethereum blockchain-based technology allows transactions to occur in real time. Cryptocurrencies trade around the world at all times, so clients can use Signature to transfer money instantaneously. "We didn't just do this as a one-off. We actually wanted to be part of the infrastructure of the cryptocurrency world — the legitimate cryptocurrency world," Signature's Shay said. The platform brings new clients to Signature and customers deposit more money, which the bank can then use to make loans or invest in its securities portfolio. "These guys had the savvy to develop this amazing network a couple of years ago and it's proven to be a really nice way for them to collect assets and drive deposit growth," said Matthew Gershuny, lead portfolio manager of the Parnassus Mid Cap fund, which is five-star-rated on Morningstar. The fund owned $127 million worth of Signature stock as of February. Non-crypto clients are also expressing interest in Signet's real-time payment mechanisms, the bank told CNBC. "They would have never thought they'd be talking about blockchain. It's that ability to close something in the middle of the night and de-risk from credit," Shay said. Beating the pack to the space Signature's closest competitor in digital asset banking is San Diego-based Silvergate Bank . Silvergate also offers a real-time, 24/7 money transfer system for clients called the Silvergate Exchange Network. However, Signature is a much larger bank, ending the second quarter with $96.9 billion in assets. Silvergate reported about $12.2 billion total assets. Analysts and money managers point to other high-growth banks like Silicon Valley Bank and First Republic as comparable names and note that Signature still trades at a discount to those stocks when it comes to valuation. Signature's head start on both technology and regulation should carry it far, analysts say. Signet is the first service of its kind to be approved by the New York State Department of Financial Services, according to Signature. "A lot of banks would like to do this kind of business, but haven't really figured out how to do that yet and haven't built the technology that commercial customers find valuable," Piper Sandler's Fitzgibbon said. To be sure, cryptocurrencies still carry risk. Prices of tokens can swing wildly, and investors face uncertainty regarding regulation. However, Signature has seen no correlation between crypto asset prices and deposit flows, executives said on the bank's latest quarterly earnings call. Signature's digital asset deposit growth is driven more by adoption of cryptocurrencies, the bank says. With Signature's crypto exposure solely on its deposit side at the moment, there is minimal risk to the company, according to Chris Fortune, financial analyst at T. Rowe Price, which owns Signature in a number of its funds. "The worst that can happen is you have a downtrend in deposits, but it doesn't seem like that's going to happen anytime too soon," Fortune said. Signature announced earlier this year that it intends to cautiously roll out crypto-backed lending to select clients. "We want to crawl before we walk, and just walk — not walk to run," president and CEO Joseph DePaolo said on Signature's last earnings call. "We want this to be a no-loss business." The size and pace of Signature's experimentation with crypto-backed lending shouldn't be "concerning from a capital perspective," according to Fortune. Crypto is certainly part of Signature's growth story, but analysts and money managers are quick to point out Signature's strength overall. They highlight Signature's single point-of-contact approach with clients, flat structure and compensation model as differentiators. "It's not strictly a bet on digital assets," said Ian Sexsmith, portfolio manager of the Parnassus Mid Cap Growth Fund, which also holds Signature shares. "The bank as a whole has this unique mousetrap that they built, and they're just finding new avenues for growth." —CNBC Michael Bloom contributed reporting.
Igor Golovniov | LightRocket | Getty Images
Cryptocurrency was "the Wild West" nearly a decade ago, said Scott Shay, co-founder and chairman of Signature Bank. It's now an engine of growth for the New York-based institution.