2011 AnnuAl R epoRt
A FoundAtion Built on SeRvice
C o m pa n y P r o f i l e
Signature Bank, member FDIC, is a full-service commercial bank with 25 private client offices
located throughout the New York metropolitan area. The Bank primarily serves privately owned
businesses, their owners and senior managers. Signature Bank offers a broad range of business and
personal banking products and services as well as investment, brokerage, asset management and
insurance products and services through its subsidiary, Signature Securities Group Corporation, a
licensed broker-dealer, investment adviser and member FINRA/SIPC.
SignAtuRe BAnk’S 25 new YoRk-AReA pRivAte client BAnking oFFiceS
MAnhAttAn
261 Madison Avenue
300 Park Avenue
71 Broadway
565 Fifth Avenue
950 Third Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
BRooklYn
26 Court Street
84 Broadway
6321 New Utrecht Avenue
QueenS
36-36 33rd Street, Long Island City
78-27 37th Avenue, Jackson Heights
8936 Sutphin Boulevard, Jamaica
BRonx
421 Hunts Point Avenue
StAten iSlAnd
2066 Hylan Boulevard
weStcheSteR
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
long iSlAnd
1225 Franklin Avenue, Garden City
279 Sunrise Highway, Rockville Centre
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
Since its founding, Signature Bank’s service-based, relationship
banking premise has been the hallmark of its success. In 2011,
this unrelenting commitment to service led to the Bank’s strengthened
market position, strong financial results, expanding private
client banking team network, increased recognition among third parties
and heightened awareness as one of the nation’s leading
financial institutions.
Financial Highlights
(in thousands)
Total assets
Total loans
Total deposits
2007
2008
2009
2010
2011
$ 5,845,172
7,192,199
9,146,112
2,025,578 3,470,542
4,376,098
11,673,089 14,666,120
6,850,726
5,244,664
4,511,890 5,387,886
7,222,546
9,441,227
11,754,138
Shareholders’ equity
425,756
698,135
803,659
944,547
1,408,116
Net interest income after
provision for loan losses
Non-interest income
Non-interest expense
134,474
168,383
219,680
298,486
8,746
27,645
34,632
42,648
99,062
123,820
149,885
164,896
Income before income taxes
44,158
72,208
104,427
176,238
407,911
42,038
182,724
267,225
Net income available to
common shareholders
$ 27,279
42,969
50,523
102,051
149,526
(Left to right) Joseph J. DePaolo, President and Chief Executive Officer and
Scott A. Shay, Chairman of the Board
deposits
(in billions)
11.8
9.4
7.2
5.4
$ 12
$ 9.6
$ 7.2
$ 4.8
4.5
$ 2.4
$ 0
07
08
09
YEAR
10 11
2
Service and safety are at the core of our culture. During 2011, the service commitment upon which Signature Bank was built led to another year of record results, solid financial performance and stability. During 2011, deposits grew 24.5 percent, loans expanded 30.6 percent, assets rose 25.6 percent, capital increased 49.1 percent and annual net income was up 46.5 percent.When we built Signature Bank from the ground up, we had the opportunity to create a banking model centered on rela-tionships and unrivaled service. There is no denying that in the world of banking, most institu-tions look to distinguish themselves by tritely claiming they deliver stellar service. However, everyone knows actions speak louder than words. While many say they pride themselves on building relationships, few institutions really make good on this promise. The ability to offer incomparable service is a goal on which so many fail to deliver. At Signature Bank, our actions have been clear since our inception. And, our pledge to provide unparalleled service has always been apparent to the thousands of clients we serve and the hundreds of bankers we call our colleagues. To our Shareholders Signature Securities Group President and CEO William J. Maguire works on
a client investment management proposal with JoAnn Rossano, Group Director
and Senior Vice President, at the White Plains office.
2 0 1 1 A N N U A L R E P O R T
3
THE SIGNATURE BANK SECRET TO SUCCESSWe do not view exceptional service as a trend or a fad. In fact, we never promote our service message in any advertising campaigns or plaster it across billboards. We simply view it as the hallmark of our business, the way relationship banking should be conducted. The service platform we created 11 years ago involves the establishment of numerous private client banking teams, each of which serve as a single point of contact for our clients – primarily privately owned busi-nesses, their owners and senior managers. We are completely focused on the relationships our teams forge with their clients. Furthermore, we are highly selec-tive in the teams we bring on board and the clients to whom they cater.We attract some of the metropoli-tan New York area’s most seasoned bankers, many of whom have become frustrated with the bureau-cracy and ever-changing environ-ment found at the mega-banks which dominate today’s banking landscape. This affords Signature Bank an opportunity to recruit veteran bankers and offer them a platform from which to manage their relationships. Our bankers are the “advertise-ment” for Signature Bank through their ability to garner deposits and extend loans. Loans
(in billions)
6.9
5.2
4.4
3.5
2.0
07
08
09
YEAR
10 11
$ 7
$ 6
$ 5
$ 4
$ 3
$ 2
$ 1
$ 0
SOLID AS A ROCK
Signature Bank continues
to outperform despite the
challenging environment
for the banking industry.
Throughout 2011, many
circumstances further
negatively impacted the global economy, including the
tragic tsunami that hit Japan, the debt ceiling crisis,
the U.S. debt downgrade by Standard & Poor’s and
the European sovereign debt crisis. All of these issues
exacerbated economic uncertainty worldwide.
Nonetheless, Signature Bank’s performance hit record
levels once again. For the year ended December 31,
2011, net income reached a record $149.5 million, or
$3.37 diluted earnings per share, an increase of 46.5
percent versus $102.1 million, or $2.46 diluted earn-
ings per share, reported in 2010. The dramatic increase
During 2011, many negative events occurred, which continued
to cloud the global economic landscape.
in net income during 2011 was mainly the result of an increase in net interest income, which was
positively affected by both core deposit and loan growth.
In 2011, deposits rose a record $2.31 billion or 24.5 percent since 2010, reaching $11.75 billion. Core
deposits (excluding short-term escrow and brokered deposits) grew a record $2.13 billion, or 24.2
percent. This true, organic growth was achieved without making any acquisitions. Signature Bank’s
loan portfolio expanded a record $1.61 billion to $6.85 billion at December 31, 2011, an increase
of 30.6 percent. We continue to stay the course as it relates to our pragmatic approach of selectively
lending to high-quality borrowers who share strong banking relationships with us.
Signature Bank’s capital position, the cornerstone of our model, was further strengthened this past
year through strong earnings and another successful public offering in July 2011, where we raised
4
$253.3 million. At year-end 2011, tier 1
leverage, tier 1 risk-based and total risk-
based capital ratios were 9.67 percent,
17.08 percent and 18.17 percent, respec-
tively. Our strong risk-based capital
ratios are reflective of the relatively
low-risk profile of the Bank’s sensibly
managed balance sheet. Furthermore,
the Bank’s tangible common equity
ratio remains strong at 9.60 percent.
It is the dedication of our Group
Directors and private client banking
teams that has led to the Bank’s ability
to achieve these significant growth
levels in both deposits and loans.
Group Directors and Senior Vice Presidents Steven J. Tuchler (l.) and
Steven N. Kocoris (r.) leave their offices at Signature Bank in Great Neck
to head to a client meeting.
teams
A TEAM EFFORT
78
73
68
56
52
80
60
40
20
0
Signature Bank has secured a sound reputation among veteran bankers
eager to join our growing network. We have become a sought-after destina-
tion for experienced bankers seeking a platform from which to grow their
business and fortify their client relationships. At Signature Bank, these
professionals know their purpose here is to sustain and build relationships
by offering their banking teams as the client’s single point of contact for
all their financial needs. The private client banking team is the source for
07
08
09
YEAR
10 11
whatever services may be relevant to a particular client.
The scope of services and levels of commitment to financial care that each of our private client
banking teams bring to their clients could not be delivered without the strength and reach of our
support and administrative services professionals. They make it possible for our teams to ensure
they meet clients’ daily needs.
2 0 1 1 A N N U A L R E P O R T
5
Signature Bank ended the year with
78 private client banking teams
headed by 106 Group Directors, all
of whom have welcomed the auton-
omy and enjoyed the opportunity to
nurture client relationships. During
2011, seven teams joined and nine
existing groups were expanded
through the addition of various
banking professionals.
We also introduced our 25th private
client banking office, marking our
ninth in Manhattan. It is impor-
tant to note that we are not a retail
bank; you won’t find Signature
John T. Myszko, Group Director and Senior Vice President, visits with
Residential Lending Area Supervisor Dawn Lipiro, at his offices in the Bank’s
corporate headquarters where they address a pending client loan.
Bank on every corner. Instead, we open offices – mainly on higher floors in larger buildings –
in areas where our seasoned bankers have already established a stable, substantial client base.
RECOGNIZABLE RESULTS
As we continue to gain more traction in the banking marketplace, we are proud that, based
on a third-party survey of our colleagues, we were named among Crain’s 2011 Best Places to
Work in NYC, where Signature Bank ranked 21 out of 50 and also was the only bank to rank
on the 2011 annual list as well as in the past two years. This was truly an honor as Crain’s
selected the top 50 best places to work in New York City from among thousands of employers.
The commitment of our extremely productive, highly satisfied colleagues has contributed to
a remarkable year of recognition for Signature Bank. Our ability to deliver stellar service,
to keep depositor safety at the forefront of our banking philosophy, and demonstrate our
unyielding capabilities in attracting the New York metro area’s most talented professionals,
has contributed to a continually advancing market leadership position.
6
Signature Bank’s commitment to service and single-point-of-contact approach to forging lasting client
relationships has reaped solid record financial results and led to significant third-party recognition.
In addition to being named by Crain’s as one of the best places to work in New York City,
the Bank’s extraordinary 2011 financial performance earned it many other accolades last
year, including:
• Receiving recognition as the fifth
Best Bank in America on Forbes
list of the top 100;
• Obtaining the number seven slot,
its highest rank ever, in the Crain’s
New York Business ranking of
New York’s Fastest-growing Public
Companies;
• Making an inaugural appearance
on Fortune’s list of 100 Fastest-
growing companies, occupying the
69th position;
• Being named in both the Best
Business Bank (ranked third) and
Best Private Bank (ranked second)
categories by the New York Law
Group Director and Senior Vice President Paul A. Santamaria (l.), George M.
Hoffman (c.), Funds Transfer Manager and Alyson L. Stone (r.), Vice President-
Corporate Strategy and Assistant to the President, meet at the Bank’s midtown
Manhattan office on Madison Avenue and 38th Street, to discuss the electronic
banking services offered by Signature Bank.
Journal, based on their annual reader opinion poll; and,
• Landing on ABA Banking Journal’s list of Banking’s Top Performers, securing the 10th spot
because the Bank experienced a 20 percent gain in organic loan growth, one of the highest rates
among institutions in 2010.
2 0 1 1 A N N U A L R E P O R T
7
BANKING ON NEW YORK
For more than a decade, Signature
Bank has served clients across
the metropolitan New York area,
now with more than 100 Group
Directors who call our 25 private
client banking offices spanning the
five boroughs (extending to Long
Island and Westchester) home.
We have built a loyal client base
by serving the New York area and
From their home base in the Melville, Long Island office, Eileen Dignam,
Group Director and Vice President (l.), and Susan M. Duggan,
Senior Lender and Vice President (c.) discuss new products with Training
Specialist Allison Katz (r.).
dedicating ourselves to depositor safety and the delivery of unparalleled service. We have
grown to a nearly $15 billion bank by staying focused on an area where we know our unsur-
passed service is needed and appreciated, and our pledge to deliver is real and recognized.
We thank our devoted clients for their confidence in Signature Bank. Our commitment to you
and meeting your needs is genuine.
We also want to take this opportunity to express our gratitude to all our colleagues for deliver-
ing on the service commitment we assure our clients; the Board of Directors, whose guidance
has helped distinguish Signature Bank in a crowded banking marketplace; and, our investors
for their valuable support.
Respectfully,
Scott A. Shay
Chairman of the Board
Joseph J. DePaolo
President and Chief Executive Officer
8
UNITED STATES
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10 K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the transition period from to
FDIC Certificate Number 57053
SIGNATURE BANK
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction
of incorporation or organization)
565 Fifth Avenue, New York, New York
(Address of principal executive offices)
13-4149421
(I.R.S. Employer
Identification No.)
10017
(Zip Code)
Registrant’s telephone number, including area code: (646) 822-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.01 par value
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. £Yes T No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. T Yes £ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. T Yes £ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10 K or any amendment to this Form 10 K. T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b 2 of the Exchange Act.
(Check one):
Large accelerated filer T Accelerated filer £ Non-accelerated filer £ Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act). £ Yes T No
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sales price of the registrant’s
Common Stock as quoted on the NASDAQ Global Select Market on June 30, 2011 was $2.30 billion.
As of February 27 2012, the Registrant had outstanding 46,182,040 shares of Common Stock.
Portions of the registrant’s definitive Proxy Statement for Annual Meeting of Stockholders to be held April 25, 2012. (Part III)
DOCUMENTS INCORPORATED BY REFERENCE
SIGNATURE BANK
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-1
2
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K 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 many are
beyond our control. Forward-looking statements include information concerning our possible or assumed future
results of operations, including descriptions of our business strategy, expectations, beliefs, projections, anticipated
events or trends, growth prospects, financial performance, and similar expressions concerning matters that are not
historical facts. These statements often include words such as “may,” “believe,” “expect,” “anticipate,” “potential,”
“opportunity,” “intend,” “plan,” “estimate,” “could,” “project,” “seek,” “should,” “will,” or “would,” or the negative of
these words and phrases or similar words and phrases.
All forward-looking statements may be impacted by a number of risks and uncertainties. These statements are
based on assumptions that we have made in light of our experience in the industry as well as our perception of
historical trends, current conditions, expected future developments and other factors we believe are appropriate
under the circumstances including, without limitation, those related to:
• earnings growth;
• revenue growth;
• deposit growth, including short-term escrow deposits and off-balance sheet deposits;
• future acquisitions;
• performance, credit quality and liquidity of investments made by us, including our investments in certain mortgage-
backed and similar securities;
• loan origination volume;
• the interest rate environment;
• non-interest income levels, including fees from product sales;
• credit performance on loans made by us;
• monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Board of
Governors of the Federal Reserve System;
• our ability to maintain, generate and/or raise capital;
• changes in the regulatory environment and government intervention in the banking industry; including the impact of
the Dodd-Frank Wall Street Reform and Consumer Protection Act;
• Federal Deposit Insurance Corporation insurance assessments;
• margins on sales or securitizations of loans;
• market share;
• expense levels;
• hiring of new private client banking teams;
• results from new business initiatives;
• other business operations and strategies; and
• impact of new accounting pronouncements.
As you read and consider forward-looking statements, you should understand that these statements are not
guarantees of performance or results. They involve risks, uncertainties and assumptions and can change as a
result of many possible events or factors, not all of which are known to us or in our control. Although we believe
that these forward-looking statements are based on reasonable assumptions, beliefs and expectations, if a change
occurs or our beliefs, assumptions or expectations were incorrect, our business, financial condition, liquidity or
results of operations may vary materially from those expressed in our forward-looking statements. You should be
aware that many factors could affect our actual financial results or results of operations and could cause actual
results to differ materially from those in the forward-looking statements. See “Part I, Item 1A. – Risk Factors” for a
discussion of the most significant risks that we face, including, without limitation, the following factors:
• disruption and volatility in global financial markets;
• difficult market conditions adversely affecting our industry;
• our inability to successfully implement our business strategy;
• our vulnerability to changes in interest rates;
3
• competition with many larger financial institutions which have substantially greater financial and other resources
than we have;
• government intervention in the banking industry, new legislation and government regulation;
• illiquid market conditions and downgrades in credit ratings;
• continued adverse developments in the residential mortgage market;
• inability of U.S. agencies or U.S. government-sponsored enterprises to pay or to guarantee payments on their
securities in which we invest;
• material risks involved in commercial lending;
• a downturn in the economy of the New York metropolitan area;
• under-collateralization of our loan portfolio due to a material decline in the value of real estate;
• risks associated with our loan portfolio growth;
• our failure to effectively manage our credit risk;
• lack of seasoning of our loan portfolio and mortgage loans underlying our investment portfolio;
• our allowance for loan losses may not be sufficient to absorb actual losses;
• our reliance on the Federal Home Loan Bank of New York for secondary and contingent liquidity sources;
• our dependence upon key personnel;
• our inability to acquire suitable client relationship groups or manage our growth;
• our charter documents and regulatory limitations may delay or prevent our acquisition by a third party;
• curtailment of government guaranteed loan programs could affect our SBA business;
• our extensive reliance on outsourcing to provide cost-effective operational support;
• system failures or breaches of our network security;
• decreases in trading volumes or prices;
• potential responsibility for environmental claims;
• our inability to raise additional funding needed for our operations;
• misconduct of employees or their failure to abide by regulatory requirements;
• fraudulent or negligent acts on the part of our clients or third parties;
• failure of our brokerage clients to meet their margin requirements;
• acts of war or terrorism;
• changes in the federal or state tax laws;
• changes in accounting standards or interpretation in new or existing standards;
• increases in FDIC insurance premiums; and
• regulatory net capital requirements that constrain our brokerage business.
See “Part I, Item 1A. – Risk Factors” for a full discussion of these risks.
You should keep in mind that any forward-looking statement made by us speaks only as of the date on which we
make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events
or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking
statements after the date on which they are made. In light of these risks and uncertainties, you should keep in
mind that any forward-looking statement made in this document or elsewhere might not reflect actual results.
4
ITEM 1. BUSINESS
PART I
In this annual report filed on Form 10-K, except where the context otherwise requires, the “Bank,” the “Company,”
“Signature,” “we,” “us,” and “our” refer to Signature Bank and its subsidiaries, including Signature Securities Group
Corporation (“Signature Securities”).
Introduction
We are a New York-based full-service commercial bank with 25 private client offices located in the New York
metropolitan area serving the needs of privately-owned business clients and their owners and senior managers.
We offer a wide variety of business and personal banking products and services through the Bank as well as
investment, brokerage, asset management and insurance products and services through our wholly-owned
subsidiary, Signature Securities Group Corporation (“Signature Securities”), a licensed broker-dealer and
investment adviser. Through Signature Securities, we also purchase, securitize and sell the guaranteed portions
of U.S. Small Business Administration (“SBA”) loans. For financial information by segment, see Note 21 to the
“Notes to Consolidated Financial Statements,” included elsewhere in this annual report on Form 10-K.
Signature Bank’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and all amendments to those reports, Proxy Statement for its Annual Meeting of Stockholders and Annual Report
to Stockholders are made available, free of charge, on our website at www.signatureny.com as soon as
reasonably practicable after such reports have been filed with or furnished to the Federal Deposit Insurance
Corporation (“FDIC”). You may also obtain any materials that we file with the FDIC at the Federal Deposit
Insurance Corporation’s offices located at 550 17th Street N.W., Washington, DC 20429. We do not file reports
with the Securities and Exchange Commission.
Since commencing operations in May 2001, we have grown to $14.67 billion in assets, $11.75 billion in deposits,
$6.85 billion in loans, $1.41 billion in equity capital and $1.67 billion in other assets under management as of
December 31, 2011.
We intend to continue our growth and maintain our position as a premier relationship-based financial services
organization in the New York metropolitan area. This growth will be guided by our Chairman and senior
management team who have extensive experience developing, managing and growing financial service
organizations. Our Chairman, Scott Shay, has been a Managing Director of Ranieri & Co. Inc. since its formation
in 1988. Most of our senior management, including our President and Chief Executive Officer, Joseph DePaolo,
and our Vice-Chairman, John Tamberlane, were formerly senior officers of Republic National Bank of New York,
an institution that successfully employed a deposit gathering strategy and private client focus similar to ours.
Recent Highlights
Common Stock Offering
On July 11, 2011, we completed a public offering of 4,715,000 shares of our common stock. The net proceeds
from this offering added approximately $253.3 million to our shareholders’ equity and will be used to support
private client banking team growth, fund the opening of new offices and permit us to originate and retain loans of a
size and type that will allow us to accommodate the needs of our targeted clients.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), signed into law on July
21, 2010, makes extensive changes to the laws regulating financial services firms. The Dodd-Frank Act also
requires significant rulemaking and mandates multiple studies that have resulted and are likely to continue to
result in additional legislative and regulatory actions that will impact the operations of the Bank.
Under the Dodd-Frank Act, federal bank regulatory agencies are required to draft and implement enhanced
supervision, examination and capital and liquidity standards for depository institutions and their holding
5
companies. The capital provisions of the Dodd-Frank Act include, among other things, changes to capital,
leverage limits and limitations on the use of hybrid capital instruments. The Dodd-Frank Act also imposes new
restrictions on investments and other activities by depository institutions, particularly with respect to derivatives
activities and proprietary trading. The Bank has not historically made significant investments in derivatives or
engaged in proprietary trading. The Dodd-Frank Act also gives federal bank regulatory agencies, such as the
Federal Reserve and the FDIC, additional latitude to monitor the systemic safety of the financial system and take
responsive action, which could include imposing restrictions on the business activities of the Bank. In addition, the
Dodd-Frank Act authorizes the federal regulators to impose various new assessments and fees, which could
increase the Bank’s operational costs. In February 2011, the FDIC approved a new regulation to implement
provisions of the Dodd-Frank Act that require deposit insurance assessments to be calculated based on assets
rather than the amount of domestic deposits held by insured institutions. Those regulations took effect on April 1,
2011 and are intended, among other things, to increase the aggregate share of assessments paid by institutions
with assets of $10 billion or more.
All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were
repealed as part of the Dodd-Frank Act. As a result, beginning on July 21, 2011, financial institutions could
commence offering interest on demand deposits to compete for clients. As of December 31, 2011, $3.15 billion, or
26.8%, of our total deposits were held in non-interest bearing demand deposit accounts. Our interest expense will
increase and our net interest margin will decrease if we have to offer higher rates of interest than we currently offer
on demand deposits to attract additional clients or maintain current clients, which could have a material adverse
effect on our business, financial condition and results of operations. Thus far, the change has not had a
meaningful effect on our business.
The Dodd-Frank Act also established the new federal Consumer Financial Protection Bureau (“CFPB”). This
agency will be responsible for interpreting and enforcing a broad range of consumer protection laws governing the
provision of deposit accounts and the making of loans, including the regulation of mortgage lending and servicing.
This includes laws such as the Equal Credit Opportunity Act, the Truth-in-Lending Act and the Truth in Savings
Act. Additionally the CFPB will have the authority to take enforcement action against banks and other financial
services companies that fail to satisfy the standards imposed by it. The Dodd-Frank Act also permits states to
adopt stricter consumer protection laws and state attorneys general to enforce consumer protection rules issued
by the CFPB. As a result of these aspects of the Dodd-Frank Act, the Bank will be operating in a consumer
compliance environment that will be far less certain. Therefore, the Bank is likely to incur additional costs related
to consumer protection compliance, including but not limited to potential costs associated with CFPB regulatory
and enforcement actions and consumer-oriented litigation, which is likely to increase as a result of the consumer
protection provisions of the Dodd-Frank Act.
At this time, it is difficult to predict the full extent to which the Dodd-Frank Act or the resulting regulations will
impact the Bank’s business. However, compliance with certain of these new laws and regulations could result in
restraints on, and additional costs to, our business. It is also difficult to predict the impact the Dodd-Frank Act will
have on our competitors and on the financial services industry as a whole. In addition to the recent legislative and
regulatory initiatives described above, competitive and industry factors could also adversely impact our results, the
cost of our operations, our financial condition and our liquidity.
Core Deposit Growth
From December 31, 2010 through December 31, 2011, our deposits grew $2.31 billion, or 24.5%, to $11.75 billion.
Deposits at December 31, 2011 include $57.8 million of brokered deposits and approximately $774.0 million of
short-term escrow deposits, which due to their nature and as expected, have been or will be released in early
2012. At year end 2010, deposits included $26.7 million of brokered deposits and approximately $619.4 million of
short-term escrow deposits. Core deposits, which exclude brokered deposits and short-term escrow deposits,
increased $2.13 billion, or 24.2%, for the year. This growth in our core deposits can be attributed to the addition of
new private client banking groups, who assist us in growing our client base, and additional deposits by our current
clients. We primarily focus our deposit gathering efforts in the greater New York metropolitan area market with
money center banks, regional banks and community banks as our primary competitors. We distinguish ourselves
from competitors by focusing on our target market: privately-owned businesses and their owners and senior
managers. This niche approach, coupled with our relationship-banking model, provides our clients with a
personalized service, which we believe gives us a competitive advantage. Our deposit mix has remained
favorable, with non-interest-bearing and NOW deposits accounting for 32.3% of our total deposits and time
deposits accounting for only 7.6% of our total deposits as of December 31, 2011. Our average cost for total
6
deposits was 0.84% for the year ended December 31, 2011 and 0.76% for the three months ended December 31,
2011.
Escrow Deposits
At December 31, 2011 and 2010, approximately $774.0 million and $619.4 million, respectively, of short-term
escrow deposits were included in the Bank’s deposits. We have developed a core competency in catering to the
needs of law firms, claims administrators, accounting firms, and title companies, which allows us to obtain from our
clients short-term escrow deposits.
Strategic Hires
During 2011, we added seven new private client banking groups and 13 new banking group directors to increase
our network of seasoned banking professionals. Our full-time equivalent number of employees grew from 660 to
720 during 2011.
Private Client Banking Groups and Offices
As of December 31, 2011, we had 78 private client banking groups and 106 banking group directors throughout
the New York metropolitan area. With the on-going consolidation of financial institutions in our marketplace and
market segmentation by our competitors, we continue to actively recruit experienced private client banking groups
with established client relationships that fit our niche market of privately-owned businesses, their owners and their
senior managers. Our typical group director joins us with 20 years of experience in financial services, a seasoned
book of business and an established team of two to four additional professionals to assist with business
development and client services. Each additional private client group brings client relationships that allow us to
grow our core deposits as well as expand our lending opportunities. We are actively recruiting several additional
private client banking groups that we believe will fit our strategy and enhance our franchise.
To facilitate our growth, we opened one additional private client office during 2011 located in Manhattan, New
York. We currently operate 25 private client offices located in the New York metropolitan area. While our strategy
does not call for us to have an expansive office presence, we will continue to add offices to meet the needs of the
private client banking groups that we recruit.
Our Business Strategy
We intend to increase our presence as a premier relationship-based financial services organization serving the
needs of privately-owned business clients, their owners and senior managers in the New York metropolitan area
by continuing to:
Focus on our niche market of privately-owned businesses, their owners and their senior managers
We generally target closely held commercial clients with revenues of less than $50 million and fewer than 1,000
employees. Our business clients are representative of the New York metropolitan area economy and include real
estate owners/operators, real estate management companies, law firms, accounting firms, entertainment business
managers, medical professionals, retail establishments, money management firms and not-for-profit philanthropic
organizations. We also target the owners and senior management of these businesses who typically have a net
worth of between $500,000 and $20 million.
Provide our clients a wide array of high quality banking, brokerage and insurance products and services
through our private client group structure and a seamless financial services solution
We offer a broad array of financial products and services with a seamless financial services solution through our
private client group structure.
Most of our competitors that sell banking products as well as investment and insurance products do so based on a
“silo” approach. In this approach, different sales people from different profit centers within the bank, brokerage
firm or insurance company separately offer their particular products to the client. This approach creates client
confusion as to who is servicing the relationship. Because no single relationship manager considers all of the
needs of a client in the “silo” approach, some products and services may not be presented at all to the client. We
market our banking, investment and insurance services seamlessly, thus avoiding the “silo” approach of many of
our competitors in the New York metropolitan area. Our cash management, investment and insurance products
7
and services are presented to clients by the private client group professional but provided or underwritten by
others.
Our business is built around banking and investment private client groups. We believe that our ability to hire and
retain top-performing relationship group directors is our major competitive advantage. Our group directors have
primary responsibility for attracting client relationships and, on an on-going basis, through them and their groups,
servicing those relationships. Our group directors are experienced financial service professionals who come from
the following disciplines: private banking, middle market banking, high-end retail banking, investment and
insurance and institutional brokerage. Our group directors each have their own private client team (typically two to
four professionals) who assists the group director in business development and client service.
Recruit experienced, talented and motivated private client group directors who are top producers and who
believe in our banking model
A key to our success in developing a relationship-based bank is our ability to recruit and retain experienced and
motivated financial services professionals. We recruit group directors and private client groups who we believe
are top performers. While recruitment channels differ and our recruitment efforts are largely opportunistic in
nature, the continuing merger and acquisition activity in the New York financial services marketplace provides an
opportunity to selectively target and recruit qualified groups. We believe the current market to be a favorable
environment for locating and recruiting qualified private client groups. Our experience has been that such
displacement and change leads select private client groups to smaller, less bureaucratic organizations.
Offer progressive incentive-based compensation that rewards private client groups for developing their
business and retaining their clients
Our private client group variable compensation model adds to the foundation for our relationship-based banking
discipline. A key part of our strategy for growing our business is the progressive incentive-based compensation
that we employ to help us retain our group directors while ensuring that they continue to develop their business
and retain their clients. Under our private client group variable compensation model, annual bonuses are paid to
members of the client relationship team based upon the profit generated from their business. In order to mitigate
the inherent risk in our incentive-based compensation model, we have in place an internal control structure that
includes segregation of duties. For example, the underwriting and ultimate approval of any loan is performed by
loan officers who are separate from the private client groups and report to our Chief Credit Officer.
Maintain a flat organization structure that allows our clients and group directors to interface with, and our
group directors to report directly to, senior management
Another key element of our strategy is our organizational structure. We operate with a flat organizational and
reporting structure, which allows our group directors to interface with, and report directly to, senior management.
More importantly, it gives our clients direct access to senior management.
Develop and maintain operations support that is client-centric and service oriented
We have made a significant investment in our infrastructure, including our support staff. We have centralized
many of our critical operations, such as finance, information technology, client services, cash management
services, loan administration and human resources. Although we have centralized many of our operations, we
have located some functions within the private client offices so they are closer to the group directors and our
clients. For example, most of our private client offices have a senior lender on location, who is part of our credit
group, to assist the private client groups with the lending process. In addition, most of our private client offices
have an investment group director or group that provides brokerage and/or insurance services, as necessary. We
believe that our existing infrastructure (physical and systems infrastructure, as well as people) can accommodate
additional growth without substantial additional support area personnel or significant spending on technology and
operations in the medium term.
Be committed to a sound risk management process while focusing on profitability
Risk management is an important element of our business. We evaluate the inherent risks that affect our
business, including interest rate risk, credit risk, operational risk, regulatory risk, and reputation risk. We have a
Director of Risk Management whose responsibility is the oversight of our risk management processes.
Additionally, members of our senior management group have significant experience in risk management. In
addition, they have extensive backgrounds in credit, operations, finance and auditing. We have put internal
8
controls in place that help to mitigate the risks that affect our business. In addition, we have policies and
procedures that further help mitigate risk and regulatory requirements that mandate that we evaluate, test and
opine on the effectiveness of internal controls. No system of internal control or policies and procedures will ever
totally eliminate risk, however, we believe that our risk management processes will help keep our risks to a
manageable level.
Maintain an appropriate balance between cost control, incentive compensation and business expansion
initiatives
We have established an internal approval process for capital and operating expenses. We maintain cost control
practices and policies to increase efficiency of operations. A key expense for financial service companies is
compensation. Controlling this expense is an important element in keeping overall expenses down. A member of
senior management and our President and Chief Executive Officer must approve all new hires. Our group
directors and their groups receive base salaries and benefits; however, a significant portion of their compensation
is variable and based upon the profit generated from the business they create. This variable compensation model
helps us control expenses as employees do not receive variable compensation unless revenue is generated.
Virtually all expenditures (both current and capital) in excess of certain thresholds must be approved by a member
of senior management, and are reviewed and approved by our Purchasing and Capital Expenditures Committee,
which includes our Chief Operating Officer and our Chief Financial Officer.
We make extensive use of outsourcing to provide cost-effective operational support with service levels consistent
with large-bank operations. We focus on our financial services business and have outsourced many of our key
banking and brokerage systems to third-party providers. This has several advantages for an institution like ours,
including the ability to cost-effectively utilize the latest technology to better serve, and stay focused on, the needs
of our clients. Some of our key outsourcing partners include Fidelity Information Services and National Financial
Services (the brokerage and investments systems division of Fidelity Investments). We maintain management
oversight of these providers. Each of these providers was the subject of a due diligence investigation prior to their
selection and continues to be reviewed on an on-going basis.
Historical Development
We were incorporated as a New York State-chartered bank in September 2000. On April 5, 2001, our date of
inception, we received approval to commence operations from the New York State Banking Department (known as
the New York State Department of Financial Services as of October 3, 2011). Since commencing operations on
May 1, 2011, the following subsequent historical developments have occurred in relation to our ownership and
capital structure:
• We completed our initial public offering in March 2004 and a follow-on offering in September 2004. Our
common stock trades on the Nasdaq National Market under the symbol “SBNY.”
•
•
•
•
•
•
In March 2005, Bank Hapoalim B.M. sold its controlling stake in us in a secondary offering. After the
offering, Bank Hapoalim beneficially owned 5.7% of our common stock on a fully diluted basis. Bank
Hapoalim no longer owns any shares of our stock.
In September 2008, we completed a public offering of 5,400,000 shares of our common stock generating
net proceeds of $148.1 million.
In December 2008, we issued 120,000 shares of senior preferred stock (with an aggregate liquidation
preference of $120.0 million) and a warrant to purchase 595,829 common shares to the U.S. Treasury in
the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”),
for an aggregate purchase price of $120.0 million.
In light of the restrictions of the American Recovery and Reinvestment Act of 2009, on March 31, 2009,
we repurchased the 120,000 shares of preferred stock we issued to the U.S. Treasury for $120.0 million
plus accrued and unpaid dividends of $767,000.
In June 2009, we completed a public offering of 5,175,000 shares of our common stock generating net
proceeds of $127.3 million.
In March 2010, the U.S. Treasury sold, in a public offering, a warrant to purchase 595,829 shares of our
common stock that was received from us in the TARP Capital Purchase Program.
9
•
In July 2011, we completed a public offering of 4,715,000 shares of our common stock generating net
proceeds of approximately $253.3 million.
Signature Securities
Signature Securities is a registered broker-dealer in securities under the Securities Exchange Act of 1934 (the
“Exchange Act”) and a member of the National Association of Securities Dealers, Inc. (“NASD”). It formally
opened for full business operations on May 1, 2001.
Signature Securities provides our clients with comprehensive investment, brokerage, wealth management, and
other non-banking financial products and services. Signature Securities delivers these products and services to its
clients through experienced investment group directors, located in our private client offices, who work directly with
our banking group directors to bring these services to clients.
Products and Services
We offer a wide variety of deposit, escrow deposit, credit, cash management, investment and insurance products
and services to our clients. At December 31, 2011, we maintained approximately 78,000 deposit accounts, 6,900
investment accounts, 8,600 loan accounts and 14,300 client relationships.
Business Clients
We offer a full range of products and services oriented to the needs of our business clients, including:
• Deposit products such as non-interest-bearing checking accounts, money market accounts and time
deposits;
• Escrow deposit services;
• Cash management services;
• Commercial loans and lines of credit for working capital and to finance internal growth, acquisitions and
leveraged buyouts;
• Permanent real estate loans;
• Letters of credit;
• Investment products to help better manage idle cash balances, including money market mutual funds and
short-term money market instruments;
• Business retirement accounts such as 401(k) plans; and
• Business insurance products, including group health and group life products.
Personal Clients
We offer a full range of products and services oriented to the needs of our high net worth personal clients,
including:
• Interest-bearing and non-interest-bearing checking accounts, with optional features such as debit/ATM
cards and overdraft protection and, for our top clients, rebates of certain charges, including ATM fees;
• Money market accounts and money market mutual funds;
• Time deposits;
• Personal loans, both secured and unsecured;
• Mortgages, home equity loans and credit card accounts;
• Investment and asset management services; and
• Personal insurance products, including health, life and disability.
Deposit Products
The market for deposits continues to be very competitive. We primarily focus our deposit gathering efforts in the
greater New York metropolitan area with money center banks, regional banks and community banks as our
primary competitors. We distinguish ourselves from competitors by focusing on our target market: privately-owned
businesses and their owners and senior managers. This niche approach, coupled with our relationship-banking
model, provides our clients with a personalized service, which we believe gives us a competitive advantage.
10
We offer a variety of deposit products to our clients at interest rates that are competitive with other banks. Our
business deposit products include commercial checking accounts, money market accounts, escrow deposit
accounts, lockbox accounts, cash concentration accounts and other cash management products. Our personal
deposit products include checking accounts, money market accounts and certificates of deposit. We also allow
our personal and business deposit clients to access their accounts, transfer funds, pay bills and perform other
account functions over the internet and through ATM machines. At December 31, 2011, we maintained
approximately 78,000 deposit accounts representing $11.70 billion in client deposits, excluding brokered deposits.
The following table presents the mix of our deposits and deposit products as of December 31, 2011 and 2010.
(dollars in thousands)
Amount
Percentage
Amount
Percentage
December 31,
2011
2010
Personal demand (1)
Business demand (1)
Rent security
Personal NOW
Business NOW and interest-bearing demand
Personal money market
Business money market
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand (1)
NOW and interest-bearing demand
Money market
Time deposits
Brokered time deposits
Total
Personal
Business
Brokered time deposits
Total
(1) Non-interest bearing.
Lending Activities
$
331,268
2,817,168
75,139
37,094
606,036
2,314,369
4,677,424
492,060
345,782
57,798
11,754,138
3,148,436
643,130
7,066,932
837,842
57,798
11,754,138
3,174,791
8,521,549
57,798
11,754,138
$
$
$
$
$
2.82%
23.97%
0.64%
0.32%
5.16%
19.68%
39.79%
4.19%
2.94%
0.49%
100.00%
26.79%
5.48%
60.11%
7.13%
0.49%
100.00%
27.01%
72.50%
0.49%
100.00%
286,166
2,163,802
47,062
70,215
630,336
1,654,597
3,660,446
501,296
400,641
26,666
9,441,227
2,449,968
700,551
5,362,105
901,937
26,666
9,441,227
2,512,274
6,902,287
26,666
9,441,227
3.03%
22.92%
0.50%
0.74%
6.68%
17.53%
38.77%
5.31%
4.24%
0.28%
100.00%
25.95%
7.42%
56.80%
9.55%
0.28%
100.00%
26.61%
73.11%
0.28%
100.00%
Our traditional commercial and industrial lending is generally limited to existing clients with whom we have or
expect to have deposit and/or brokerage relationships in order to assist in monitoring and controlling credit risk.
We target our lending to privately-owned businesses, their owners and senior managers, generally high net worth
individuals who meet our credit standards. The credit standards are set by the Credit Committee of our Board of
Directors (the “Credit Committee”) with the assistance of our Chief Credit Officer, who is charged with ensuring
that credit standards are met by loans in our portfolio. In addition, we have a credit authorization policy under
which no single individual is authorized to approve a loan regardless of dollar amount. Smaller loans may be
approved by concurring authorized officers. Larger loans require the approval of the Credit Committee. Our
largest loan category requires the approval of our Board of Directors. Our credit standards for commercial
borrowers reference numerous criteria with respect to the borrower, including historical and projected financial
information, the strength of management, acceptable collateral and associated advance rates, and market
conditions and trends in the borrower’s industry. In addition, prospective loans are analyzed based on current
industry concentrations in our loan portfolio to prevent an unacceptable concentration of loans in any particular
industry. We believe our credit standards are similar to the standards generally employed by large nationwide
banks in the markets we serve. We seek to differentiate ourselves from our competitors by focusing on and
11
aggressively marketing to our core clients and accommodating, to the extent permitted by our credit standards,
their individual needs. We generally limit unsecured lending for consumer loans to private banking clients who we
believe demonstrate ample net worth, liquidity and repayment capacity.
We make loans that are appropriately collateralized under our credit standards. Approximately 97% of our funded
loans are secured by collateral. Unsecured loans are typically made to individuals with substantial net worth.
Commercial and Industrial Loans
Our commercial and industrial (“C&I”) loan portfolio is comprised of lines of credit for working capital and term
loans to finance equipment, company-owned real estate and other business assets, along with commercial
overdrafts. Our lines of credit for working capital are generally renewed on an annual basis and our term loans
generally have terms of two to five years. Our lines of credit and term loans typically have floating interest rates,
and as of December 31, 2011, approximately 61% of our outstanding C&I loans were variable rate loans. C&I
loans can be subject to risk factors unique to the business of each client. In order to mitigate these risks and
better serve our clients, we seek to gain an understanding of the business of each client and the reliability of their
cash flow, so that we can place appropriate value on collateral taken and structure the loan to maintain collateral
values at appropriate levels. In analyzing credit risk, we generally focus on the business experience of our
borrowers’ management. We prefer to lend to borrowers with an established track record of loan repayment and
predictable growth and cash flow. We also rely on the experience of our bankers and their relationships with our
clients to aid our understanding of the client and its business. Our lines of credit typically are limited to a
percentage of the value of the assets securing the line. Lines of credit are generally reviewed annually and are
typically supported by accounts receivable, inventory and equipment. Depending on the risk profile of the
borrower, we may require periodic aging of receivables, as well as borrowing base certificates representing current
levels of inventory, equipment, and accounts receivable. Our term loans are typically also secured by the assets
of our clients’ businesses. Commercial borrowers are required to provide updated personal and corporate
financial statements at least annually. At December 31, 2011, funded C&I loans totaled approximately 15% of our
total funded loans. Loans extended to borrowers within the services industries include loans to finance working
capital and equipment, as well as loans to finance investment and owner-occupied real estate.
12
The following table presents information regarding the distribution of our C&I loans among select industries in
which we had the largest concentration of loans outstanding at December 31, 2011. “Other Industries” include a
diverse range of industries, as determined by Sector Information Code (“SIC”), including service-oriented firms that
provide introductions to new client relationships and private households.
Industry by SIC Designation
(dollars in thousands)
Taxi Medallions
Real Estate and Real Estate Management
Wholesale Trade
Manufacturing
Special Trade Contractors
Legal Services
Retail Trade
Financial Services
Health Services
Membership Organizations
Professional Services
Building and Construction Contractors
Business Services
Recreational Services
Motion Pictures
Educational Services
Transportation Services
Other Industries
Total
December 31, 2011
Loan Amount
294,668
$
201,761
97,195
55,456
43,777
43,277
37,300
31,354
25,554
24,283
23,775
18,936
14,636
9,820
7,981
6,041
4,923
158,068
1,098,805
$
Percentage
26.82%
18.36%
8.85%
5.05%
3.98%
3.94%
3.39%
2.85%
2.33%
2.21%
2.16%
1.72%
1.33%
0.89%
0.73%
0.55%
0.45%
14.39%
100.00%
Real Estate Loans
Our real estate loan portfolio includes loans secured by commercial and residential properties. We also provide
temporary financing for commercial and residential property. Our permanent real estate loans generally have
fixed terms of five years. We generally avoid longer term loans for commercial real estate held for investment.
Our permanent real estate loans have both floating and fixed rates. Depending on the financial status of the
borrower, we may require periodic appraisals of the property to verify the ongoing adequacy of the collateral. At
December 31, 2011, funded real estate loans totaled approximately $5.74 billion, representing approximately 80%
of our total funded loans.
13
The following table shows the distribution of our real estate loans as of December 31, 2011 by collateral type:
Loans Secured by Real Estate
(dollars in thousands)
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Total
December 31, 2011
Loan Amount
Percentage
$
$
3,003,428
2,218,053
259,418
198,375
63,775
5,743,049
52.30%
38.62%
4.52%
3.45%
1.11%
100.00%
We occasionally make personal residential real estate loans. These loans consist of first and second mortgage
loans for residential properties. These loans are typically made to high net worth individuals as part of our private
client services. We generally do not retain long-term, fixed rate residential real estate loans in our portfolio due to
interest rate and collateral risks and low levels of profitability. We do not consider personal residential real estate
loans a core part of our business.
Substantially all of the collateral for our real estate loans is located within the New York metropolitan area. As a
result, our financial condition and results of operations may be affected by changes in the economy and the real
estate market of the New York metropolitan area. A prolonged period of economic recession or other adverse
economic conditions in the New York metropolitan area, such as the one we are experiencing now, may result in
an increase in nonpayment of loans, a decrease in collateral value, and an increase in our allowance for loan
losses.
Letters of Credit
We issue standby or performance letters of credit, and can service the international needs of our clients through
correspondent banks. At December 31, 2011, our commitments under letters of credit totaled approximately
$235.7 million.
Consumer Loans
Our personal loan portfolio consists of personal lines of credit and loans to acquire personal assets. Our personal
lines of credit generally have terms of one year and our term loans usually have terms of three to five years. Our
lines of credit typically have floating interest rates. If the financial situation of the client is sufficient, we will grant
unsecured lines of credit. We also examine the personal liquidity of our individual borrowers, in some cases
requiring agreements to maintain a minimum level of liquidity, to insure that the borrower has sufficient liquidity to
repay the loan. Due to low levels of profitability, interest rate risks and collateral risks, we do not consider secured
personal loans, such as automobile loans, a core part of our business. At December 31, 2011, our consumer
loans totaled $11.8 million, representing less than 1% of our total funded loans.
Investment and Asset Management Products and Services
Investment and asset management products and services are provided through our subsidiary, Signature
Securities. Signature Securities is a licensed broker-dealer and is a member of the NASD and the Securities
Investor Protection Corporation (“SIPC”). Signature Securities is an introducing firm and, as such, clears its trades
through National Financial Services, Inc., a wholly-owned subsidiary of Fidelity Investments. Signature Securities
is also registered as an investment adviser in New York, New Jersey, Pennsylvania and Florida. Our investment
group directors work with our clients to define objectives, goals and strategies for their investment portfolios,
whether our clients are looking for a relationship based provider or are looking for assistance with a particular
transaction.
We offer a wide array of asset management and investment products, including the ability to purchase and sell all
types of individual securities such as equities, options, fixed income securities, mutual funds and annuities. We
offer transactional, “cash management” type brokerage accounts with check writing and daily sweep capabilities.
We offer our clients an asset management program whereby we work with our clients to tailor their asset allocation
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according to their risk profile and then invest the client’s assets either directly with a select group of high quality
money managers, no load mutual funds or a combination of both. We contract with a third party to perform
investment manager due diligence for us on these money managers and mutual funds. We have entered into an
agreement and strategic alliance with American Stock Transfer & Trust Company and utilize this firm to provide
our corporate and personal clients with trust, custody and estate planning products and services. We offer no
proprietary products or services. We do not perform and we do not provide our clients with our own branded
investment research. Instead, we have contracted with a number of third-party research providers and are able to
provide our clients with traditional Wall Street research from a number of sources.
We also offer retirement products such as individual retirement accounts (“IRAs”) and administrative services for
retirement vehicles such as pension, profit sharing, and 401(k) plans to our clients. These products are not
proprietary products.
Signature Securities offers wealth management services to our high net worth personal clients. Together with our
client and their other professional advisors, including attorneys and certified public accountants, we develop a
sophisticated financial plan that can include estate planning, business succession planning, asset protection,
investment management, family office advisory services, bill payment, art and collectible advisory services and
concentrated stock services.
SBA Loans and Pools
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA Section 7(a) loans. Most SBA Section 7(a) loans have adjustable rates
and float at a spread to the prime rate and reset monthly or quarterly. SBA loans consist of a guaranteed portion
of the loan and an un-guaranteed balance, which typically represents 10% of the original balance that is retained
by the originating lender. The guaranteed portions of SBA loans are backed by the full faith and credit of the U.S.
government and, therefore, have no credit risk and carry a 0% risk weight for capital purposes. At December 31,
2011, we had $392.0 million in SBA loans held for sale, representing approximately 5% of our total funded loans,
compared to $382.2 million at December 31, 2010. The increased inventory has been used to fill increased client
demand for this product.
Signature Securities acts as an agent and as a consultant to the Bank on the purchase, sale and assembly of SBA
loans and pools. Signature Securities is one of the largest SBA pool assemblers in the United States. The
primary business of the group is to be an active market maker in the SBA loan and pool secondary market by
purchasing, securitizing and selling the government guaranteed portions of the SBA loans. Signature Bank is
approved by the SBA as a pool assembler and is approved by the FDIC to engage in government securities dealer
activities.
We purchase the guaranteed portion of SBA loans from various SBA lender clients. Once purchased, we typically
warehouse the guaranteed loan for approximately 30 to 180 days. From this warehouse, we aggregate like SBA
loans by similar characteristics into pools for securitization and sale to the secondary market. In order to meet the
SBA’s rate requirement, we may strip excess servicing from loans with different coupons to create a pool at a
common rate. This has resulted in the creation of two assets: a par pool and excess servicing strips. Excess
servicing represents the portion of the coupon stripped from a loan. At December 31, 2011, the carrying amount
of our SBA excess servicing strip assets was $70.1 million.
Colson Services Corp. is the government appointed fiscal and transfer agent for the SBA’s Secondary Market
Program. As the designated servicer, it provides transaction processing, record keeping and loan servicing
functions, including document review and custody, payment collection and disbursement, and data collection and
exchange for us.
Insurance Services
We offer our business and private clients a wide array of individual and group insurance products, including health,
life, disability and long-term care insurance products through our subsidiary, Signature Securities. We do not
underwrite insurance policies. We only act as an agent in offering insurance products and services underwritten
by insurers that we believe are the best for our clients in each category.
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Competition
There is significant competition among commercial banking institutions in the New York metropolitan area. We
compete with other bank holding companies, national and state-chartered commercial banks, savings and loan
associations, consumer finance companies, credit unions, securities brokerage firms, insurance companies,
mortgage banking companies, money market mutual funds, asset-based non-bank lenders, and other financial
institutions. Many of these competitors have substantially greater financial resources, lending limits and larger
office networks than we do and are able to offer a broader range of products and services than we can. Because
we compete against larger institutions, our failure to compete effectively for deposit, loan, and other clients in our
markets could cause us to lose market share, slow our growth rate and may have an adverse effect on our
financial condition and results of operations.
The market for banking and brokerage services is extremely competitive and allows consumers to access financial
products and compare interest rates and services from numerous financial institutions located across the United
States. As a result, clients of all financial institutions, including those within our target market, are sensitive to
competitive interest rate levels and services. Our future success in attracting and retaining client deposits
depends, in part, on our ability to offer competitive rates and services. Our clients are particularly attracted to the
level of personalized service we can provide. Our business could be impaired if our clients believe other banks
provide better service or if they come to believe that higher rates are more important to them than better service.
Finally, over the past three years there has been significant government intervention in the banking industry,
including equity investments, liquidity facilities and guarantees. These actions have changed and have the
potential to change the competitive landscape significantly. For example, clients may view some of our
competitors as “too big to fail” and such competitors may thereby benefit from an implicit U.S. government
guarantee beyond those provided to all banks and their clients. In addition, some of these government programs
have, or may have, the ability to give rise to new competitors. For instance, the FDIC has introduced a bidding
process for institutions that have been or will be placed into receivership by federal or state regulators. This
process is open to existing financial institutions, as well as groups without pre-existing operations. The impact of
ongoing government intervention is difficult to predict and could adversely affect our competitive standing and
profitability.
The New York Market
Substantially all of our business is located in the New York metropolitan area. We believe the New York
metropolitan area economy presents an attractive opportunity to further grow an independent financial services
company oriented to the needs of the New York metropolitan area economic marketplace. The New York
Metropolitan Statistical Area (“MSA”) is, by far, the largest market in the United States for bank deposits. The
MSA of New York, Long Island and Northern New Jersey is – with approximately $1.1 trillion in total deposits, as
of June 30, 2011 – more than two and a half times larger than the second largest MSA in the U.S. (Philadelphia,
Camden, Wilmington). The New York MSA is also home to the largest number of businesses with fewer than 500
employees in the nation. The economy of the New York metropolitan area has diversified substantially over the
past several decades and includes a greater variety of industries such as services, technology and real estate.
The New York metropolitan area financial services marketplace is served by many large, diverse financial services
companies, including large, multi-national financial services companies, regional banks and brokerage firms, mid-
size commercial banks and brokerage firms and mutual and stock savings banks.
As of December 31, 2011, we operated 25 private client offices located in the New York metropolitan area. These
25 offices housed a total of 78 private client banking groups. As part of the continuing development of our
business strategy, we expect to open additional offices in 2012. We believe these private client offices will allow
us to expand our current operations in the New York metropolitan area.
Information Technology and System Security
We rely on industry leading technology companies to deliver software, support and disaster recovery services.
Our core banking application software (DDA, Savings, Compliance, General Ledger, Teller, and Internet Banking)
is provided by Fidelity Information Services. Our core brokerage systems are provided by and run at our clearing
firm, National Financial Services, a subsidiary of Fidelity Financial Services Corp. Our personnel connect to the
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system via both dedicated and Internet based connections to Fidelity Financial Services in Boston,
Massachusetts.
Our information technology environment uses Fidelity Information Services’ technology center in Little Rock,
Arkansas. This technology center includes dedicated “lights out” computer raised-floor space, as well as
designated office space for information technology support personnel. A combination of backup power generation,
uninterruptible power systems and 24 hour a day monitoring of the facility perimeters, hardware, operating system
software, network connectivity, and building environmental systems minimizes the risk of any serious outage or
security breach.
Employees
As of December 31, 2011, we had 720 full-time equivalent employees, 437 of whom were officers. None of our
employees is represented by a collective bargaining agreement. We consider our relations with our employees to
be good.
Regulation and Supervision
As a state-chartered bank, the deposits of which are insured by the FDIC, we and our subsidiaries are subject to a
comprehensive system of bank supervision administered by federal and state banking agencies. Because we are
chartered under the laws of the State of New York, the New York State Department of Financial Services is our
primary regulator. The FDIC is our primary federal banking regulator because we are not a member of the Federal
Reserve System. These regulators oversee our compliance with applicable federal and New York laws and
regulations governing our activities, operations, and business.
The primary purpose of the U.S. system of bank supervision is to ensure the safety and soundness of banks in
order to protect depositors, the FDIC insurance fund, and the financial system generally. It is not primarily
intended to protect the interest of shareholders. Thus, if we were to violate banking law and regulations, including
engaging in unsafe or unsound practices, we could be subject to enforcement actions and other sanctions that
could be detrimental to shareholders.
The federal government has recently implemented and announced programs designed to bolster the capital of
U.S. banks. Some of these programs have, and any future programs may, impose additional rules and regulations
on us, some of which may affect the way we conduct our business and/or limit our ability to compete effectively.
See “Risk Factors – We are subject to significant government regulation.”
Safety and Soundness Regulation
New York law governs our authority to engage in deposit-taking, lending, investing, and other activities. New York
law also imposes restrictions intended to ensure our safety and soundness, including limitations on the amount of
money we can lend to a single borrower (generally, 15% of capital; 25% if the loan is secured by certain types of
collateral), prohibitions on engaging in activities such as investing in equity securities or non-financial
commodities, and prohibitions on making loans secured by our own capital stock.
We are subject to comprehensive capital adequacy requirements intended to protect against losses that we may
incur. FDIC regulations require that we maintain a minimum ratio of qualifying total capital to total risk-weighted
assets (including off-balance sheet items) of 8.0%, at least one-half of which must be in the form of Tier 1 capital,
and a ratio of Tier 1 capital to total risk-weighted assets of 4.0%. Tier 1 capital is generally defined as the sum of
core capital elements less goodwill and certain other deductions. Core capital includes common shareholders’
equity, non-cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated
subsidiaries. Supplementary capital, which qualifies as Tier 2 capital and counts towards total capital subject to
certain limits, includes allowances for loan losses, perpetual preferred stock, subordinated debt, and certain hybrid
instruments. At December 31, 2011, our total risk-based capital ratio was 18.17%, and our Tier 1 risk-based
capital ratio was 17.08%.
We are also required to maintain a minimum leverage capital ratio - the ratio of Tier 1 capital (net of intangibles) to
adjusted total assets. Banks that have received the highest rating of five categories used by regulators to rate
banks and are not anticipating or experiencing any significant growth must maintain a leverage capital ratio of at
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least 3.0%. All other institutions must maintain a leverage capital ratio of 4.0%. At December 31, 2011, our
leverage capital ratio was 9.67%.
In addition, payments of dividends on our common stock may be subject to the prior approval of the New York
State Department of Financial Services, and the FDIC. Under New York law, we are prohibited from declaring a
dividend so long as there is any impairment of our capital stock. In addition, we would be required to obtain the
approval of the New York State Department of Financial Services if the total of all our dividends declared in any
calendar year would exceed the total of our net profits for that year combined with retained net profits of the
preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. We
would also be required to obtain the approval of the FDIC prior to declaring a dividend if after paying the dividend
we would be undercapitalized, significantly undercapitalized, or critically undercapitalized.
The federal banking regulators are currently working on significant revisions to the capital adequacy regulations to
implement the new capital accord being drafted by the Basel Committee on Bank Supervision. We cannot at this
time predict whether the new requirements will apply to us or the effect that they may have on our business.
However, if the new capital adequacy regulations were to lower the capital requirements for large money center
banks but not for smaller banks like Signature Bank, we could be put at a competitive disadvantage.
The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all
insured depository institutions. The safety and soundness guidelines relate to our internal controls, information
systems, internal audit systems, loan underwriting and documentation, compensation, and interest rate exposure.
The standards assist the federal banking agencies with early identification and resolution of problems at insured
depository institutions. If we were to fail to meet these standards, the FDIC could require us to submit a
compliance plan and take enforcement action if an acceptable compliance plan were not submitted.
Prompt Corrective Action and Enforcement Powers
We are also subject to FDIC regulations that apply to every FDIC-insured commercial bank and thrift institution a
system of mandatory and discretionary supervisory actions, and which generally become more severe as the
capital levels of an individual institution decline. The regulations establish five capital categories for purposes of
determining our treatment under these prompt corrective action provisions.
We would be categorized as “well capitalized” under the regulations if (i) we have a total risk-based capital ratio of
at least 10.0%; (ii) we have a Tier 1 risk-based capital ratio of at least 6.0%; (iii) we have a leverage capital ratio of
at least 5.0%; and (iv) we are not subject to any written agreement, order, capital directive, or prompt corrective
action directive issued by the FDIC to meet and maintain a specific capital level.
We would be categorized as “adequately capitalized” if (i) we have a total risk-based capital ratio of at least 8.0%;
(ii) we have a Tier 1 risk-based capital ratio of at least 4.0%; and (iii) we have a leverage capital ratio of at least
4.0% (3.0% if we are rated in the highest supervisory category).
We would be categorized as “undercapitalized” if (i) we have a total risk-based capital ratio that is less than 8.0%;
(ii) we have a Tier 1 risk-based capital ratio that is less than 4.0%; or (iii) we have a leverage capital ratio that is
less than 4.0% (3.0% if we are rated in the highest supervisory category).
We would be categorized as “significantly undercapitalized” if (i) we have a total risk-based capital ratio that is less
than 6.0%; (ii) we have a Tier 1 risk-based capital ratio that is less than 3.0%; or (iii) we have a leverage capital
ratio that is less than 3.0%.
We would be categorized as “critically undercapitalized” and subject to provisions mandating appointment of a
conservator or receiver if we have a ratio of “tangible equity” to total assets that is 2.0% or less. “Tangible equity”
generally includes core capital plus cumulative perpetual preferred stock.
At December 31, 2011, our total risk-based capital ratio was 18.17%; our Tier 1 risk-based capital ratio was
17.08%; and our leverage capital ratio was 9.67%. Each of these ratios exceeds the minimum ratio established
for a “well capitalized” institution.
In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to
potential actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for
violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement
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with the agency. Enforcement actions may include the issuance of cease and desist orders, the imposition of civil
money penalties, the issuance of directives to increase capital, formal and informal agreements, or removal and
prohibition orders against “institution-affiliated” parties, and termination of insurance of deposits. The New York
State Department of Financial Services also has broad powers to enforce compliance with New York laws and
regulations. The New York State Department of Financial Services and/or the FDIC examine us periodically for
safety and soundness and for compliance with applicable laws.
Other Regulatory Requirements
We are subject to certain requirements and reporting obligations under the Community Reinvestment Act (“CRA”).
The CRA generally requires federal banking agencies to evaluate the record of a financial institution in meeting the
credit needs of its local communities, including low- and moderate-income neighborhoods. The CRA further
requires the agencies to take into account our record of meeting community credit needs when evaluating
applications for, among other things, new branches or mergers. The performance standards and examination
frequency of CRA evaluations differ depending on whether a bank falls into the small or large bank categories.
The FDIC’s most recent CRA examination concluded as of August 24, 2009 and the New York State Department
of Financial Services’ most recent examination concluded on December 31, 2008. Signature Bank was evaluated
under the large bank standards. In measuring our compliance with these CRA obligations, the regulators rely on a
performance-based evaluation system that bases our CRA rating on our actual lending service and investment
performance. In connection with their assessments of CRA performance, the FDIC and NYSBD assign a rating of
“outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” Signature Bank received a
“satisfactory” CRA Assessment Rating from both regulatory agencies.
Federal and state banking laws also require us to take steps to protect consumers. Bank regulatory agencies are
increasingly focusing attention on compliance with consumer protection laws and regulations. These laws include
disclosures regarding truth in lending, truth in savings, funds availability, privacy protection under the
Gramm-Leach-Bliley Act of 1999, and prohibitions on discrimination in the provision of banking services. In
addition, the newly-established CFPB will be responsible for interpreting and enforcing a broad range of consumer
protection laws governing the provision of deposit accounts and the making of loans, including the regulation of
mortgage lending and servicing. We have incurred and may in the future incur additional costs in complying with
these requirements.
We must also comply with the anti-money laundering provisions of the Bank Secrecy Act, as amended by the USA
PATRIOT Act, and implementing regulations issued by the FDIC and the U.S. Department of the Treasury. As a
result, we must obtain and maintain certain records when opening accounts, monitor account activity for
suspicious transactions, impose a heightened level of review on private banking accounts opened by non-U.S.
persons and, when necessary, make certain reports to law enforcement or regulatory officials that are designed to
assist in the detection and prevention of money laundering and terrorist financing activities. To this end, we are
also required to maintain an anti-money laundering compliance program that includes policies, procedures, and
internal controls; the appointment of an anti-money laundering compliance officer; an internal training program;
and internal audits.
Under FDIC regulations, we are required to pay premiums to the Bank Insurance Fund to insure our deposit
accounts. The FDIC utilizes a risk-based premium system in which an institution pays premiums for deposit
insurance on the institution’s average consolidated total assets minus average tangible equity. For large insured
depository institutions, generally defined as those with at least $10 billion in total assets, the assessment rate
schedules combine regulatory ratings and financial measures into two scorecards, one for most large insured
depository institutions and another for highly complex insured depository institutions, to calculate assessment
rates. A highly complex institution is generally defined as an insured depository institution with more than $50
billion in total assets that is controlled by a parent company with more than $500 billion in total assets. Under the
assessment rate schedules, the total base assessment rates range from two and one-half to forty-five basis points.
We must maintain reserves on transaction accounts. The maintenance of reserves increases our cost of funds
because reserves must generally be maintained in cash or non-interest-bearing balances maintained directly or
indirectly with a Federal Reserve Bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 regulates interstate banking activities by
establishing a framework for nationwide interstate banking and branching. This interstate banking and branching
authority generally permits a bank in one state to merge with a bank in another unless the state prohibits all out-of-
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state banks from doing so and permits a bank in one state to establish de novo branches in another state in which
it does not maintain a branch, if that state expressly permits all out-of-state banks to establish branches.
The Gramm-Leach-Bliley Act of 1999 eliminated most of the barriers to affiliations among banks, securities firms,
insurance companies, and other financial companies previously imposed under federal banking laws if certain
criteria are satisfied. Certain subsidiaries of well-capitalized and well-managed banks may be treated as “financial
subsidiaries,” which are generally permitted to engage in activities that are financial in nature, including securities
underwriting, dealing, and market making; sponsoring mutual funds and investment companies; and activities that
the Federal Reserve has determined to be closely related to banking.
Signature Securities is registered as a broker-dealer with and subject to supervision by the SEC. The SEC is the
federal agency primarily responsible for the regulation of broker-dealers. Signature Securities is also subject to
regulation by one of the brokerage industry’s self-regulatory organizations, the Financial Industry Regulatory
Authority (“FINRA”). As a registered broker-dealer, Signature Securities is subject to the SEC’s uniform net capital
rule. The purpose of the net capital rule is to require broker-dealers to have at all times enough liquid assets to
satisfy promptly the claims of clients if the broker-dealer goes out of business. If Signature Securities fails to
maintain the required net capital, the SEC and NASD may impose regulatory sanctions including suspension or
revocation of its broker-dealer license. A change in the net capital rules, the imposition of new rules, or any
unusually large charge against Signature Securities’ net capital could limit its operations. As a subsidiary of
Signature Bank, Signature Securities is also subject to regulation and supervision by the New York State
Department of Financial Services. Signature Securities currently is permitted to act as a broker and as a dealer in
certain bank eligible securities.
Signature Securities is also subject to state insurance regulation. In July 2004, Signature Securities received
approval from the New York State Banking Department and the New York State Department of Insurance
(collectively known as the New York State Department of Financial Services as of October 3, 2011) to act as an
agent in the sale of insurance products. Signature Securities’ insurance activities are subject to extensive
regulation under the laws of the various states where its clients are located. The applicable laws and regulations
vary from state to state, and, in every state of the United States, an insurance broker or agent is required to have a
license from that state. These licenses may be denied or revoked by the appropriate governmental agency for
various reasons, including the violation of state regulations and conviction for crimes.
Change in Control
The approval of the New York State Banking Board is required before any person may acquire “control” of a
banking institution, which includes Signature Bank and any company controlling Signature Bank. “Control” is
defined as the possession, directly or indirectly, of the power to direct or cause the direction of management and
policies of a banking institution through ownership of stock or otherwise and is presumed to exist if, among other
things, any company owns, controls, or holds the power to vote 10% or more of the voting stock of a banking
institution. As a result, any person or company that seeks to acquire 10% or more of our outstanding common
stock must obtain prior regulatory approval.
In addition to the New York requirements, the Bank Holding Company Act prohibits a company from, directly or
indirectly, acquiring 25% or more (5% if the acquirer is a bank holding company) of any class of our voting stock or
obtaining the ability to control in any manner the election of a majority of our directors or otherwise directing the
management or policies of our company without prior application to and the approval of the Federal Reserve.
Moreover, under the Change in Bank Control Act, any individual who intends to acquire 10% or more of any class
of our voting stock or otherwise obtain control over us could be required to provide prior notice to and obtain the
non-objection of the FDIC.
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ITEM 1A. RISK FACTORS
If any of the following risks actually occur, our business, financial condition or operating results could be materially
adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. As a result, we cannot predict every risk factor, nor can we
assess the impact of all of the risk factors on our businesses or to the extent to which any factor, or combination of
factors, may impact our financial condition and results of operation.
Risks Relating to Our Business
Current disruption and volatility in global financial markets might continue and the federal government
has and may continue to take measures to intervene.
Since late 2007, global financial markets have experienced periods of extraordinary disruption and volatility
following adverse changes in the global economy and, in particular, the credit markets. The federal government
has taken significant measures in response to these events, such as enactment of the Emergency Economic
Stabilization Act of 2008 and other regulatory actions applicable to financial institutions. We cannot predict the
federal government’s responses to any further dislocation and instability and potential future government
responses and changes in law or regulation, may affect our business, results of operations and financial
conditions.
Recently, economic conditions in Europe have become increasingly uncertain, particularly with respect to the
sovereign debt of certain countries within the European Union. Although we are not directly exposed to risk
associated with European sovereign debt and are not materially exposed to risk associated with European non-
sovereign debt, we do hold a material amount of corporate debt of U.S. financial institutions that have material
exposure to European sovereign and non-sovereign debt. As such, further deterioration of the economic
conditions in Europe could have a material adverse effect on the issuers of corporate debt that we hold. If such an
effect were to negatively impact the ability of such issuers to pay their debts, it could have a material adverse
effect on our results of operations and financial condition.
Difficult market conditions have adversely affected our industry.
Dramatic declines in the housing market over the past four years, together with falling home prices, increasing
foreclosures, unemployment and under-employment, have negatively impacted the credit performance of
mortgage loans and resulted in significant write-downs of asset values by financial institutions. The market for
commercial loans (including commercial and industrial loans and loans secured by commercial real estate) and
multi-family mortgage loans has also been adversely affected. A worsening of these conditions could exacerbate
the adverse effects of these difficult market conditions on us. In particular, we may face the following risks in
connection with these events:
• Commercial loans (including commercial and industrial loans and loans secured by commercial real estate)
and multi-family mortgage loans constitute a substantial portion of our loan activity and loan portfolio. If the
difficult market conditions that we have faced over the last four years continue, losses on such loans could
increase significantly, which could adversely affect our financial condition and results of operations.
• Market developments may affect confidence levels and may cause declines in credit usage and adverse
changes in payment patterns, causing increases in delinquencies and default rates, which we expect
would impact our provision for loan losses.
• The process we use to estimate losses inherent in our credit exposure requires difficult, subjective, and
complex judgments, including forecasts of economic conditions and how these economic predictions might
impair the ability of our borrowers to repay their loans, which may no longer be capable of accurate
estimation which may, in turn, impact the reliability of the process.
We may be unable to successfully implement our business strategy.
We intend to continue to pursue our strategy for growth. In order to execute this strategy successfully, we must,
among other things:
• assess market conditions for growth;
• build our client base;
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• maintain credit quality;
• properly manage risks, including operational risks, credit risks and interest rate risks;
• attract sufficient core deposits to fund our anticipated loan growth;
• identify and attract new banking group directors;
• identify and pursue suitable opportunities for opening new banking locations; and
• maintain sufficient capital to satisfy regulatory requirements.
Failure to manage our growth effectively could have a material adverse effect on our business, future prospects,
financial condition or results of operations and could adversely affect our ability to successfully implement our
growth strategy.
Our operations are significantly affected by interest rate levels and we are especially vulnerable to
changes in interest rates.
We incur interest rate risk. Our income and cash flows and the value of our assets depend to a great extent on
the difference between the interest rates we earn on interest-earning assets, such as loans and investment
securities, and the interest rates we pay on interest-bearing liabilities such as deposits and borrowings. These
rates are highly sensitive to many factors which are beyond our control, including general economic conditions and
policies of various governmental and regulatory agencies, in particular, the Federal Reserve. Changes in
monetary policy, including changes in interest rates, significantly influence the interest we earn on our loans and
investment securities and the amount of interest we pay on deposits. In addition, such changes can significantly
affect our ability to originate loans and obtain deposits and our costs in doing so.
If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn
on our loans and other investments, our net interest income and, therefore, our earnings could be materially
adversely affected. Our earnings could also be materially adversely affected if the interest rates on our loans and
other investments fall more quickly than those on our deposits and other borrowings. Furthermore, an increase in
interest rates may negatively affect the market value of securities in our investment portfolio. Our fixed-rate
securities, generally, are more negatively affected by these increases. A reduction in the market value of our
portfolio will increase the unrealized loss position of our available-for-sale investments. Any of these events could
materially adversely affect our results of operations or financial condition.
We compete with many larger financial institutions which have substantially greater financial and other
resources than we have.
There is significant competition among commercial banking institutions in the New York metropolitan area. We
compete with bank holding companies, national and state-chartered commercial banks, savings and loan
associations, consumer finance companies, credit unions, securities brokerage firms, insurance companies,
mortgage banking companies, money market mutual funds, asset-based non-bank lenders, and other financial
institutions. Many of these competitors have substantially greater financial resources, lending limits and larger
office networks than we do, and are able to offer a broader range of products and services than we can. Because
we compete against larger institutions, our failure to compete effectively for deposit, loan and other clients in our
markets could cause us to lose market share or slow our growth rate and could have a material adverse effect on
our financial condition and results of operations.
The market for banking and brokerage services is extremely competitive and allows consumers to access financial
products and compare interest rates and services from numerous financial institutions located across the United
States. As a result, clients of all financial institutions, including those within our target market, are sensitive to
competitive interest rate levels and services. Our future success in attracting and retaining client deposits
depends, in part, on our ability to offer competitive rates and services. Our clients are particularly attracted to the
level of personalized service we can provide. Our business could be impaired if our clients believe other banks
provide better service or if they come to believe that higher rates are more important to them than better service.
In addition, the financial services industry is undergoing rapid technological changes, with frequent introductions of
new technology-driven products and services. In addition to improving the ability to serve clients, the effective use
of technology increases efficiency and enables financial institutions to reduce costs. In addition, these
technological advancements have made it possible for non-financial institutions to offer products and services that
have traditionally been offered by financial institutions. Our future success will depend, in part, upon our ability to
address the needs of our clients by using technology, including the use of the Internet, to provide products and
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services that will satisfy client demands for convenience, as well as to create additional efficiencies in our
operations. Because many of our competitors have substantially greater resources to invest in technological
improvements than we do, these institutions could pose a significant competitive threat to us.
Government intervention in the banking industry has the potential to change the competitive landscape.
There has been significant government intervention in the banking industry recently, including equity investments,
liquidity facilities and guarantees. Given the recent state of the global economy, it is possible that the government
will take further steps to intervene in the banking industry. These actions have changed and have the potential to
further change the competitive landscape significantly. For example, clients may view some of our competitors as
being “too big to fail” and such competitors may thereby benefit from an implicit U.S. government guarantee
beyond that provided to banks generally. Any such intervention could adversely affect our competitive standing
and profitability.
In addition, certain government programs introduced during the economic crisis may give rise to new competitors.
For instance, the FDIC has introduced a bidding process for institutions that have been or will be placed into
receivership by federal or state regulators. This process is open to existing financial institutions, as well as groups
without pre-existing operations. This program and others like it that exist now or that may be developed in the
future could give rise to a significant number of new competitors, which could have a material adverse effect on
our business and results of operations.
We are vulnerable to downgrades in credit ratings for securities within our investment portfolio.
Although over 97% of our portfolio of investment securities was rated investment grade as of December 31, 2011,
we remain exposed to potential investment rating downgrades by credit rating agencies of the issuers and
guarantors of securities in our investment portfolio. A significant volume of downgrades would negatively impact
the fair value of our securities portfolio, resulting in a potential increase in the unrealized loss in our investment
portfolio, which could negatively affect our earnings. Rating downgrades of securities below investment grade
level and other events may result in impairment of such securities, requiring recognition of the credit component of
the other-than-temporary impairment as a charge to current earnings.
We are vulnerable to illiquid market conditions, resulting in potential significant declines in the fair value
of our investment portfolio.
In cases of illiquid or dislocated marketplaces, there may not be an available market for certain securities in our
portfolio. For example, mortgage-related assets have experienced, and likely to continue to experience, periods of
illiquidity, caused by, among other things, an absence of a willing buyer or an established market for these assets,
or legal or contractual restrictions on sale. In addition, recent market conditions have created dislocations in the
market for bank-collateralized pooled trust preferred securities and limited other securities in which we invest.
Continued adverse market conditions, including continued bank failures, could result in a significant decline in the
fair value of these securities. We have in the past, and depending on the probability of a near-term market
recovery, may in the future be required to recognize the credit component of the additional other-than-temporary
impairments as a charge to current earnings resulting from the decline in the fair value of these securities.
We primarily invest in mortgage-backed obligations and such obligations have been, and are likely to
continue to be, impacted by market dislocations, declining home values and prepayment risk, which may
lead to volatility in cash flow and market risk and declines in the value of our investment portfolio.
Our investment portfolio largely consists of mortgage-backed obligations primarily secured by pools of mortgages
on single-family residences.
The value of mortgage-backed obligations in our investment portfolio may fluctuate for several reasons, including
(i) delinquencies and defaults on the mortgages underlying such obligations, due in part to high unemployment
rates, (ii) increases in interest rates resulting from expiration of the fixed rate portion of adjustable rate mortgages
(“ARMs”), (iii) falling home prices, (iv) lack of a liquid market for such obligations, (v) uncertainties in respect of
government-sponsored enterprises such as the Federal National Mortgage Association (“Fannie Mae”) or the
Federal Home Loan Mortgage Corporation (“Freddie Mac”), which guarantee such obligations, and (vi) the
expiration of government stimulus initiatives. Home values have declined significantly over the last four years.
Although home prices appear to have leveled off, if the value of homes were to further materially decline, the fair
value of the mortgage-backed obligations in which we invest may also decline. Any such decline in the fair value
of mortgage-backed obligations, or perceived market uncertainty about their fair value, could adversely affect our
financial position and results of operations.
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In addition, when we acquire a mortgage-backed security, we anticipate that the underlying mortgages will prepay
at a projected rate, thereby generating an expected yield. Prepayment rates generally increase as interest rates
fall and decrease when rates rise, but changes in prepayment rates are difficult to predict. In light of historically
low interest rates, many of our mortgage-backed securities have a higher interest rate than prevailing market
rates, resulting in a premium purchase price. In accordance with applicable accounting standards, we amortize
the premium over the expected life of the mortgage-backed security. If the mortgage loans securing the
mortgage-backed security prepay more rapidly than anticipated, we would have to amortize the premium on an
accelerated basis, which would thereby adversely affect our profitability.
Continued adverse developments in the residential mortgage market may adversely affect the value of our
investment portfolio.
Over the last four years, the residential mortgage market in the United States has experienced a variety of
difficulties resulting from changed economic conditions, including increased unemployment rates, heightened
defaults, credit losses and liquidity concerns. These disruptions have adversely affected the performance and fair
value of many of the types of financial instruments in which we invest and may continue to do so. Many residential
mortgage-backed securities have been downgraded by rating agencies over the past four years, and rating
agencies may further downgrade these securities in the future if conditions do not improve. As a result of these
difficulties and changed economic conditions, many companies operating in the mortgage sector have failed and
others are facing serious operating and financial challenges. While the Federal Reserve has taken certain actions
in an effort to ameliorate the current market conditions, its efforts may be ineffective. As a result of these factors,
among others, the market for these securities may be adversely affected for a significant period of time.
Adverse conditions in the residential mortgage market have also negatively impacted other sectors in which the
issuers of securities in which we invest operate, which has adversely affected, and may continue to adversely
affect, the fair value of such securities, including private collateralized mortgage obligations and bank-
collateralized pooled trust preferred securities, in our investment portfolio.
If the U.S. agencies or U.S. government-sponsored enterprises were unable to pay or to guarantee
payments on their securities in which we invest, our results of operations would be adversely affected.
A large portion of our investment portfolio consists of mortgage-backed securities and collateralized mortgage
obligations issued or guaranteed by Fannie Mae or Freddie Mac and debentures issued by the Federal Home
Loan Banks, Fannie Mae, and Freddie Mac. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks are
U.S. government-sponsored enterprises but their guarantees and debt obligations are not backed by the full faith
and credit of the United States.
The economic crisis, especially as it relates to the residential mortgage market, adversely affected the financial
results and stock values of Fannie Mae and Freddie Mac and resulted in the value of the debt securities issued or
guaranteed by Fannie Mae and Freddie Mac becoming unstable and relatively illiquid compared to prior periods.
Fannie Mae and Freddie Mac have reported substantial losses in recent years and continue to experience
significant difficulties stemming from recent market disruptions, including significant increases in credit-related
expenses and credit losses. If Fannie Mae and Freddie Mac continue to suffer significant losses and their stock
values continue to decline, investors may perceive these entities as financially unstable, which may decrease the
liquidity of debt securities issued or guaranteed by them, further exacerbate declines in the fair value of such
securities, threaten such entities’ financial stability, and adversely affect their ability to honor their respective
guarantees and debt obligations. Further, any actual or perceived financial challenges at either Fannie Mae or
Freddie Mac could cause rating agencies to downgrade the corporate credit ratings of Fannie Mae or Freddie
Mac. Moody’s Investor Services (“Moody’s”) Bank Financial Strength Rating (“BFSR”), measures the likelihood
that a financial institution will require financial assistance. In 2008, Fannie Mae’s and Freddie Mac’s BFSRs were
downgraded substantially. While both the Federal Reserve and the federal regulator of Fannie Mae and Freddie
Mac have taken actions to back the safety and soundness of these entities and to improve liquidity in the financial
markets, there is still much concern in the marketplace about these entities. In July 2008, the U.S. Congress
enacted a law granting the U.S. Treasury Department the authority to extend additional credit to Fannie Mae and
Freddie Mac in order to prevent their failure and creating the Federal Housing Finance Agency to regulate the
government-sponsored enterprises. On September 7, 2008, the U.S. Treasury Department announced that the
U.S. government would place Fannie Mae and Freddie Mac into conservatorship, purchase senior preferred equity
shares in each entity, establish a new secured lending credit facility available to both entities and purchase
mortgage-backed securities of Fannie Mae and Freddie Mac. On August 8, 2011, Standard and Poor’s
downgraded the credit rating of Fannie Mae and Freddie Mac citing the downgrade of the federal government’s
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AAA status, and there is no guarantee that these entities will not suffer further downgrades and negative results in
the future.
Should the U.S. government contain, reduce or eliminate support for the financial stability of Fannie Mae, Freddie
Mac and the Federal Home Loan Banks, the ability for those entities to operate as independent entities is
questionable. Any failure by Fannie Mae, Freddie Mac, or the Federal Home Loan Banks to honor their
guarantees of mortgage-backed securities, debt or other obligations will have severe ramifications for the capital
markets and financial industry. Any failure by Fannie Mae, Freddie Mac, or the Federal Home Loan Banks to pay
principal or interest on their mortgage guarantee and debentures when due could also materially adversely affect
our results of operations and financial condition.
In February 2011, the U.S. Treasury released a proposal to gradually dissolve Fannie Mae and Freddie Mac and
reduce the government’s involvement in the mortgage system. We are unable to predict whether this or another
proposal will be adopted, and, if so, what the effect of such proposal may be.
There are material risks involved in commercial lending that could adversely affect our business.
Commercial loans represented approximately 90% of our total loan portfolio as of December 31, 2011 and
primarily consist of loans to our privately-owned business clients. Our credit-rated commercial loans include
commercial and industrial loans along with loans to commercial borrowers that are secured by real estate
(commercial property, multi-family residential property, 1-4 family residential property, and construction and land).
Commercial loans generally involve a higher degree of credit risk than residential mortgage loans due, in part, to
their larger average size and less readily-marketable collateral. In addition, unlike residential mortgage loans,
commercial loans generally depend on the cash flow of the borrower’s business to service the debt. A significant
portion of our commercial loans depend primarily on the liquidation of assets securing the loan for repayment,
such as inventory and accounts receivable. These loans carry incrementally higher risk, because their repayment
is often dependent solely on the financial performance of the borrower’s business. Adverse economic conditions
or other factors adversely affecting our target market segment may have a greater adverse effect on us than on
other financial institutions that have a more diversified client base. Our business plan calls for continued efforts to
increase our assets invested in commercial loans. For all of these reasons, increases in non-performing
commercial loans could result in operating losses, impaired liquidity and the erosion of our capital, and could have
a material adverse effect on our financial condition and results of operations. Credit market tightening could
adversely affect our commercial borrowers through declines in their business activities and adversely impact their
overall liquidity through the diminished availability of other borrowing sources or otherwise.
Our business and a large portion of our real estate collateral is concentrated in the New York metropolitan
area and a downturn in the economy of the New York metropolitan area may adversely affect our
business.
Substantially all of our business is located in the New York metropolitan area. In addition, as of December 31,
2011, substantially all of the real estate collateral for the loans in our portfolio was located within the New York
metropolitan area. As a result, our financial condition and results of operations may be affected by changes in the
economy and the real estate market of the New York metropolitan area. A prolonged period of economic
recession or other adverse economic conditions in the New York metropolitan area, such as the one we are
experiencing now, may result in an increase in nonpayment of loans, a decrease in collateral value, and an
increase in our allowance for loan losses.
In addition, our geographic concentration in the New York metropolitan area heightens our exposure to future
terrorist attacks, which may adversely affect our business and that of our clients and result in a material decrease
in our revenues. Future terrorist attacks cannot be predicted, and their occurrence can be expected to further
negatively affect the U.S. economy generally and specifically the regional market in which we operate.
If the value of real estate were to decline materially, a significant portion of our loan portfolio could
become under-collateralized, which would have a material adverse effect on us.
As of December 31, 2011, approximately 80% of the collateral for the loans in our portfolio consisted of real
estate. The market value of real estate, particularly real estate held for investment, can fluctuate significantly in a
short period of time as a result of market conditions in the geographic area in which the real estate is located. If
the value of the real estate serving as collateral for our loan portfolio were to decline materially, a portion of our
loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become
troubled during a time when market conditions are declining or have declined, we may not be able to realize the
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value of the collateral that we anticipated at the time of originating the loan, which could have a material adverse
effect on our provision for loan losses and our financial condition and results of operations.
As the size of our loan portfolio grows, the risks associated with our loan portfolio may be exacerbated.
As we grow our business and hire additional banking teams, the size of our loan portfolio grows, which can
exacerbate the risks associated with that portfolio. Although we attempt to minimize our credit risk through certain
procedures, including monitoring the concentration of our loans within specific industries, we cannot assure you
that these procedures will remain as effective when the size of our loan portfolio increases. This may result in an
increase in charge-offs or underperforming loans, which could adversely affect our business.
Our failure to effectively manage our credit risk could have a material adverse effect on our financial
condition and results of operations.
There are risks inherent in making any loan, including repayment risks associated with, among other things, the
period of time over which the loan may be repaid, changes in economic and industry conditions, dealings with
individual borrowers and uncertainties as to the future value of collateral. Although we attempt to minimize our
credit risk by monitoring the concentration of our loans within specific industries and through what we believe to be
prudent loan application approval procedures, we cannot assure you that such monitoring and approval
procedures will reduce these lending risks.
In addition, we are subject to credit risk in our investment portfolio. Our investments include debentures,
mortgage-backed securities and collateralized mortgage obligations issued or guaranteed by U.S. government-
sponsored enterprises, such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks, as well as
collateralized mortgage obligations, bank-collateralized pooled trust preferred securities and other debt securities
issued by private issuers. The issuers of our trust preferred securities include several depositary institutions that
have suffered significant losses since the onset of the economic crisis. We are exposed to credit risks associated
with the issuers of the debt securities in which we invest. Further, with respect to the mortgage-backed securities
in which we invest, we also are affected by the credit risk associated with the borrowers of the loans underlying
these securities.
Lack of seasoning of our loan portfolio and mortgage loans underlying our investment portfolio may
increase the risk of credit defaults in the future.
In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for
some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually
behave more predictably than a newer portfolio. Because our loan portfolio is relatively new compared to the
portfolio of many of our competitors, the current level of delinquencies and defaults may not be representative of
the level that will prevail when the portfolio becomes more seasoned, which is likely to be somewhat higher than
current levels.
Because over 91% of the loans in our loan portfolio were originated over the last four years, our loan portfolio does
not provide a long-term history of loan losses for our management to consider in establishing our allowance for
loan losses. We therefore also consider other financial institutions’ histories of loan losses and their allowance for
loan losses, as well as our management’s estimates based on their experience in the banking industry, when
determining our allowance for loan losses. There is no assurance that these considerations and our
management’s judgment will result in an allowance for loan losses that will, at all times, be adequate for our
business and operations.
In addition, the mortgage loans underlying certain mortgage-backed obligations in which we invest also may not
begin to show signs of credit deterioration until they have been outstanding for some period of time. Because the
mortgage loans underlying certain of the mortgage-backed obligations in our investment portfolio are relatively
new, the level of delinquencies and defaults on such loans may increase in the future, thus adversely affecting the
mortgage-backed obligations we hold.
Our allowance for loan losses may not be sufficient to absorb actual losses.
Experience in the banking industry indicates that a portion of our loans will become delinquent, and that some of
these loans may be only partially repaid or may never be repaid at all. Despite our underwriting criteria, we
experience losses for reasons beyond our control, including general economic conditions. A prolonged period of
economic recession or other adverse economic conditions in the New York metropolitan area, such as the one we
are experiencing now, may result in an increase in nonpayment of loans, a decrease in collateral value, and an
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increase in our allowance for loan losses. Although we believe that our allowance for loan losses is maintained at
a level adequate to absorb any inherent losses in our loan portfolio, these estimates of loan losses are necessarily
subjective and their accuracy depends on the outcome of future events, some of which are beyond our control.
We may need to make significant and unanticipated increases in our loss allowances in the future, which would
materially adversely affect our financial condition and results of operations.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related allowance for loan losses. These regulatory agencies may require us to increase our provision for
loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
An increase in the allowance for loan losses required by these regulatory agencies could materially adversely
affect our financial condition and results of operations.
We rely on the Federal Home Loan Bank of New York for secondary and contingent liquidity sources.
We utilize the Federal Home Loan Bank (or “FHLB”) of New York for secondary and contingent sources of
liquidity. Also, from time to time, we utilize this borrowing source to capitalize on market opportunities to fund
investment and loan initiatives. Our FHLB borrowings were approximately $675.0 million at December 31, 2011.
Because we rely on the FHLB for liquidity, if we were unable to borrow from the FHLB, we would need to find
alternative sources of liquidity, which may be available only at a higher cost and on terms that do not match the
structure of our liabilities as well as FHLB borrowings do.
As a member of the FHLB, we are required to purchase capital stock of the FHLB as partial collateral and to
pledge marketable securities or loans for this borrowing. At December 31, 2011, we held $48.2 million of FHLB
stock.
We are dependent upon key personnel.
Our success depends to a significant extent upon the performance of certain key executive officers and
employees, the loss of any of whom could have a material adverse effect on our business. Our key executive
officers and employees include our Chairman, Scott Shay, our President and Chief Executive Officer, Joseph
DePaolo, and our Vice-Chairman, John Tamberlane. Although we have entered into agreements with
Messrs. Shay and DePaolo, we have not entered into an agreement with Mr. Tamberlane and we generally do not
have employment agreements with our key personnel. We adopted an equity incentive plan and a change of
control plan for key personnel in connection with the consummation of our initial public offering. Even though we
are party to these agreements and sponsor these plans, we cannot assure you that we will be successful in
retaining any of our key executive officers and employees.
Our business is built around group directors, who are principally responsible for our client relationships. A
principal component of our strategy is to increase market penetration by recruiting and retaining experienced
group directors, their groups, loan officers and other management professionals. Competition for experienced
personnel within the commercial banking, brokerage and insurance industries is strong and we may not be
successful in attracting and retaining the personnel we require. We cannot assure you that our recruiting efforts
will be successful or that they will enhance our business, results of operations or financial condition.
In addition, our group directors may leave us at any time for any reason. They are not under contractual
restrictions to remain with us and would not be bound by non-competition agreements or non-solicitation
agreements if they were to leave us. If even a small number of our key group directors were to leave, our
business could be materially adversely affected. We cannot assure you that such losses of group directors or
other professionals will not occur.
Our SBA division is also dependent upon relationships our SBA professionals have developed with clients from
whom we purchase loans and upon relationships with investors in pooled securities. The loss of a key member of
our SBA division team may lead to the loss of existing clients. We cannot assure you that we will be able to recruit
qualified replacements with a comparable level of expertise and relationship base.
We may not be able to acquire suitable client relationship groups or manage our growth.
A principal component of our growth strategy is to increase market penetration and product diversification by
recruiting group directors and their groups. However, we believe that there are a limited number of potential group
directors and groups that will meet our development strategy and other recruiting criteria. As a result, we cannot
assure you that we will identify potential group directors and groups that will contribute to our growth. Even if
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suitable candidates are identified, we cannot assure you that we will be successful in attracting them, as they may
opt instead to join our competitors.
Even if we are successful in attracting these group directors and groups, we cannot assure you that they will be
successful in bringing additional clients and business to us. Furthermore, the addition of new groups involves
several risks including risks relating to the quality of the book of business that may be contributed, adverse
personnel relations and loss of clients because of a change of institutional identity. In addition, the process of
integrating new groups could divert management time and resources from attention to existing clients. We cannot
assure you that we will be able to successfully integrate any new group that we may acquire or that any new group
that we acquire will enhance our business, results of operations, cash flows or financial condition.
Provisions in our charter documents may delay or prevent our acquisition by a third party.
Our restated Certificate of Organization (as amended) and By-laws contain provisions that may make it more
difficult for a third party to acquire control of us without the approval of our Board of Directors. For example, our
Certificate of Organization authorizes our Board of Directors to determine the rights, preferences, privileges and
restrictions of unissued series of common stock and preferred stock, without any vote or action by our
stockholders. As a result, our Board of Directors can authorize and issue shares of preferred stock with voting or
conversion rights that could adversely affect the voting or other rights of holders of our common stock.
Additionally, our By-laws contain provisions that separate our Board of Directors into three separate classes with
staggered terms of office and provisions that restrict the ability of shareholders to take action without a meeting.
These provisions could delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other
transaction that might otherwise result in our stockholders receiving a premium over the market price for their
common stock.
There are substantial regulatory limitations on changes of control.
Federal law prohibits a company or a group of persons deemed to be “acting in concert” from, directly or indirectly,
acquiring 25% or more (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining
the ability to control in any manner the election of a majority of our directors or otherwise to direct the management
or policies of our company without prior application to and the approval of the Board of Governors of the Federal
Reserve System. Moreover, any individual who acquires 10% or more of our voting stock or otherwise obtains
control over Signature Bank would be required to notify, and could be required to obtain the non-objection of, the
FDIC. Finally, any person acquiring 10% or more of our voting stock would be required to obtain approval of the
New York State Department of Financial Services. Accordingly, prospective investors need to be aware of and
comply with these requirements, if applicable, in connection with any purchase of shares of our common stock.
This may effectively reduce the number of investors who might be interested in investing in our stock and also
limits the ability of investors to purchase us or cause a change in control.
Curtailment of government guaranteed loan programs could affect our SBA business.
Our SBA business relies on the purchasing, pooling and selling of government guaranteed loans, in particular
those guaranteed by the SBA. From time to time, the government agencies that guarantee these loans reach their
internal limits and cease to guarantee loans for a period of time. In addition, these agencies may change their
rules for loans or Congress may adopt legislation that would have the effect of discontinuing or changing the
programs. If changes occur, the volumes of loans that qualify for government guarantees could decline. Lower
volumes of origination of government guaranteed loans may reduce the profitability of our SBA business.
We rely extensively on outsourcing to provide cost-effective operational support.
We make extensive use of outsourcing to provide cost-effective operational support with service levels consistent
with large bank operations, including key banking, brokerage and insurance systems. For example, under the
clearing agreement Signature Securities has entered into with National Financial Services (a Fidelity Investments
company), National Financial Services processes all securities transactions for the account of Signature Securities
and the accounts of its clients. Services of the clearing firm include billing and credit extension and control,
receipt, custody and delivery of securities. Signature Securities is dependent on the ability of its clearing firm to
process securities transactions in an orderly fashion. In addition, Fidelity Information Services provides us with all
our core banking applications. Our outsourcing agreements can generally be terminated by either party upon
notice. The termination of some of our outsourcing agreements, including the agreements with National Financial
Services and Fidelity Information Services, could result in a disruption of service that could have a material
adverse effect on our financial condition and results of operations.
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System failures or breaches of our network security could subject us to increased operating costs as well
as litigation and other liabilities.
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our
operations are dependent upon our ability to protect our computer equipment against damage from fire, power
loss, telecommunications failure or other similar catastrophic events. Any damage or failure that causes an
interruption in our operations could have a material adverse effect on our financial condition and results of
operations. In addition, our operations are dependent upon our ability to protect our computer systems and
network infrastructure against damage from physical break-ins, security breaches, hackers, viruses and other
malware and other disruptive problems. Such computer break-ins, whether physical or electronic, and other
disruptions could jeopardize the security of information stored in and transmitted through our computer systems
and network infrastructure, which may result in significant liability to us and deter potential clients. Although we,
with the help of third-party service providers, have and intend to continue to implement security technology and
establish operational procedures to prevent such damage, there can be no assurance that these security
measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of
cryptography or other developments could result in a compromise or breach of the algorithms we and our third-
party service providers use to protect client transaction data. A failure of such security measures could have a
material adverse effect on our financial condition and results of operations.
Although we carry specific “cyber” insurance coverage, which would apply in the event of various breach
scenarios, the amount of coverage may not be adequate in any particular case. In addition, cyber threat scenarios
are inherently difficult to predict and can take many forms, some of which may not be covered under our cyber
insurance coverage. Furthermore, the occurrence of a cyber threat scenario could cause interruptions in our
operations, which could in turn have a material adverse effect on our financial condition and results of operations.
Decreases in trading volumes or prices could harm the business and profitability of Signature Securities.
Declines in the volume of securities trading and in market liquidity generally result in lower revenues from our
brokerage and related activities. The profitability of our Signature Securities business would be adversely affected
by a decline in revenues because a significant portion of its costs are fixed. For these reasons, decreases in
trading volume or securities prices could have a material adverse effect on our business, financial condition and
results of operations.
We have not historically paid, and do not presently intend to pay, cash dividends. Furthermore, our ability
to pay cash dividends is restricted.
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends on
our common stock in the foreseeable future. We intend to retain earnings to finance operations and the expansion
of our business. Therefore, any return on your investment in our common stock must come from an increase in its
market price.
In addition, payments of dividends will be subject to the prior approval by the FDIC if, after having paid a dividend,
we would be undercapitalized, significantly undercapitalized or critically undercapitalized, and by the New York
State Department of Financial Services under certain conditions. Our ability to pay dividends will also depend
upon the amount of cash available to us from our subsidiaries. Restrictions on our subsidiaries’ ability to make
dividends or advances to us will tend to limit our ability to pay dividends to our shareholders.
We may be responsible for environmental claims.
There is a risk that hazardous or toxic waste could be found on the properties that secure our loans. In such
event, we could be held responsible for the cost of cleaning up or removing such waste, and such cost could
significantly exceed the value of the underlying properties and adversely affect our profitability. Additionally, even
if we are not held responsible for these cleanup and removal costs, the value of the collateralized property could
be significantly lower than originally projected, thus adversely affecting the value of our security interest. Although
we have policies and procedures that require us to perform environmental due diligence prior to accepting a
property as collateral and an environmental review before initiating any foreclosure action on real property, there
can be no assurance that this will be sufficient to protect us from all potential environmental liabilities associated
with collateralized properties.
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We may not be able to raise the additional funding needed for our operations.
If we are unable to generate profits and cash flow on a consistent basis, we may need to arrange for additional
financing to support our business. Although we have completed a number of successful capital raising
transactions, including the July 2011 public offering of 4,715,000 shares of our common stock, we cannot assure
you that, if needed or desired, we would be able to obtain additional capital or financing on commercially
reasonable terms or at all, especially in light of current capital and credit market conditions. Our failure to obtain
sufficient capital or financing could have a material adverse effect on our growth, on our ability to compete
effectively and on our financial condition and results of operations.
The misconduct of employees or their failure to abide by regulatory requirements are difficult to detect
and deter.
Employee misconduct could subject us to financial losses or regulatory sanctions and seriously harm our
reputation. It is not always possible to deter employee misconduct, and the precautions we take to prevent and
detect this activity may not be effective in all cases. Misconduct by our employees could include hiding
unauthorized activities from us, improper or unauthorized activities on behalf of clients or improper use of
confidential information.
Employee errors in recording or executing transactions for clients could cause us to enter into transactions that
clients may disavow and refuse to settle. These transactions expose us to risks of loss, which can be material,
until we detect the errors in question and unwind or reverse the transactions. As with any unsettled transaction,
adverse movements in the prices of the securities involved in these transactions before we unwind or reverse
them can increase these risks.
All of our securities professionals are required by law to be licensed with our subsidiary, Signature Securities, a
licensed securities broker-dealer. Under these requirements, these securities professionals are subject to our
supervision in the area of compliance with federal and applicable state securities laws, rules and regulations, as
well as the rules and regulations of self-regulatory organizations such as FINRA. The violation of any regulatory
requirements by us or our securities professionals could jeopardize Signature Securities’ broker-dealer license or
other licenses and could subject us to liability to clients.
We are subject to losses resulting from fraudulent or negligent acts on the part of our clients or other
third parties.
We rely heavily upon information supplied by our clients and by third parties, including the information included in
loan applications, property appraisals, title information, and employment and income documentation, in deciding
which loans we will originate, as well as the terms of those loans. If any of the information upon which we rely is
misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to loan
funding, the value of the loan may be significantly lower than we had expected, or we may fund a loan that we
would not have funded or on terms that we would not have extended. Whether a misrepresentation is made by
the loan applicant, a mortgage broker, or another third party, we generally bear the risk of loss associated with the
misrepresentation. A loan subject to a material misrepresentation is typically unable to be sold or subject to
repurchase if sold prior to the detection of the misrepresentation. The sources of the misrepresentation are often
difficult to locate and it is often difficult to recover any of the monetary losses we have suffered. Although we
maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for
such risks that are insurable, we cannot assure you that we have detected or will detect all misrepresented
information in our loan originations operations.
The failure of our brokerage clients to meet their margin requirements may cause us to incur significant
liabilities.
The brokerage business of Signature Securities, by its nature, is subject to risks related to potential defaults by our
clients in paying for securities they have agreed to purchase and for securities they have agreed to sell and
deliver. National Financial Services provides clearing services to our brokerage business, including the
confirmation, receipt, execution, settlement, and delivery functions involved in securities transactions, as well as
the safekeeping of clients’ securities and assets and certain client record keeping, data processing, and reporting
functions. National Financial Services makes margin loans to our clients to purchase securities with funds they
borrow from National Financial Services. We must indemnify National Financial Services for, among other things,
any loss or expense incurred due to defaults by our clients in failing to repay margin loans or to maintain adequate
collateral for those loans. We are subject to risks inherent in extending margin credit, especially during periods of
rapidly declining markets.
30
Our business may be adversely impacted by acts of war or terrorism.
Acts of war or terrorism could have a significant impact on our ability to conduct our business. Such events could
affect the ability of our borrowers to repay their loans, could impair the value of the collateral securing our loans,
and could cause significant property damage, thus increasing our expenses and/or reducing our revenues. In
addition, such events could affect the ability of our depositors to maintain their deposits with us. Although we have
established disaster recovery policies and procedures, the occurrence of any such event could have a material
adverse effect on our business which, in turn, could have a material adverse effect on our financial condition and
results of operations.
Changes in the federal or state tax laws may negatively impact our financial performance.
We are subject to changes in tax law that could increase the effective tax rate payable to the state or federal
government. These law changes may be retroactive to previous periods and as a result could negatively affect
our current and future financial performance.
Changes in accounting standards or interpretation in new or existing standards could materially affect our
financial results.
From time to time the Financial Accounting Standards Board (“FASB”) and the SEC change accounting
regulations and reporting standards that govern our preparation of financial statements. In addition, the FASB,
SEC, bank regulators and the outside independent auditors may revise their previous interpretations regarding
existing accounting regulations and the application of these accounting standards. These revisions in their
interpretations are out of our control and may have a material impact on our financial statements
Risks Related to Our Industry
We are subject to regulatory capital requirements.
As a state-chartered bank, we are subject to various regulatory capital requirements administered by state and
federal regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and
possible additional discretionary—actions by regulators that, if undertaken, could have a direct material adverse
effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital
amounts and classifications are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. We are required by FDIC regulations to maintain a minimum ratio of qualifying total
capital to total risk-weighted assets (including off-balance sheet items) of 8.0%, at least one-half of which must be
in the form of Tier 1 capital, and a ratio of Tier 1 capital to total risk-weighted assets of 4.0%. We are also required
to maintain a minimum leverage capital ratio—the ratio of Tier 1 capital (net of intangibles) to adjusted total assets.
Banks that have received the highest rating of five categories used by regulators to rate banks and are not
anticipating or experiencing any significant growth must maintain a leverage capital ratio of at least 3.0%. All other
institutions must maintain a minimum leverage capital ratio of 4.0%.
In addition, we are subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of
1991, which imposes a number of mandatory supervisory measures. Among other matters, this Act established
five capital categories ranging from “well capitalized” to “critically under capitalized.” Such classifications are used
by regulatory agencies to determine a bank’s deposit insurance premium and the approval of applications
authorizing institutions to increase their asset size or otherwise expand their business activities or acquire other
institutions.
To be categorized as “well capitalized” under the Act and, thus, subject to the fewest restrictions, a bank must
have a leverage capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-
based capital ratio of at least 10.0%, and must not be subject to any written agreement, order, capital directive or
prompt corrective action directive issued by the FDIC to meet and maintain a specific capital level. These capital
requirements may limit asset growth opportunities and restrict our ability to increase earnings.
Our failure to comply with our minimum capital requirements would have a material adverse effect on our financial
condition and results of operations.
31
Increases in FDIC insurance premiums may affect our earnings.
The significant number of bank failures over the past four years has increased resolution costs of the FDIC and
caused a significant decrease in the FDIC’s deposit insurance fund. In addition, the FDIC instituted two temporary
programs to further insure customer deposits at FDIC-member banks, including fully insuring non-interest bearing
transactional accounts.
Our FDIC deposit insurance assessment rate for 2008 was five basis points. Effective January 1, 2009, the FDIC
increased assessment rates and, as a result, our initial base assessment rate for 2009 was raised by seven basis
points to 12 basis points resulting in additional FDIC insurance assessments of $5.9 million and $4.3 million for the
years ended December 31, 2010 and 2009, respectively. In addition, effective April 1, 2009, the FDIC further
modified its risk-based assessment system resulting in higher assessment rates for riskier institutions, which did
not have a material impact on our assessment. During 2011, the FDIC established a new assessment rate
schedule, as further discussed below.
The FDIC also established the Temporary Liquidity Guarantee Program, which includes a Transaction Account
Guarantee Program to temporarily provide a full guarantee above the existing $250,000 deposit insurance limit for
funds held at participating FDIC-insured depository institutions in non-interest-bearing transaction accounts and
certain NOW accounts. Coverage became effective on October 14, 2008 and was extended through December
31, 2010. As a participant in the Transaction Account Guarantee Program, our related assessments for the years
ended December 31, 2010 and 2009 totaled $2.2 million and $1.1 million, respectively. The Dodd-Frank Act
provides all banks with new or additional deposit insurance coverage, including unlimited FDIC insurance
coverage for non-interest-bearing transaction checking accounts through December 31, 2012. This coverage took
effect on December 31, 2010.
During the fourth quarter of 2009, the FDIC adopted a rule that required FDIC-insured depository institutions to
prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012,
on December 30, 2009. Our total prepaid assessment was $31.4 million, which we recorded as a prepaid
expense (asset) as of December 31, 2009.
In accordance with the Dodd-Frank Act, on February 7, 2011, the FDIC adopted a final rule that redefined the
assessment base for deposit insurance assessments as average consolidated total assets minus average tangible
equity, rather than average deposits. The final rule also established a new assessment rate schedule, as well as
alternative rate schedules, that become effective when the insurance fund’s reserve ratio reaches certain levels.
The final rule also makes conforming changes to the unsecured debt and brokered deposit adjustments to
assessment rates, eliminates the secured liability adjustment and creates a new assessment rate adjustment for
unsecured debt held that is issued by another insured depository institution. The new rate schedule and other
revisions to the assessment rules became effective April 1, 2011. Our base FDIC assessment for the year ended
December 31, 2011 decreased $1.9 million when compared to 2010, largely due to the new assessment rules.
For large insured depository institutions, generally defined as those with at least $10 billion in total assets, the final
rule also eliminates risk categories and the use of long-term debt issuer ratings when calculating the initial base
assessment rates and combines regulatory ratings and financial measures into two scorecards, one for most large
insured depository institutions and another for highly complex insured depository institutions, to calculate
assessment rates. A highly complex institution is generally defined as an insured depository institution with more
than $50 billion in total assets that is controlled by a parent company with more than $500 billion in total assets.
Under the new assessment rate schedule, effective April 1, 2011, the initial base assessment rate for large and
highly complex insured depository institutions range from five to thirty-five basis points, and total base assessment
rates, after applying all the unsecured debt and brokered deposit adjustments, range from two and one-half to
forty-five basis points. As the new assessment rules currently stand, we expect the rules will have a continued
positive impact on our future FDIC deposit insurance assessment fees compared to the assessment rules in effect
prior to the recent changes.
If there are additional bank or financial institution failures or the government or FDIC develop new programs to
stimulate the economy and restore investor confidence, we may be required to pay even higher FDIC premiums
than the recently increased levels. Any increase in assessment fees could have a materially adverse effect on our
results of operations and financial condition.
32
We are subject to significant government regulation.
We operate in a highly regulated environment and are subject to supervision and regulation by a number of
governmental regulatory agencies, including, among others, the FDIC, the New York State Department of
Financial Services, the Federal Reserve, the New York State Insurance Department, and FINRA. Regulations
adopted by these agencies, which are generally intended to provide protection for depositors and clients rather
than shareholders, govern a comprehensive range of matters relating to ownership and control of our shares, our
acquisition of other companies and businesses, the activities in which we are permitted to engage, maintenance of
adequate capital levels, and other aspects of our operations. These regulatory agencies possess broad authority
to prevent or remedy unsafe or unsound practices or violations of law. For example, bank regulators view certain
types of clients as “high risk” clients under the Bank Secrecy Act, and other laws and regulations, and require
enhanced due diligence and enhanced monitoring with respect to such clients. While we believe that we
adequately perform such enhanced due diligence and monitoring with respect to our clients that fall within this
category, if the regulators believe that our efforts are not adequate or that we have failed to identify suspicious
transactions in such accounts, they could bring an enforcement action against us, which could result in bad
publicity, fines and other penalties, and could have a material adverse effect on our business. In addition, laws
and regulations enacted over the last several years have had, and are expected to continue to have, a significant
impact on the financial services industry. Some of these laws and regulations, including the Dodd-Frank Act, the
Sarbanes-Oxley Act of 2002 and the USA PATRIOT Act of 2001, have increased and may in the future further
increase our costs of doing business, particularly personnel and technology expenses necessary to maintain
compliance with the expanded regulatory requirements. Future legislation and government policy could adversely
affect the banking industry as a whole, including our results of operations.
The securities markets and the brokerage industry in which Signature Securities operates are also highly
regulated. Signature Securities is subject to regulation as a securities broker and investment adviser, and many of
the regulations applicable to Signature Securities may have the effect of limiting its activities, including activities
that might be profitable. Signature Securities is registered with and subject to supervision by the SEC and FINRA
and is also subject to state insurance regulation. As a subsidiary of Signature Bank, Signature Securities is also
subject to regulation and supervision by the New York State Department of Financial Services. The securities
industry has been subject to several fundamental regulatory changes, including changes in the rules of self-
regulatory organizations such as the NYSE and FINRA. In the future, the industry may become subject to new
regulations or changes in the interpretation or enforcement of existing regulations. We cannot predict the extent to
which any future regulatory changes may adversely affect our business.
In addition, we are subject to periodic examination by the FDIC, the New York State Department of Financial
Services, the SEC, self-regulatory organizations, and various state authorities. Our banking operations, sales
practice operations, trading operations, record-keeping, supervisory procedures, and financial position may be
reviewed during such examinations to determine if they comply with the rules and regulations designed to protect
clients and protect the solvency of banks and broker-dealers. Examinations may result in the issuance of a letter
to us noting perceived deficiencies and requesting us to take corrective action. Deficiencies could lead to further
investigation and the possible institution of administrative proceedings, which may result in the issuance of an
order imposing sanctions upon us and/or our personnel, including our investment professionals. Sanctions
against us may include a censure, cease and desist order, monetary penalties, or an order suspending us for a
period of time from conducting certain or all of our operations. Sanctions against individuals may include a
censure, cease and desist order, monetary penalties, or an order restricting the individual’s activities or
suspending the individual from association with us. In egregious cases, either we, our personnel, or both, could
be expelled from a self-regulatory organization or barred from the banking industry or the securities industry.
The Dodd-Frank Act may affect our results of operations, financial condition or liquidity.
The Dodd-Frank Act, signed into law on July 21, 2010, makes extensive changes to the laws regulating financial
services firms. The Dodd-Frank Act also requires significant rulemaking and mandates multiple studies which
could result in additional legislative or regulatory action.
Under the Dodd-Frank Act, federal banking regulatory agencies are required to draft and implement enhanced
supervision, examination and capital standards for depository institutions and their holding companies. The
enhanced requirements include, among other things, changes to capital, leverage and liquidity standards and
numerous other requirements. For example, the Dodd-Frank Act (i) requires the establishment of minimum
leverage and risk-based capital requirements for insured depository institutions such as us, (ii) places restrictions
on investment and other activities by depository institutions, including significant increases in the regulation of
mortgage lending and servicing, (iii) provides for a new risk-based approach to financial services regulation giving
33
federal bank regulatory agencies new authority to monitor the systemic safety of the financial system and (iv)
authorizes various new assessments and fees. The Dodd-Frank Act also establishes a new federal Consumer
Financial Protection Bureau with broad authority and permits states to adopt stricter consumer protection laws and
enforce consumer protection rules issued by the Consumer Financial Protection Bureau.
At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting regulations will impact
our business. However, compliance with these new laws and regulations will likely result in additional costs to our
business. It is also difficult to predict the impact of the Dodd-Frank Act on our competitors and on the financial
services industry as a whole. Competitive and industry factors could also adversely impact our results of
operations, financial condition or liquidity.
The financial services industry may be subject to new legislation.
The regulatory environment in which we operate is constantly undergoing change. Legislation is pending before
Congress that would further increase regulation of the financial services industry and impose restrictions on the
ability of firms within the industry to conduct business consistent with historical practices, including aspects such
as compensation, consumer protection regulations and mortgage regulation, among others. Federal and state
regulatory agencies also propose and adopt changes to their regulations or change the manner in which existing
regulations are applied. We cannot predict the substance or impact of pending or future legislation or regulation,
or the application thereof, and any such future regulation can adversely affect our business.
Regulatory net capital requirements significantly affect and often constrain our brokerage business.
The SEC, FINRA, and various other regulatory bodies in the United States have rules with respect to net capital
requirements for broker-dealers that affect Signature Securities. These rules require that at least a substantial
portion of a broker-dealer’s assets be kept in cash or highly liquid investments. Signature Securities must comply
with these net capital requirements, which limit operations that require intensive use of capital, such as trading
activities. These rules could also restrict our ability to withdraw capital from our broker-dealer subsidiary, even in
circumstances where this subsidiary has more than the minimum amount of required capital. This, in turn, could
limit our ability to pay dividends, implement our business strategies and pay interest on and repay the principal of
our debt. A change in these rules, or the imposition of new rules, affecting the scope, coverage, calculation, or
amount of net capital requirements could have material adverse effects. Significant operating losses or any
unusually large charge against net capital could also have a material negative impact on our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
34
ITEM 2. PROPERTIES
We conduct business in 25 full-service private client offices, one SBA location and three operations centers. All
current offices are leased with term expirations ranging from 2014 to 2024. Lease terms and rates vary by
property. Many of the lease contracts include modest annual escalation agreements.
Our offices and lease expiration dates are described below:
Location
Type
Expiration
26 Court Street
Brooklyn, NY 11242
279 Sunrise Highway
Rockville Centre, NY 11570
923 Broadway
Woodmere, NY 11598
300 Park Avenue
New York, NY 10022
71 Broadway
New York, NY 10006
360 Hamilton Plaza
White Plains, NY 10601
36-36 33rd Street
Long Island City, NY 11102
200 Park Avenue South
New York, NY 10003
1020 Madison Avenue
New York, NY 10021
950 Third Avenue
New York, NY 10022
78-27 37th Avenue
Jackson Heights, NY 11372
1177 Avenue of the Americas
New York, NY 10019
1C Quaker Ridge Road
New Rochelle, NY 10804
9 Greenway Plaza
Houston, TX 77046
1225 Franklin Avenue
Garden City, NY 11530
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Private Client Office
Bank Operations Center
Private Client Office
SBA & Institutional Trading Center
(Signature Securities office)
Private Client Office
2014
2014
2014
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2017
2017
35
Location
Type
Expiration
40 Cuttermill Road
Great Neck, NY 11021
6321 New Utrecht Avenue
Brooklyn, NY 10004
111 Broadway
New York, NY 10006
261 Madison Avenue
New York, NY 10016
68 South Service Road
Melville, NY 11747
100 Jericho Quadrangle
Jericho, NY 11753
50 West 57th Street
New York, NY 10019
29 West 38th Street
New York, NY 10018
89-36 Sutphin Boulevard
Jamaica, NY 11435
84 Broadway
Brooklyn, NY 11242
565 Fifth Avenue
New York, NY 10017
421 Hunts Point Avenue
Bronx, NY 10474
2 Pennsylvania Plaza
New York, NY 10121
2066 Hylan Blvd.
Staten Island, NY 10306
Private Client Office
Private Client Office
Private Client Accommodation Office
2017
2017
2017
Private Client Office
2015 & 2018
Private Client Office
Private Client Office
Private Client Office
Bank and Brokerage Operations Center
Private Client Office
Private Client Office
Executive Offices, Bank Administration
Center and Private Client Office
Private Client Office
Private Client Office
Private Client Office
2018
2018
2019
2020
2020
2021
2021
2021
2021
2024
ITEM 3. LEGAL PROCEEDINGS
We are subject to various pending and threatened legal actions relating to the conduct of our normal business
activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of any such pending or
threatened legal actions will not be material to our Consolidated Financial Statements.
ITEM 4.
(Removed and Reserved)
36
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NASDAQ Global Select Market under the symbol “SBNY.” As of December 31,
2011, 46,181,900 shares of our common stock were issued and outstanding. The following table lists, on a
quarterly basis, the range of high and low intra-day sale prices per share of our common stock in U.S. dollars:
2011
Fourth quarter
Third quarter
Second quarter
First quarter
2010
Fourth quarter
Third quarter
Second quarter
First quarter
Common Stock
High
Low
$
61.98
61.54
58.66
56.99
$
51.71
40.50
43.12
39.20
44.07
45.39
53.02
47.23
38.19
36.01
35.85
31.01
On December 31, 2011, the last reported sale price of our common stock was $59.99 and there were 20 holders
of record of our common stock, including record holders on behalf of an indeterminate number of beneficial
holders.
37
Performance Graph
The following graph compares the performance of our common stock with the performance of the Standard &
Poor’s 500 Index and the Nasdaq Bank Stocks Index:
200
180
160
140
120
100
80
60
40
20
December 31,
2006
December 31,
2007
December 31,
2008
December 31,
2009
December 31,
2010
December 31,
2011
Signature Bank
Standard & Poor's 500 Index
Nasdaq Bank Stocks Index
The performance period reflected below assumes that $100 was invested in our common stock and each of the
indexes listed below on December 31, 2006. The performance of our common stock reflected below is not
indicative of our future performance.
Company Name/Index
Signature Bank
Standard & Poor's 500 Index
Nasdaq Bank Stocks Index
2006
2007
2008
2009
2010
2011
$
100.00
100.00
100.00
108.94
103.53
79.26
92.61
63.69
57.79
102.97
78.62
48.42
161.59
88.67
57.29
193.64
88.67
51.19
December 31,
The Performance Graph does not constitute soliciting material and should not be deemed filed or incorporated by
reference into any Signature Bank filing under the Securities Exchange Act of 1934, except to the extent we specifically
incorporate the Performance Graph therein by reference.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend
to retain any earnings to finance our operations and the expansion of our business and we do not anticipate
paying any cash dividends on our common stock. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will be dependent upon then existing conditions, including our financial
condition and results of operations, capital requirements, contractual restrictions, business prospects and other
factors that the Board of Directors considers relevant.
In addition, payments of dividends may be subject to the prior approval of the New York State Department of
Financial Services and the FDIC. Under New York law, we are prohibited from declaring a dividend so long as
there is any impairment of our capital stock. In addition, we would be required to obtain the approval of the New
York State Department of Financial Services if the total of all our dividends declared in any calendar year would
exceed the total of our net profits for that year combined with retained net profits of the preceding two years, less
any required transfer to surplus or a fund for the retirement of any preferred stock. We would also be required to
obtain the approval of the FDIC prior to declaring a dividend if after paying the dividend we would be
undercapitalized, significantly undercapitalized or critically undercapitalized. Our ability to pay dividends also
depends upon the amount of cash available to us from our subsidiaries. Restrictions on our subsidiaries’ ability to
make dividends and advances to us will tend to limit our ability to pay dividends to our shareholders.
38
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with our Consolidated Financial Statements and
related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
each of which is included elsewhere in this Annual Report on Form 10-K.
(dollars in thousands, except per share amounts)
2011
At or for the years ended December 31,
2008
2009
2010
SELECTED OPERATING DATA
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income:
Non-interest income excluding net other-than-temporary
impairment of securities recognized in earnings
Net other-than-temporary impairment of securities
recognized in earnings (1)
Total non-interest income
Non-interest expense
Income before taxes
Income tax expense
Net income
$
580,516
120,729
459,787
51,876
407,911
466,530
121,672
344,858
46,372
386,135
123,740
262,395
42,715
323,464
128,193
195,271
26,888
298,486
219,680
168,383
134,474
44,127
56,824
35,954
44,188
30,150
(14,176)
(1,322)
(16,543)
(21,404)
(2,089)
42,038
182,724
267,225
117,699
149,526
42,648
164,896
176,238
74,187
102,051
34,632
149,885
104,427
41,701
62,726
27,645
123,820
72,208
28,849
43,359
Dividends on preferred stock and related
discount accretion
-
-
Net income available to common shareholders
$
149,526
102,051
12,203
50,523
390
42,969
2007
301,605
154,815
146,790
12,316
8,746
99,062
44,158
16,879
27,279
-
27,279
0.92
0.91
$
3.43
$
3.37
2.49
2.46
1.32
1.30
1.37
1.35
$
14,666,120
11,673,089
9,146,112
7,192,199
5,845,172
6,512,855
5,249,286
3,837,583
2,906,059
2,805,711
556,044
392,025
447,896
382,463
295,984
293,207
236,531
217,680
339,441
172,367
PER COMMON SHARE DATA
Earnings per share - basic (2)
Earnings per share - diluted (2)
BALANCE SHEET DATA
Total assets
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans, net of allowance for loan losses
6,764,564
5,177,268
4,320,978
3,433,555
2,007,342
Allowance for loan losses
Deposits
Borrowings
Shareholders' equity
86,162
67,396
55,120
36,987
18,236
11,754,138
9,441,227
7,222,546
5,387,886
4,511,890
1,425,800
1,222,200
1,008,900
1,049,900
1,408,116
944,547
803,659
698,135
816,932
425,756
(1)
(2)
On April 1, 2009, we adopted new accounting requirements related to other-than-temporary impairment of debt securities. As a result of
this change in accounting, for the years ended December 31, 2011, 2010 and 2009 other-than-temporary impairment losses of $10.2
million, $24.4 million and $22.4 million ($5.7 million, $13.7 million and $12.5 million, net of tax), respectively, were recognized in other
comprehensive income rather than in net income. Refer to Note 4 to our Consolidated Financial Statements for further discussion.
The year ended December 31, 2009 includes the negative effect of the $10.2 million deemed dividend associated with
the difference between the redemption payment and the carrying value of the preferred stock repurchased from the
United States Department of the Treasury. Refer to Note 20 to our Consolidated Financial Statements for further discussion.
(Continued on the next page)
39
(dollars in thousands, except per share amounts)
2011
At or for the years ended December 31,
2008
2009
2010
2007
OTHER DATA
Assets under management
Average interest-earning assets
Full-time employee equivalents
Private client offices
SELECTED FINANCIAL RATIOS
Performance Ratios:
Return on average assets
Return on average shareholders' equity
Return on average common shareholders' equity
Yield on average interest-earning assets
Average rate on deposits and borrowings
Net interest margin
Efficiency ratio (1)
Efficiency ratio excluding net other-than-temporary
impairment of securities recognized in earnings (1) (2)
Efficiency ratio excluding net gains on sales of securities
and net impairment losses on securities recognized
in earnings (1) (2)
Asset Quality Ratios:
Net charge-offs to average loans
Allowance for loan losses to total loans
$
1,674,206
$
1,856,653
$
1,911,811
$
2,716,556
$
2,849,541
$
12,889,784
$
10,000,270
$
7,692,249
$
6,016,680
$
5,119,208
720
25
660
24
614
23
553
22
501
20
1.14%
12.71%
12.71%
4.50%
1.01%
3.57%
0.99%
11.67%
11.67%
4.67%
1.30%
3.45%
0.79%
8.35%
7.26%
5.02%
1.71%
3.41%
0.68%
7.72%
8.56%
5.38%
2.20%
3.25%
0.50%
6.67%
6.67%
5.89%
3.12%
2.87%
36.41%
42.55%
50.46%
55.55%
63.69%
36.26%
41.05%
50.24%
51.71%
55.99%
37.33%
43.82%
51.74%
53.57%
56.88%
0.55%
1.26%
0.73%
1.29%
0.64%
1.26%
0.30%
1.07%
0.44%
0.90%
Allowance for loans losses to non-accrual loans
204.09%
197.45%
118.27%
116.00%
98.26%
Non-accrual loans to total loans
Non-performing assets to total assets
Capital and Liquidity Ratios:
Tier 1 Leverage Capital Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
Average equity to average assets
Average tangible equity to average assets
Per common share data:
Number of weighted average common
shares outstanding
Book value per common share
0.62%
0.33%
9.67%
17.08%
18.17%
8.94%
8.94%
0.65%
0.34%
8.62%
14.21%
15.21%
8.47%
8.47%
1.07%
0.61%
9.39%
13.57%
14.47%
9.40%
9.40%
0.92%
0.46%
10.61%
17.00%
17.83%
8.81%
8.81%
0.92%
0.32%
7.75%
14.82%
15.43%
7.55%
7.55%
43,622
40,923
38,306
31,390
29,672
$
30.49
$
22.84
$
19.79
$
16.71
$
14.34
(1)
(2)
The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income before provision for loan losses and
non-interest income.
On April 1, 2009, we adopted new accounting requirements related to other-than-temporary impairment of debt securities. As a result of
this change in accounting, for the years ended December 31, 2011, 2010 and 2009 other-than-temporary impairment losses of $10.2
million, $24.4 million and $22.4 million ($5.7 million, $13.7 million and $12.5 million, net of tax), respectively, were recognized in other
comprehensive income rather than in net income. Refer to Note 4 to our Consolidated Financial Statements for further discussion.
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion in conjunction with “Selected Financial Data” and our Consolidated
Financial Statements and related notes, each of which is included elsewhere in this Annual Report on Form 10-K.
Some of the statements in the following discussion are forward-looking statements. See “Cautionary Note
Regarding Forward-Looking Statements.”
Overview
We have grown to $14.67 billion in assets, $11.75 billion in deposits, $6.85 billion in loans, $1.41 billion in equity
capital and $1.67 billion in other assets under management as of December 31, 2011.
We believe the growth in our profitability is based on several key factors, including:
• the significant growth of our interest-earning asset base each year;
• our ability to maintain and grow core deposits, a key funding source, which has resulted in increased net
interest income from 2001 onward; and
• our ability to control non-interest expense, which has contributed to a substantial improvement of our
efficiency ratio to 36.4% for the year ended December 31, 2011, our lowest efficiency ratio since we
opened the Bank.
An important aspect of our growth strategy is the ability to provide personalized, high quality service and to
effectively manage a large number of client relationships throughout the New York metropolitan area. Since the
commencement of our operations, we have successfully recruited and retained more than 330 experienced private
client group professionals. We believe that our existing operations infrastructure will allow us to grow our business
over the next few years both geographically within the New York metropolitan area and with respect to the size
and number of client relationships without substantial additional capital expenditures.
Critical Accounting Policies
We follow financial accounting and reporting policies that are in accordance with U.S. generally accepted
accounting principles (“GAAP”). Some of these significant accounting policies require management to make
difficult, subjective or complex judgments. The policies noted below, however, are deemed to be our “critical
accounting policies” under the definition given to this term by the Securities and Exchange Commission (“SEC”) -
those policies that are most important to the presentation of a company’s financial condition and results of
operations and require management’s most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain.
The judgments used by management in applying the critical accounting policies may be affected by a further and
prolonged deterioration in the economic environment, which may result in changes to future financial results.
Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in
significant changes in the allowance for loan losses in future periods, and the inability to collect on outstanding
loans could result in increased loan losses. In addition, the valuation of and management’s projected cash flows
for certain securities in our investment portfolio could be negatively impacted by illiquidity or dislocation in
marketplaces resulting in significantly depressed market prices thus leading to further impairments.
Allowance for Loan Losses
We consider our policies related to the allowance for loan losses as critical to our financial statement presentation.
The allowance for loan losses is established through a provision for loan losses charged to current earnings. The
allowance for loan losses is maintained at a level estimated by management to absorb probable losses inherent in
the loan portfolio and is based on management’s continuing evaluation of the portfolio, the related risk
characteristics, and the overall economic conditions affecting the loan portfolio. This estimation is inherently
41
subjective as it requires measures that are susceptible to significant revision as more information becomes
available.
Our methodology to determine the allowance for loan losses includes segmenting the loan portfolio into various
components and applying various loss factors to estimate the amount of probable losses. The largest segment of
our loan portfolio is comprised of credit-rated commercial loans, comprising 93.6% of our total loan portfolio,
excluding loans held for sale, as of December 31, 2011. Our credit-rated commercial loans include commercial
and industrial loans along with loans to commercial borrowers that are secured by real estate (commercial
property, multi-family residential property, 1-4 family residential property, and construction and land). For each
loan within this segment, a credit rating is assigned based on a review of specific risk factors including (i) historical
and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may affect the
borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv) nature of the
underlying collateral, if any, and (v) borrower’s history of payment performance.
When assigning a credit rating to a loan, we use an internal nine-level rating system in which a rating of one
carries the lowest level of credit risk and is used for borrowers exhibiting the strongest financial condition. Loans
rated one through six are deemed to be acceptable quality and are considered “Pass.” Loans that are deemed to
be of questionable quality are rated seven (special mention). Loans with adverse classifications (substandard or
doubtful) are rated eight or nine, respectively. A loan is considered substandard if it is inadequately protected by
the current net worth and paying capacity of the borrower, or of the collateral pledged. Substandard loans are
characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
The outstanding amounts of credit-rated commercial loans are aggregated by credit rating, and we estimate the
allowance for losses for each credit rating using loss factors based on historical loss experience and qualitative
adjustments reflecting the current economic conditions and outlook for housing, employment, manufacturing, and
consumer spending. The economic adjustments reflect the imprecision that is inherent in the estimates of
probable loan losses, and are intended to ensure adequacy of the overall allowance amount. The loss factors
assigned to each credit rating are adjusted based on management’s judgment, along with certain qualitative
factors such as the trend and severity of problem loans that can cause the estimation of inherent losses to differ
from historical experience. Any change to an individual credit rating affects the amount of the related allowance.
Our internal review process results in the periodic review of assigned credit ratings to reflect changes in specific
risk factors. Commercial lines of credit are generally issued with terms of one year, and upon annual renewal our
lenders perform a full review of the specific risk factors to assess the appropriateness of the assigned credit
ratings. Furthermore, loans classified as special mention, substandard or doubtful are placed on our internal
watch list, and our lenders perform a credit rating review on a quarterly basis (special mention loans) or monthly
basis (substandard and doubtful loans). In addition, our Risk Management function, which reports directly to the
Risk Committee of our Board of Directors, performs periodic credit reviews that provide an independent evaluation
of the assigned credit ratings. These reviews generally cover, in aggregate, between 40-50% of the commercial
loan portfolio, including all commercial loans over $500,000 with adverse credit ratings, on an annual basis.
Additionally, our Risk Management function focuses its reviews on those loans with higher-risk attributes, such as
lines of credit with higher utilization percentages and loan facilities with delinquencies.
Our methodology to determine the allowance for loan losses for the non-rated segments of our loan portfolio is
based on historical loss experience and qualitative factors. Non-rated loans generally include commercial loans
with outstanding principal balances below $100,000, overdrafts, residential mortgages, and consumer loans. The
outstanding amounts of loans in each of these segments are aggregated, and we apply percentages based on
historical losses and qualitative factors by segment to estimate the required allowance for loan losses. Non-rated
loans comprise 6.4% of our total loan portfolio, excluding loans held for sale, as of December 31, 2011.
We consider all non-accrual loans to be impaired loans, and the related specific allowances for loan losses are
determined on an individual (non-homogeneous) basis. Factors contributing to the determination of specific
allowances on impaired loans include the creditworthiness of the borrower and, more specifically, changes in the
expected future receipt of principal and interest payments or, for collateral-dependent loans, the value of pledged
collateral. For impaired loans in excess of $300,000, a specific allowance is recorded when the carrying amount
of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or, for
42
collateral-dependent loans, the fair value of collateral. For smaller impaired loans, in the absence of other factors
affecting the collectability of the loan, we generally determine the amount of specific allowance using estimated
loss percentages based on the amount of time the loan has been delinquent.
For economic reasons and to maximize the recovery of loans, we may work with borrowers experiencing
financial difficulties, and will consider modifications to a borrower’s existing loan terms and conditions that we
would not otherwise consider, commonly referred to as troubled debt restructurings (“TDRs”). We record an
impairment loss associated with TDRs, if any, based on the present value of expected future cash flows
discounted at the original loan’s effective interest rate or, if the loan is collateral dependent, based on the fair
value of the collateral less costs to sell. At the time of restructuring, we determine whether a TDR loan should
accrue interest based on the accrual status of the loan immediately prior to modification. A non-accrual TDR
loan will be returned to accrual status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured. Additionally, there should be a sustained period of
repayment performance (generally a period of six months) by the borrower in accordance with the modified
contractual terms. In years after the year of restructuring, the loan is not reported as a TDR loan if it was
restructured at a market interest rate and it is performing in accordance with its modified terms. Other TDRs are
reported as such for as long as the loan remains outstanding.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related allowance for loan losses. These regulatory agencies may require us to increase our provision for
loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
An increase in the allowance for loan losses required by these regulatory agencies could materially adversely
affect our financial condition and results of operations.
Impairment of Investment Securities
We consider our policies related to the evaluation of investments for other-than-temporary impairment to be critical
to our financial statement presentation. We regularly evaluate our securities to identify declines in fair value that
are considered other-than-temporary. Our evaluation of securities for impairments is a quantitative and qualitative
process, which is subject to risks and uncertainties. If the amortized cost of an investment exceeds its fair value,
we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less
than amortized cost, the probability of a near-term recovery in value, whether we intend to sell the security and
whether it is more likely than not that we will be required to sell the security before full recovery of our investment
or maturity. We also consider specific adverse conditions related to the financial health, projected cash flow and
business outlook for the investee, including industry and sector performance, operational and financing cash flow
factors and rating agency actions. Once a decline in fair value is determined to be other-than-temporary, for
equity securities, an impairment charge is recorded through current earnings based upon the estimated fair value
of the security at time of impairment and a new cost basis in the investment is established. For debt investment
securities deemed to be other-than-temporarily impaired on or after April 1, 2009, the investment is written down to
fair value with the estimated credit loss charged to current earnings and the noncredit-related impairment loss
charged to other comprehensive income. Prior to April 1, 2009, the full amount of other-than-temporary
impairment on debt securities was charged to current earnings. We changed our accounting policy beginning April
1, 2009 in order to adopt new accounting requirements issued by the Financial Accounting Standards Board
(“FASB”). If market, industry and/or investee conditions deteriorate, we may incur future impairments.
Securities, other than securitized financial assets that are in an unrealized loss position, are reviewed at least
quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and
qualitative factors. The primary factors considered in evaluating whether a decline in value for these securities is
other-than-temporary include: (a) the length of time and extent to which the fair value has been less than cost or
amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating, and future
prospects of the issuer, (c) whether the debtor is current on contractually-obligated interest and principal
payments, and (d) whether we intend to sell or whether we will be required to sell these instruments before
recovery of their cost basis.
In performing our other-than-temporary impairment analysis for securitized financial assets with contractual cash
flows (asset-backed securities, collateralized debt obligations, commercial mortgage-backed securities and
mortgage-backed securities), we estimate future cash flows for each security based upon our best estimate of
future delinquencies, estimated defaults, loss severity, and prepayments. We review the estimated cash flows to
determine whether we expect to receive all originally expected cash flows. Projected credit losses are compared
43
to the current level of credit enhancement to assess whether the security is expected to incur losses in any future
period and therefore would be deemed other-than-temporarily impaired.
New Accounting Standards
In July 2010, the FASB issued ASU 2010-20, which amends ASC Topic 310 (Receivables) to require significant
new disclosures about the credit quality of financing receivables and the allowance for credit losses. The objective
of the new disclosures is to improve financial statement users’ understanding of (1) the nature of an entity’s credit
risk associated with its financing receivables, and (2) the entity’s assessment of that risk in estimating its
allowance for credit losses, as well as changes in the allowance and the reasons for those changes. The
disclosures are to be presented at the level of disaggregation that management uses when assessing and
monitoring the portfolio’s risk and performance (by portfolio segment). The required disclosures include, among
other things, a rollforward of the allowance for credit losses by portfolio segment, as well as information about
credit quality indicators and modified, impaired, non-accrual, and past due loans. The disclosures related to
period-end information (e.g., credit-quality information and the ending financing receivables balance segregated by
impairment method) are required in all interim and annual reporting periods ending on or after December 15, 2010
(December 31, 2010 for the Bank). Disclosures of activity that occurs during a reporting period (e.g., the
rollforward of the allowance for credit losses by portfolio segment) will be required in interim or annual periods
beginning on or after December 15, 2010; disclosures of activity related to TDRs are anticipated to be required in
interim or annual periods ending after June 15, 2011 based on ASU 2011-01, Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20. We adopted the applicable requirements
for the period-ended December 31, 2010 and have provided the related disclosures as required.
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements,
which amends the provisions of ASC Topic 860 (Transfers and Servicing) related to whether or not the transferor
has maintained effective control over the transferred assets that affects the determination of whether the
transaction is accounted for as a sale or a secured borrowing. In the assessment of effective control, ASU 2011-
03 removed the criterion that requires transferors to have the ability to repurchase or redeem the financial assets
on substantially the agreed terms, even in the event of default by the transferee. Other criteria applicable to the
assessment of effective control have not been changed. This guidance is effective for prospective periods
beginning on or after December 15, 2011, or January 1, 2012 for the Bank. Early adoption is prohibited. We do
not expect the adoption of ASU 2011-03 to have a material impact on our Consolidated Financial Statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which expands existing disclosure
requirements found in ASC Topic 820 (Fair Value Measurement and Disclosures). This ASU is the result of efforts
to converge GAAP and International Financial Reporting Standards (“IFRSs”), and provides guidance on how fair
value should be measured and disclosed. This guidance is effective for interim and annual periods beginning after
December 15, 2011. Early adoption is prohibited. We do not expect the adoption of ASU 2011-04 to have a
material impact on our Consolidated Financial Statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends ASC Topic
220 (Comprehensive Income). The new guidance requires entities to report components of comprehensive
income in either (1) a single financial statement, where total net income and its components, total other
comprehensive income (OCI) and its components, and total comprehensive income are presented in a continuous
format, or (2) in two consecutive financial statements, where net income is reported in one statement, immediately
followed by a statement presenting OCI and its components and a total for comprehensive income. The earnings
per share computation is not affected by the new guidance. This guidance is effective for annual and interim
periods beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted.
We do not expect the adoption of ASU 2011-05 to have a material impact on our Consolidated Financial
Statements.
Lines of Business
We operate two principal lines of business, the Bank and Signature Securities. The Bank offers a wide variety of
business and personal banking products and services. Signature Securities offers investment, brokerage, asset
management and insurance products and services.
44
Management’s approach to evaluating the operating performance of each line of business recognizes that these
business lines both serve our target market, and a key part of our business strategy is seamless integration of
banking and brokerage services for the client. Certain synergies and operational overlap exist between the two
lines, where feasible and as allowed within regulatory guidelines. The development of our business and the value
of overall client relationships to us, as a whole, are also considered.
We measure and report results for both the banking and broker-dealer lines of business. The following table
presents certain information regarding our reportable segments:
(in thousands)
The Bank
Interest income
Interest expense
Non-interest income
Non-interest expense (1)
Income tax expense
Net income
Total assets
Signature Securities
Interest income
Interest expense
Non-interest income (2)
Fee income from the Bank
Non-interest expense
Income tax (benefit) expense
Net income
Total assets
At or for the years ended December 31,
2011
2009
2010
$
580,449
120,728
33,786
227,878
116,976
148,653
14,659,603
$
$
$
67
1
8,252
8,112
14,834
723
873
11,885
$
$
466,512
121,671
34,579
205,442
75,946
98,032
11,667,286
18
1
8,069
8,019
13,845
(1,759)
4,019
10,005
386,113
123,739
28,104
186,616
41,649
62,213
9,145,760
22
1
6,528
5,392
11,376
52
513
4,996
(1) For purposes of this disclosure, non-interest expense includes the provision for loan losses of $51.9
million, $46.4 million and $42.7 million for the years ended December 31, 2011, 2010 and 2009,
respectively.
(2) Includes fee and other income from external clients.
Signature Securities’ assets predominantly consist of cash and short-term investments to support its operational
needs. Signature Securities’ assets under management were $1.30 billion, as of December 31, 2011, and
represented fixed income securities, equity securities, money market mutual funds, mutual funds and other assets
of its clients. See Note 21 to our audited Consolidated Financial Statements for further information regarding our
lines of business.
45
Results of Operations
The following is a discussion and analysis of our results of operations for the year ended December 31, 2011
compared to the year ended December 31, 2010 and for the year ended December 31, 2010 compared to the
year ended December 31, 2009.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net Income
Net income for the year ended December 31, 2011 was $149.5 million, or $3.37 diluted earnings per share,
compared to $102.1 million, or $2.46 diluted earnings per share, for year ended December 31, 2010. Net income
for the years ended December 31, 2011 and 2010 includes net other-than-temporary impairment losses on
securities totaling $2.1 million and $14.2 million, respectively. Excluding the after tax effect of the net other-than-
temporary impairment losses on securities, net income for 2011 was $150.7 million, or $3.39 diluted earnings per
share, compared to $110.0 million or $2.65 diluted earnings per share for 2010.
The return on average shareholders’ equity for the year ended December 31, 2011 was 12.7% compared to
11.7% for the year ended December 31, 2010. The return on average assets was 1.14% for the year ended
December 31, 2011 compared to 0.99% for the year ended December 31, 2010.
(in thousands)
Interest income
Interest expense
Net interest income
Provision for loan losses
Non-interest income:
Non-interest income excluding other-than-temporary
impairment of securities recognized in earnings
Net other-than-temporary impairment of securities
recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Years ended December 31,
2011
2010
$
580,516
120,729
459,787
51,876
466,530
121,672
344,858
46,372
44,127
56,824
(2,089)
42,038
182,724
117,699
149,526
(14,176)
42,648
164,896
74,187
102,051
46
Net Interest Income
Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The
following table presents an analysis of net interest income by each major category of interest-earning assets and
interest-bearing liabilities for the years ended December 31, 2011 and 2010:
Years ended December 31,
2011
2010
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
$
119,393
6,455,877
355
242,994
310,044
8,326
15,025
3,772
580,516
5,674,616
179,987
198,264
261,647
12,889,784
273,106
13,162,890
$
632,804
6,611,992
916,992
2,702,236
10,864,024
1,073,430
11,937,454
3,269
71,557
16,274
-
91,100
29,629
120,729
0.30%
3.76%
5.46%
4.63%
7.58%
1.44%
4.50%
0.52%
1.08%
1.77%
-
0.84%
2.76%
1.01%
194,864
4,875,482
519
197,093
241,885
9,336
13,677
4,020
466,530
4,319,014
182,995
194,407
233,508
10,000,270
315,051
10,315,321
724,458
4,816,609
892,186
2,020,265
8,453,518
913,199
9,366,717
4,014
65,279
18,670
-
87,963
33,709
121,672
0.27%
4.04%
5.60%
5.10%
7.04%
1.72%
4.67%
0.55%
1.36%
2.09%
-
1.04%
3.69%
1.30%
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans and commercial
mortgages (1) (2)
Residential mortgages (1) (2)
Consumer loans (1) (2)
Loans held for sale
Total interest-earning assets
Non-interest-earning assets
Total assets
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW and interest-bearing demand
Money market
Time deposits
Non-interest-bearing demand deposits
Total deposits
Borrowings
Total deposits and borrowings
Other non-interest-bearing liabilities
and shareholders' equity
Total liabilities and shareholders' equity
1,225,436
13,162,890
$
948,604
10,315,321
OTHER DATA
Net interest income / interest rate spread
Net interest margin
Ratio of average interest-earning assets
to average interest-bearing liabilities
459,787
3.49%
3.57%
107.98%
344,858
3.37%
3.45%
106.76%
(1) Non-accrual loans are included in average loan balances.
(2) Loan interest income includes net accretion of deferred fees and costs of approximately $4.6 million and $3.3 million for the years ended
December 31, 2011 and 2010, respectively.
47
Interest income and interest expense are affected both by changes in the volume of interest-earning assets and
interest-bearing liabilities and by changes in yields and interest rates. The table below analyzes the impact of
changes in volume (changes in average outstanding balances multiplied by the prior period’s rate) and changes in
interest rate (changes in interest rates multiplied by the current period’s average balance). Changes that are
caused by a combination of interest rate and volume changes are allocated proportionately to both changes in
volume and changes in interest rate. For purposes of calculating the changes in our net interest income, the effect
of non-performing assets is included in the change due to rate.
(in thousands)
INTEREST INCOME
Short-term investments
Investment securities
Commercial loans and commercial mortgages
Residential mortgages
Consumer loans
Loans held for sale
Total interest income
INTEREST EXPENSE
NOW accounts
Money market accounts
Time deposits
Total deposits
Borrowings
Total interest expense
Net interest income
Year ended December 31,
2011 vs. 2010
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
37
(17,987)
(7,761)
(857)
1,077
(732)
(26,223)
(237)
(18,055)
(2,915)
(21,207)
(9,995)
(31,202)
4,979
$
(201)
63,888
75,920
(153)
271
484
140,209
(508)
24,333
519
24,344
5,915
30,259
109,950
(164)
45,901
68,159
(1,010)
1,348
(248)
113,986
(745)
6,278
(2,396)
3,137
(4,080)
(943)
114,929
Net interest income for the year ended December 31, 2011 was $459.8 million, an increase of $114.9 million, or
33.3%, over the year ended December 31, 2010. The increase in net interest income over the twelve month
period was largely driven by increases in average earning assets and average deposits of $2.89 billion and $2.41
billion, respectively, as well as an increase in net interest margin of 12 basis points to 3.57% primarily due to lower
rates paid on deposits.
Total investment securities averaged $6.46 billion for the year ended December 31, 2011, compared to $4.88
billion for the year ended December 31, 2010. The overall yield on the securities portfolio for the year ended
December 31, 2011 was 3.76%, down 28 basis points from the previous year. The decline in yield was
predominantly due to the reinvestment of principal pay-downs from higher-yielding securities in a low interest rate
environment. Our portfolio primarily consists of high quality and highly-rated mortgage-backed securities,
commercial mortgage-backed securities, and collateralized mortgage obligations issued by government agencies,
government-sponsored enterprises, and private issuers. We mitigate extension risk through our overall strategy of
purchasing relatively stable duration securities that, by their nature, have lower yields. At December 31, 2011, the
baseline average duration of our investment securities portfolio was approximately 3.13 years, compared to 2.84
years at December 31, 2010.
Total commercial loans and commercial mortgages averaged $5.67 billion for the year ended December 31, 2011,
an increase of $1.36 billion or 31.4% over the year ended December 31, 2010. The average yield on this portfolio
decreased 14 basis points to 5.46% when compared to the year ended December 31, 2010. The decrease in
48
average yield reflects the impact of the low prevailing interest rate environment on recent loan originations. This
decrease, however, was partially offset by a $8.3 million increase in prepayment penalty income, which added
eight basis points to the yield of our commercial loans and commercial mortgages portfolio. Our commercial real
estate loans (including multi-family loans) normally have a term of ten years, with a fixed rate of interest in years
one through five and a rate that either adjusts annually or is fixed for the five years that follow. Loans that prepay
in the first five years generate prepayment penalties ranging from five percentage points to one percentage point
of the then-current loan balance, depending on the remaining term of the loan. If a loan is still outstanding in the
sixth year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five
points to one point over years six through ten. During 2011, the low prevailing interest rate environment, coupled
with borrowers’ expectation of higher rates in future periods, contributed to the increase in prepayment activity. It
is difficult to predict the level of prepayment activity in future periods as it depends on market conditions, real
estate values, the actual or perceived direction of market interest rates and the contractual repricing and maturity
dates of commercial real estate loans.
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA loans, most of which have adjustable rates and float at a spread to the
prime rate. Once purchased, we typically warehouse the guaranteed loan for approximately 30 to 180 days and
classify them as loans held for sale. From this warehouse we aggregate like SBA loans by similar characteristics
into pools for securitization to the secondary market. The timing of the purchase and sale of such loan pools
drives the quarter-to-quarter fluctuations in average balances of loans held for sale, which averaged $261.6 million
and $233.2 million for the years ended December 31, 2011 and 2010, respectively. The increased inventory has
been used to fill increased client demand for this product.
Average total deposits and borrowings grew $2.57 billion, or 27.4%, to $11.94 billion during the year ended
December 31, 2011 from $9.37 billion for the year ended December 31, 2010. Overall cost of funding was 1.01%
during 2011, decreasing 29 basis points from 1.30% in 2010.
For the year ended December 31, 2011, average non-interest-bearing demand deposits were $2.70 billion as
compared to $2.02 billion for the year ended December 31, 2010, an increase of $682.0 million, or 33.8%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
26.8% of all deposits at December 31, 2011. Additionally, average NOW and interest-bearing checking and
money market accounts totaled $7.24 billion for the year ended December 31, 2011, an increase of $1.70 billion,
or 30.7%, over the year ended December 31, 2010. Core deposits have provided us with a source of stable, low
cost funding, which has positively affected our net interest margin and income. Additionally, short-term escrow
deposits have provided us with low cost funding and have assisted in net interest margin expansion. As a result of
lower short-term interest rates as well as a continued decrease in competitive pricing, our funding cost for money
market accounts decreased to 1.08% for the year ended December 31, 2010 compared to 1.36% for the prior
year. Our funding cost for NOW accounts decreased to 0.52% for the year ended December 31, 2011 compared
to 0.55% for the prior year.
Average time deposits, which are relatively short-term in nature and totaled $917.0 million for the year ended
December 31, 2011, carried an average cost of 1.77% in 2011, down 32 basis points from 2.09% in 2010. Time
deposits are offered to supplement our core deposit operations for existing or new client relationships, and are not
marketed through retail channels.
For the year ended December 31, 2011, average total borrowings were $1.07 billion compared to $913.2 million
for the previous year, an increase of $160.2 million, or 17.5%. The average cost of total borrowings was 2.76%
and 3.69% for the years ended December 31, 2011 and 2010, respectively. At December 31, 2011, total
borrowings represent approximately 10.8% of all funding compared to 11.5% at December 31, 2010. The
decrease in the average cost of borrowings reflects the replacement of matured borrowings with lower cost short-
term borrowing positions.
Provision and Allowance for Loan Losses
Our allowance for loan losses increased $18.8 million to $86.2 million at December 31, 2011 from $67.4 million at
December 31, 2010. The provision for loan losses was $51.9 million for the year ended December 31, 2011
compared to $46.4 million for the prior year, an increase of $5.5 million, or 11.9%. The increases in the provision
49
and allowance for loan losses were primarily driven by growth in the loan portfolio and provisions to recognize the
continued effect of the weak economic environment on our portfolio.
The following table allocates the allowance for loan losses based on our judgment of inherent losses in each
respective lending area according to our methodology for allocating reserves.
2011
2010
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
(dollars in thousands)
Mortgage loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
$
3,003,428
2,218,053
259,418
198,375
63,775
Other loans:
Commercial and industrial loans
Consumer loans
Total
1,098,805
11,837
6,853,691
$
25,160
23,844
3,096
818
4,836
27,622
786
86,162
0.84%
1.07%
1.19%
0.41%
7.58%
2.51%
6.64%
1.26%
1,716,248
1,799,162
266,011
192,027
115,195
1,146,110
13,086
5,247,839
7,401
14,521
3,352
831
2,386
37,545
1,360
67,396
0.43%
0.81%
1.26%
0.43%
2.07%
3.28%
10.39%
1.29%
In determining the allowance for loan losses, management considers the imprecision inherent in the process of
estimating credit losses. A portion of the allowance is based on management’s review of factors affecting the
determination of probable losses inherent in the portfolio that are not necessarily captured by the application of
historical loss experience factors, such as the current regional economic environment.
Commercial loans (including commercial and industrial loans along with loans to commercial borrowers that are
secured real estate) constitute a substantial portion of our loan activity and loan portfolio. Substantially all of the
real estate collateral for the loans in our portfolio is located within the New York metropolitan area. As a result, our
financial condition and results of operations may be affected by changes in the economy and the real estate
market of the New York metropolitan area. A prolonged period of economic recession or other adverse economic
conditions in the New York metropolitan area, such as the one we are experiencing now, may result in an increase
in nonpayment of loans, a decrease in collateral value, and an increase in our allowance for loan losses.
For additional information about the provision and allowance for loan losses, see the related discussions of asset
quality later in this report.
Non-Interest Income
For the year ended December 31, 2011, non-interest income was $42.0 million, a decrease of $610,000, or 1.4%,
when compared with 2010.
Net gains on sales of securities totaled $14.4 million for the year ended December 31, 2011, a decrease of $11.0
million when compared to the prior year. During the first quarter of 2010, with the Federal Reserve’s
announcement that it would end the easing program on March 31, 2010, together with overall tight credit spreads,
the Bank subsequently set out to capitalize on gains in its securities portfolio with the expectation of more
advantageous reinvestment opportunities.
During 2011, we recognized through earnings net other-than-temporary impairment losses on securities totaling
$2.1 million, compared to $14.2 million of net other-than-temporary impairment losses on securities recognized
through earnings during 2010. During 2011, ten securities were determined to be other-than-temporarily impaired,
including seven private collateralized mortgage obligations, one collateralized debt obligation, and two securities
classified as other. During 2010, fifteen securities were determined to be other-than-temporarily impaired,
including six bank-collateralized pooled trust preferred securities, five private collateralized mortgage obligations,
and four collateralized debt obligations. The securities were determined to be other-than-temporarily impaired
based on the extent and duration of the decline in fair value below amortized cost, giving consideration to market
50
liquidity, the uncertainty of a near-term recovery in value and the decline in expected cash flows. For further
discussion of our other-than-temporary impairment losses, see Note 4 to our Consolidated Financial Statements.
Non-Interest Expense
Non-interest expense increased $17.8 million, or 10.8%, to $182.7 million for the year ended December 31, 2011
from $164.9 million for the year ended December 31, 2010. This increase was primarily driven by a $14.8 million
increase in salaries and benefits mostly attributable to the addition of seven private client banking teams and other
personnel during the year, combined with a $1.4 million increase in occupancy and equipment primarily resulting
from additional private client offices and expanded operation centers. The increase also reflects a $638,000
increase in other general and administrative expenses, reflecting increased expenses due to additional client
activity, which were partially offset by a reduction in FDIC deposit insurance assessment fees.
For the year-ended December 31, 2011, our FDIC deposit insurance assessment totaled $9.5 million compared, to
$13.5 million for 2010. This decrease reflects a reduction of $2.2 million due to the elimination of assessments
charged for participation in the Transaction Account Guarantee Program, which was in effect through December
31, 2010. In addition, our base FDIC assessment for the year ended December 31, 2011 decreased $1.9 million
when compared to 2010, largely due to new assessment rules (as further discussed below).
In accordance with the Dodd-Frank Act, on February 7, 2011, the FDIC adopted a final rule that redefined the
assessment base for deposit insurance assessments as average consolidated total assets minus average tangible
equity, rather than average deposits. The final rule also established a new assessment rate schedule, as well as
alternative rate schedules, that become effective when the insurance fund’s reserve ratio reaches certain levels.
The final rule also makes conforming changes to the unsecured debt and brokered deposit adjustments to
assessment rates, eliminates the secured liability adjustment and creates a new assessment rate adjustment for
unsecured debt held that is issued by another insured depository institution. The new rate schedule and other
revisions to the assessment rules became effective April 1, 2011.
For large insured depository institutions, generally defined as those with at least $10 billion in total assets, the final
rule also eliminates risk categories and the use of long-term debt issuer ratings when calculating the initial base
assessment rates and combines regulatory ratings and financial measures into two scorecards, one for most large
insured depository institutions and another for highly complex insured depository institutions, to calculate
assessment rates. A highly complex institution is generally defined as an insured depository institution with more
than $50 billion in total assets that is controlled by a parent company with more than $500 billion in total assets.
Under the new assessment rate schedule, effective April 1, 2011, the initial base assessment rate for large and
highly complex insured depository institutions range from five to thirty-five basis points, and total base assessment
rates, after applying all the unsecured debt and brokered deposit adjustments, range from two and one-half to
forty-five basis points. As the new assessment rules currently stand, we expect the rules will have a continued
positive impact on our future FDIC deposit insurance assessment fees compared to the assessment rules in effect
prior to the recent changes.
Stock-Based Compensation
We recognize compensation expense in our statement of operations for all stock-based compensation awards
over the requisite service period with a corresponding credit to equity, specifically additional paid-in capital.
Compensation expense is measured based on grant date fair value and is included in salaries and benefits (non-
interest expense).
As of December 31, 2011, there was $22.8 million of total unrecognized compensation cost related to unvested
restricted shares that is expected to be recognized over a weighted-average period of 3.76 years. During the
years ended December 31, 2011 and 2010, we recognized compensation expense of $8.5 million and $9.3 million,
respectively, for restricted shares. Included in compensation expense for the year ended December 31, 2010 was
$1.6 million from the December 13, 2010 accelerated vesting of 214,330 restricted shares originally scheduled to
vest on March 22, 2011. No restricted shares vested during the year ended December 31, 2011. The total fair
value of restricted shares that vested during the year ended December 31, 2010 was $16.7 million.
51
Income Taxes
We recognized income tax expenses for the years ended December 31, 2011 and 2010 of $117.7 million and
$74.2 million, respectively. The components of income tax expense for the years ended December 31, 2011 and
2010 are reflected in the following table:
(in thousands)
Current expense
Deferred income tax benefit
Total income tax expense
Years ended December 31,
2011
2010
$
$
128,831
(11,132)
117,699
87,276
(13,089)
74,187
The increase in current income tax expense was primarily driven by an increase in our pre-tax income, combined
with the elimination of tax benefits received on income from our real estate investment trust (“REIT”) subsidiary. In
April 2007, the State of New York enacted tax legislation that included, for companies with average assets in
excess of $8 billion, a four-year phase out of the tax benefit received on income from REIT subsidiaries. Since our
average assets are in excess of $8 billion, the income tax benefit on income from our REIT subsidiary was
completely eliminated beginning January 1, 2011. Accordingly, our effective tax rate for the year ended December
31, 2011 increased to 44.0%, compared to 42.1% for the prior year.
52
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Income
Net income available to common shareholders for the year ended December 31, 2010 was $102.1 million, or
$2.46 diluted earnings per share, compared to $50.5 million, or $1.30 diluted earnings per share, for the year
ended December 31, 2009. The Bank recorded a $10.2 million non-cash accelerated deemed dividend in the first
quarter of 2009 to account for the difference between the redemption payment and the carrying value of the
preferred stock repurchased from the U.S. Treasury. The difference between net income and net income
available to common shareholders in 2009 is attributable to the recognition of the $10.2 million non-cash
accelerated deemed dividend, combined with the previously scheduled preferred dividend of $1.5 million and the
accretion of $454,000 of the discount, resulting in a total dividend and related costs of $12.2 million during the first
quarter and full year 2009. Excluding the effect of the non-cash accelerated deemed dividend of $10.2 million, net
income available to common shareholders for the year ended December 31, 2009 was $60.8 million or $1.57
diluted earnings per share.
Net income for the years ended December 31, 2010 and 2009 includes net other-than-temporary impairment
losses on securities totaling $14.2 million and $1.3 million, respectively. Excluding the after tax effect of the net
other-than-temporary impairment losses on securities, net income for 2010 was $110.0 million, or $2.65 diluted
earnings per share, compared to $63.5 million or $1.64 diluted earnings per share for 2009.
The return on average shareholders’ equity for the year ended December 31, 2010 was 11.7% compared to
8.35% for the year ended December 31, 2009. The return on average assets was 0.99% for the year ended
December 31, 2010 compared to 0.79% for the year ended December 31, 2009.
(in thousands)
Interest income
Interest expense
Net interest income
Provision for loan losses
Non-interest income:
Non-interest income excluding other-than-temporary
impairment of securities recognized in earnings
Net other-than-temporary impairment of securities
recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Dividends on preferred stock and related adjustments
Net income available to common shareholders
Years ended December 31,
2010
2009
$
466,530
121,672
344,858
46,372
386,135
123,740
262,395
42,715
56,824
35,954
(14,176)
42,648
164,896
74,187
102,051
$
-
$
102,051
(1,322)
34,632
149,885
41,701
62,726
12,203
50,523
53
Net Interest Income
Net interest income is the difference between interest earned on assets and interest incurred on liabilities. The
following table presents an analysis of net interest income by each major category of interest-earning assets and
interest-bearing liabilities for the years ended December 31, 2010 and 2009:
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans and commercial
mortgages (1) (2) (3)
Residential mortgages (1) (2)
Consumer loans (1) (2)
Loans held for sale
Total interest-earning assets
Non-interest-earning assets
Total assets
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
NOW and interest-bearing demand
Money market
Time deposits
Non-interest-bearing demand deposits
Total deposits
Borrowings
Total deposits and borrowings
Other non-interest-bearing liabilities
Years ended December 31,
2010
Interest
Income/
Expense
Average
Yield/
Rate
2009
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Average
Balance
$
194,864
4,875,482
519
197,093
241,886
9,336
13,677
4,020
466,531
4,319,014
182,995
194,407
233,508
10,000,270
315,051
10,315,321
$
724,458
4,816,609
892,186
2,020,265
8,453,518
913,199
9,366,717
4,014
65,279
18,670
-
87,963
33,709
121,672
0.27%
4.04%
5.60%
5.10%
7.04%
1.72%
4.67%
0.55%
1.36%
2.09%
-
1.04%
3.69%
1.30%
0.19%
4.76%
5.50%
5.43%
6.84%
1.90%
5.02%
0.83%
1.86%
2.54%
-
1.36%
4.06%
1.71%
136,350
3,567,812
260
169,732
192,445
9,819
11,214
2,786
386,256
4,924
59,122
21,352
-
85,398
38,342
123,740
3,496,846
180,789
164,004
146,448
7,692,249
296,305
7,988,554
594,455
3,187,039
840,529
1,668,753
6,290,776
944,144
7,234,920
753,634
7,988,554
and shareholders' equity
Total liabilities and shareholders' equity
948,604
10,315,321
$
OTHER DATA
Tax-equivalent basis
Net interest income / interest rate spread
344,859
Net interest margin
Tax-equivalent adjustment / effect
Net interest income / interest rate spread
Net interest margin
As reported
Net interest income / interest rate spread
Net interest margin
Ratio of average interest-earning assets
to average interest-bearing liabilities
3.37%
3.45%
262,516
3.31%
3.41%
(1)
(0.00)%
(0.00)%
344,858
3.37%
3.45%
106.76%
(121)
(0.00)%
(0.00)%
262,395
3.31%
3.41%
106.32%
(1) Non-accrual loans are included in average loan balances.
(2) Loan interest income includes net accretion of deferred fees and costs of approximately $3.3 million and $3.1 million for the years ended
December 31, 2010 and 2009, respectively.
(3) Includes interest income on certain tax-exempt assets presented on a tax-equivalent basis using a 35 percent federal tax rate.
54
Interest income and interest expense are affected both by changes in the volume of interest-earning assets and
interest-bearing liabilities and by changes in yields and interest rates. The table below analyzes the impact of
changes in volume (changes in average outstanding balances multiplied by the prior period’s rate) and changes in
interest rate (changes in interest rates multiplied by the current period’s average balance). Changes that are
caused by a combination of interest rate and volume changes are allocated proportionately to both changes in
volume and changes in interest rate. For purposes of calculating the changes in our net interest income, non-
performing assets are included in the appropriate balance and shown as a change due to rate.
(in thousands)
INTEREST INCOME
Short-term investments
Investment securities
Commercial loans and commercial mortgages
Residential mortgages
Consumer loans
Loans held for sale
Total interest income
INTEREST EXPENSE
NOW accounts
Money market accounts
Time deposits
Total deposits
Borrowings
Total interest expense
Net interest income
Year ended December 31,
2010 vs. 2009
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
147
(34,849)
4,194
(603)
384
(422)
(31,149)
(1,987)
(24,073)
(3,994)
(30,054)
(3,376)
(33,430)
2,281
$
112
62,210
45,247
120
2,079
1,656
111,424
1,077
30,230
1,312
32,619
(1,257)
31,362
80,062
259
27,361
49,441
(483)
2,463
1,234
80,275
(910)
6,157
(2,682)
2,565
(4,633)
(2,068)
82,343
Net interest income for the year ended December 31, 2010 was $344.9 million, an increase of $82.5 million, or
31.4%, over the year ended December 31, 2009. The increase in net interest income over the twelve month
period was largely driven by increases in average earning assets and average deposits of $2.31 billion and $2.16
billion, respectively, as well as an increase in net interest margin on a tax-equivalent basis of four basis points to
3.45% primarily due to lower rates paid on deposits.
Total average investment securities for the year ended December 31, 2010 were $4.88 billion compared to $3.57
billion for the year ended December 31, 2009. The overall yield on the securities portfolio for the year ended
December 31, 2010 was 4.04%, down 72 basis points from the comparable period a year ago. The decline in
yield was predominantly due to the reinvestment of principal pay-downs from higher-yielding securities in a low
interest rate environment. Additionally, yields were negatively affected by increased premium amortization
associated with principal reductions due to Freddie Mac’s repurchase of delinquent underlying mortgages in
securities issued by them. Our portfolio primarily consists of high quality and highly-rated mortgage-backed
securities, commercial mortgage-backed securities, and collateralized mortgage obligations issued by government
agencies, government-sponsored enterprises, and private issuers. We mitigate extension risk through our overall
strategy of purchasing relatively short duration securities that, by their nature, have lower yields. At December 31,
2010, the baseline average duration of our investment securities portfolio was approximately 2.84 years,
compared to 2.25 years at December 31, 2009.
55
Total commercial loans and commercial mortgages averaged $4.32 billion for the year ended December 31, 2010,
an increase of $822.2 million or 23.5% over the year ended December 31, 2009. The average yield on this
portfolio increased to 5.60%, up ten basis points from the prior year. The increase in average yield is primarily due
to wider credit spreads and less competitive pricing pressures brought on by reduced lending competition. In
order to assist in monitoring and controlling credit risk, we primarily lend to existing clients of our Bank with whom
we have or expect to have deposit and/or brokerage relationships. We target our lending to privately-owned
businesses, their owners and senior managers who are generally high net worth individuals who meet our credit
standards.
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA loans, most of which have adjustable rates and float at a spread to the
prime rate. Once purchased, we typically warehouse the guaranteed loan for approximately 30 to 180 days and
classify them as loans held for sale. From this warehouse we aggregate like SBA loans by similar characteristics
into pools for securitization to the secondary market. The timing of the purchase and sale of such loan pools
drives the quarter-to-quarter fluctuations in average balances of loans held for sale, which averaged $233.2 million
and $146.1 million for the years ended December 31, 2010 and 2009, respectively. The increased inventory has
been used to fill increased client demand for this product.
Average total deposits and borrowings grew $2.13 billion, or 29.5%, to $9.37 billion during the year ended
December 31, 2010 from $7.23 billion for the year ended December 31, 2009. Overall cost of funding was 1.30%
during 2010, decreasing 41 basis points from 1.71% in 2009.
For the year ended December 31, 2010, average non-interest-bearing demand deposits were $2.02 billion as
compared to $1.67 billion for the year ended December 31, 2009, an increase of $351.5 million, or 21.1%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
25.9% of all deposits at December 31, 2010. Additionally, average NOW and interest-bearing checking and
money market accounts totaled $5.54 billion for the year ended December 31, 2010, an increase of $1.76 billion,
or 46.5%, over the year ended December 31, 2009. Core deposits have provided us with a source of stable, low
cost funding, which has positively affected our net interest margin and income. Additionally, short-term escrow
deposits have provided us with low cost funding and have assisted in net interest margin expansion. As a result of
lower short-term interest rates as well as a significant decrease in competitive pricing, our funding cost for NOW
accounts decreased to 0.55% for the year ended December 31, 2010 compared to 0.83% for the prior year, and
our funding cost for money market accounts decreased to 1.36% for the year ended December 31, 2010
compared to 1.86% for the prior year.
Average time deposits, which are relatively short-term in nature and totaled $892.2 million for the year ended
December 31, 2010, carried an average cost of 2.09% in 2010, down 45 basis points from 2.54% in 2009. Time
deposits are offered to supplement our core deposit operations for existing or new client relationships, and are not
marketed through retail channels.
For the year ended December 31, 2010, average total borrowings were $913.2 million compared to $944.1 million
for the previous year, a decrease of $30.9 million or 3.3%. The average cost of total borrowings was 3.69% and
4.06% for the years ended December 31, 2010 and 2009, respectively. At December 31, 2010, total borrowings
represent approximately 11.5% of all funding compared to 12.3% at December 31, 2009. The decrease in
average borrowings was driven by the increase in average deposits, while the decrease in the average cost of
borrowings reflects the replacement of matured borrowings with lower cost short-term borrowing positions.
Provision and Allowance for Loan Losses
Our allowance for loan losses increased $12.3 million to $67.4 million at December 31, 2010 from $55.1 million at
December 31, 2009. This increase was primarily driven by growth in the loan portfolio and an increase in charge-
offs, along with provisions for the continued effect of the weak economic environment on our portfolio.
56
The following table allocates the allowance for loan losses based on our judgment of inherent losses in each
respective lending area according to our methodology for allocating reserves.
2010
2009
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
(dollars in thousands)
Mortgage loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
$
1,716,248
1,799,162
266,011
192,027
115,195
Other loans:
Commercial and industrial loans
Consumer loans
Total
1,146,110
13,086
5,247,839
$
7,401
14,521
3,352
831
2,386
37,545
1,360
67,396
0.43%
0.81%
1.26%
0.43%
2.07%
3.28%
10.39%
1.29%
1,153,610
1,492,877
260,986
170,891
178,740
1,107,850
14,208
4,379,162
5,088
10,778
1,576
631
4,027
32,279
741
55,120
0.44%
0.72%
0.60%
0.37%
2.25%
2.91%
5.22%
1.26%
The provision for loan losses was $46.4 million for the year ended December 31, 2010 compared to $42.7 million
for the prior year, an increase of $3.7 million, or 8.6%. The increase was predominantly driven by loan portfolio
growth, an increase in charge-offs during 2010 and an increase in provisions to recognize the continued effect of
the weak economic environment on our portfolio.
In determining the allowance for loan losses, management considers the imprecision inherent in the process of
estimating credit losses. A portion of the allowance is based on management’s review of factors affecting the
determination of probable losses inherent in the portfolio that are not necessarily captured by the application of
historical loss experience factors, such as the current regional economic environment.
Commercial loans (including commercial and industrial loans along with loans to commercial borrowers that are
secured real estate) constitute a substantial portion of our loan activity and loan portfolio. Substantially all of the
real estate collateral for the loans in our portfolio is located within the New York metropolitan area. As a result, our
financial condition and results of operations may be affected by changes in the economy and the real estate
market of the New York metropolitan area. A prolonged period of economic recession or other adverse economic
conditions in the New York metropolitan area, such as the one we are experiencing now, may result in an increase
in nonpayment of loans, a decrease in collateral value, and an increase in our allowance for loan losses.
Non-Interest Income
For the year ended December 31, 2010, non-interest income was $42.6 million, an increase of $8.0 million, or
23.1%, when compared with 2009. The increase for the year was predominantly due to increases in net gains on
sales of securities and loans as well as trading income, which were partially offset by the recognition of net other-
than-temporary impairment losses.
Net gains on sales of securities totaled $25.4 million for the year ended December 31, 2010, an increase of $16.7
million when compared to the prior year. Due to the prolonged low interest rate environment and narrower credit
spreads, fair values of the bank’s securities portfolio improved in 2010. The increase in gains on sales of
securities was predominantly due to the sale of securities whose average life shortened due to the increased
mortgage loan buyback activity of the Federal National Mortgage Association (“FNMA”) and the Federal Home
Loan Mortgage Corporation (“FHLMC”).
For the year ended December 31, 2010, net gains on sales of loans totaled $6.1 million, compared to $3.6 million
for 2009. The increase in gains on sales of loans is predominantly due to an increase in client demand for SBA
loan and pool products driven by stabilization in this marketplace from government interaction as part of the Small
Business Jobs Act of 2010.
Trading income totaled $124,000 for the year ended December 31, 2010, compared to a trading loss of $1.0
57
million for 2009. The increase in trading income was predominantly driven by increases in the fair values of credit
default swaps used to economically hedge debt securities. During the year ended December 31, 2010, we
recorded unrealized mark-to-market gains on credit default swaps totaling $423,000, respectively, compared to
unrealized mark-to-market losses of $417,000 recorded during the prior year.
During 2010, we recognized through earnings net other-than-temporary impairment losses on securities totaling
$14.2 million, compared to $1.3 million of net other-than-temporary impairment losses on securities recognized
through earnings during 2009. During 2010, fifteen securities were determined to be other-than-temporarily
impaired, including six bank-collateralized pooled trust preferred securities, five private collateralized mortgage
obligations, and four collateralized debt obligations. During 2009, ten securities were determined to be other-than-
temporarily impaired, including three bank-collateralized pooled trust preferred securities and seven private
collateralized mortgage obligations. The securities were determined to be other-than-temporarily impaired based
on the extent and duration of the decline in fair value below amortized cost, giving consideration to market liquidity,
the uncertainty of a near-term recovery in value and the decline in expected cash flows. For further discussion of
our other-than-temporary impairment losses, see Note 4 to our Consolidated Financial Statements.
Additionally, non-interest income for 2010 was also impacted by a decrease in commissions, which decreased
$509,000 to $9.1 million when compared to the prior year. The decrease in commissions was predominantly
driven by a decrease in commissions that we earn on off-balance sheet money market funds. Given the
prolonged low interest rate environment, commissions on off-balance sheet money market funds have been
reduced and, for some funds, eliminated in order to maintain positive yields on those funds. Should the low
interest rate environment continue for an extended period of time, we may experience a further decline in our
commission income.
Non-Interest Expense
Non-interest expense increased $15.0 million, or 10.0%, to $164.9 million for the year ended December 31, 2010
from $149.9 million for the year ended December 31, 2009. This increase was primarily driven by a $12.9 million
increase in salaries and benefits mostly attributable to the addition of five private client banking teams and other
personnel during the year. Also included in 2010 salaries and benefits expense was $1.6 million from the
December 13, 2010 accelerated vesting of 214,330 restricted shares originally scheduled to vest on March 22,
2011. The accelerated vesting, which was approved by the Compensation Committee of the Bank’s Board of
Directors, was determined to be in the best interest of the Bank and its employees due to the potential expiration
at the end of 2010 of the lower personal income tax rates enacted during the Bush Administration. Additionally,
other general and administrative expenses increased $1.3 million, reflecting increased expenses due to additional
client activity and additional FDIC deposit insurance assessment fees (as further described below), which were
partially offset by the one-time $3.5 million FDIC special assessment fee recorded in the second quarter of 2009.
For the year-ended December 31, 2010, our base FDIC deposit insurance assessment totaled $11.3 million, an
increase of $3.1 million when compared to the prior year as a result of our increased level of deposits. In addition,
effective January 1, 2010, the FDIC increased the assessment rates for participation in the Transaction Account
Guarantee Program, which provides a full guarantee above the existing $250,000 deposit insurance limit for funds
held at participating FDIC-insured depository institutions in non-interest-bearing transaction accounts and certain
NOW accounts. As a participant in this program, the increased assessment rate combined with increased
deposits resulted in an additional expense of $1.1 million for the year-ended December 31, 2010, when compared
to prior year. The Transaction Account Guarantee Program was in effect through December 31, 2010, after which
date the Dodd-Frank Act provides all banks with new or additional coverage, including unlimited FDIC insurance
coverage for noninterest-bearing transaction checking accounts and interest on lawyer transaction accounts
through December 31, 2012.
In accordance with the Dodd-Frank Act, on February 7, 2011, the FDIC adopted a final rule that redefines the
assessment base for deposit insurance assessments as average consolidated total assets minus average tangible
equity, rather than on deposit bases, and adopts a new assessment rate schedule, as well as alternative rate
schedules that become effective when the reserve ratio reaches certain levels. The final rule also makes
conforming changes to the unsecured debt and brokered deposit adjustments to assessment rates, eliminates the
secured liability adjustment and creates a new assessment rate adjustment for unsecured debt held that is issued
by another insured depository institution. The new rate schedule and other revisions to the assessment rules
58
become effective April 1, 2011 and will be used to calculate our June 30, 2011 invoices for assessments due
September 30, 2011.
For large insured depository institutions, generally defined as those with at least $10 billion in total assets, the final
rule also eliminates risk categories and the use of long-term debt issuer ratings when calculating the initial base
assessment rates and combines regulatory ratings and financial measures into two scorecards, one for most large
insured depository institutions and another for highly complex insured depository institutions, to calculate
assessment rates. A highly complex institution is generally defined as an insured depository institution with more
than $50 billion in total assets that is controlled by a parent company with more than $500 billion in total assets.
Each scorecard would have two components - a performance score and loss severity score, which will be
combined and converted to an initial assessment rate. The FDIC will have the ability to adjust a large or highly
complex insured depository institution’s total score by a maximum of 15 points up or down based upon significant
risk factors that are not captured by the scorecard. Under the new assessment rate schedule, effective April 1,
2011, the initial base assessment rate for large and highly complex insured depository institutions will range from
five to thirty-five basis points, and total base assessment rates, after applying all the unsecured debt and brokered
deposit adjustments, will range from two and one-half to forty-five basis points. While the impact of the new
assessment rules is not yet determinable, we do not expect the rules will have a material impact on our FDIC
deposit insurance assessment fees.
Stock-Based Compensation
We recognize compensation expense in our statement of operations for all stock-based compensation awards
over the requisite service period with a corresponding credit to equity, specifically additional paid-in capital.
Compensation expense is measured based on grant date fair value and is included in salaries and benefits (non-
interest expense).
As of December 31, 2010, there was $15.8 million of total unrecognized compensation cost related to unvested
restricted shares that is expected to be recognized over a weighted-average period of 5.30 years. During the
years ended December 31, 2010 and 2009, we recognized compensation expense of $9.3 million and $5.5 million,
respectively, for restricted shares. Included in compensation expense for the year ended December 31, 2010 was
$1.6 million from the December 13, 2010 accelerated vesting of 214,330 restricted shares originally scheduled to
vest on March 22, 2011. The total fair value of restricted shares that vested during the years ended December 31,
2010 and 2009 was $16.7 million and $3.6 million, respectively.
Income Taxes
We recognized income tax expenses for the years ended December 31, 2010 and 2009 of $74.2 million and $41.7
million, respectively. The components of income tax expense for the years ended December 31, 2010 and 2009
are reflected in the following table:
(in thousands)
Current expense
Deferred income tax benefit
Total income tax expense
Years ended December 31,
2010
2009
$
$
87,276
(13,089)
74,187
50,161
(8,460)
41,701
The increase in current income tax expense was primarily driven by an increase in our pre-tax income, combined
with reduced tax benefits received on income from our real estate investment trust (“REIT”) subsidiary. In April
2007, the State of New York enacted tax legislation that included, for companies with average assets in excess of
$8 billion, a four-year phase out of the tax benefit received on income from REIT subsidiaries. Our average assets
for 2010 exceeded $8 billion, and as a result, the income tax benefit we receive on income from our REIT
subsidiary was limited beginning with the first quarter of 2010. Accordingly, our effective tax rate for the year
ended December 31, 2010 increased to 42.1%, compared to 39.9% for the prior year. In 2011, we will receive no
tax benefits from our REIT subsidiary, and as a result, we expect our effective tax rate will increase to
approximately 43%.
59
Financial Condition
Securities Portfolio
Securities in our investment portfolio are designated as either held-to-maturity (“HTM”) or available-for-sale
(“AFS”) based upon various factors, including asset/liability management strategies, liquidity and profitability
objectives and regulatory requirements. HTM securities are carried at cost and adjusted for amortization of
premiums or accretion of discounts. AFS securities may be sold prior to maturity, based upon asset/liability
management decisions and are carried at fair value. Unrealized gains or losses on AFS securities are recorded in
accumulated other comprehensive income (loss), net of tax, in shareholders’ equity. Other-than-temporary
impairment losses on AFS and HTM debt securities attributable to credit losses are recorded in current earnings,
while losses attributable to noncredit factors are recorded in accumulated other comprehensive income.
Amortization of premiums and accretion of discounts on mortgage-backed securities are periodically adjusted for
estimated prepayments.
At December 31, 2011, our total securities portfolio was $7.07 billion compared to $5.70 billion at December 31,
2010. Our portfolio primarily consists of mortgage-backed securities (“MBSs”) and collateralized mortgage
obligations (“CMOs”) issued by U.S. Government agencies ($862.0 million), government-sponsored enterprises
($4.49 billion), and private issuers ($803.9 million). Overall, our securities portfolio had a weighted average
duration of 3.13 years and a weighted average life of 4.68 years as of December 31, 2011. As of December 31,
2011, 84.9% of our securities portfolio had a AAA credit rating and 94.3% had a credit rating of A or better. In
addition, 97.3% of our securities portfolio was rated investment grade or better at December 31, 2011, compared
to 96.6% at December 31, 2010. Also, at December 31, 2011, we did not hold sovereign debt of Greece or other
Euro-zone countries currently experiencing financial difficulty. For further discussion of our investment securities
and the related determination of fair value, see Notes 3 and 4 to our Consolidated Financial Statements.
The agency MBS portfolio primarily consists of adjustable rate hybrid securities, fixed rate balloon, and seasoned
15-year structures. The agency CMO portion of our portfolio primarily consists of short duration planned
amortization and sequential structures, collateralized by conforming first lien residential mortgages. The private
CMO portfolio consists of prime borrowers with seasoned underlying mortgages and supportive credit
enhancement. The weighted average age of the underlying collateral is approximately 89 months with a weighted
average loan to value ratio of approximately 57% of original appraised values. The weighted average FICO score
of the borrowers was approximately 722 at origination of the loan. The Private CMO sector is diversified with an
average holding of $2.3 million per issue. Our asset-backed portfolio primarily consists of intermediate term fixed
rate AAA and floating rate AA/A rated credit card, auto and home equity collateralized securities and collateralized
debt obligations.
At December 31, 2011, the net unrealized gain on AFS securities, net of tax effect, was $29.8 million as reflected
in accumulated other comprehensive income, compared to a net unrealized loss of $18.4 million at December 31,
2010. The fair value of our AFS securities is affected by several factors including, credit spreads, interest rate
environment, unemployment rates, delinquencies and defaults on the mortgages underlying such obligations,
changes in interest rates resulting from expiration of the fixed rate portion of adjustable rate mortgages (“ARMs”),
changing home prices, market liquidity for such obligations, and uncertainties in respect of government-sponsored
enterprises such as Fannie Mae and Freddie Mac, which guarantee many of the debt securities we own. The
estimated effect of possible changes in interest rates on our earnings and equity is discussed in “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.”
We continue to closely monitor these securities and, other than those securities for which we have previously
recorded other-than-temporary impairment losses, we believe the declines in fair value are temporary. We have
no intent to sell these securities and we believe it is not more likely than not that we will be required to sell these
investments before recovery of their amortized cost basis. In the event these securities demonstrate an adverse
change in expected cash flows and we no longer expect to recover the amortized cost basis, we would recognize
additional other-than-temporary impairment losses through earnings.
60
The following table summarizes the components of our AFS and HTM securities portfolios at the dates indicated:
(in thousands)
AVAILABLE-FOR-SALE
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
2011
December 31,
2010
2009
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
36,437
1,103,380
38,649
1,141,619
24,764
1,048,591
25,538
1,065,450
39,392
848,967
40,467
875,552
681,869
2,902,349
818,904
697,542
2,968,904
792,514
642,741
2,060,430
825,674
646,627
2,084,165
797,478
126,064
1,508,496
833,446
127,326
1,532,955
778,702
Commercial mortgage-backed securities
315,573
322,026
191,293
191,063
151,492
151,838
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Collateralized debt obligations
Other
Equity securities (1)
Total available-for-sale
HELD-TO-MATURITY
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Commercial mortgage-backed securities
Collateralized debt obligations
Other
Total held-to-maturity
345,324
28,216
6,487
204,002
15,708
6,458,249
$
336,623
7,116
2,757
189,506
15,599
6,512,855
207,363
28,608
6,992
228,949
15,475
5,280,880
203,416
4,562
4,874
210,946
15,167
5,249,286
97,772
32,502
15,854
233,389
14,757
3,902,131
88,874
11,149
9,858
206,577
14,285
3,837,583
$
3,286
20,013
3,431
20,859
3,796
9,465
3,920
9,998
4,954
12,657
5,015
13,159
122,560
358,859
11,419
358
5,309
34,240
556,044
$
128,185
375,661
7,972
359
2,710
32,803
571,980
83,858
279,497
12,838
12,495
6,342
39,605
447,896
85,958
286,176
10,358
12,495
3,688
37,722
450,315
25,706
169,806
14,213
17,419
8,137
43,092
295,984
25,732
174,024
11,315
17,326
7,947
36,090
290,608
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
The following table presents the credit rating distribution of our securities portfolio at December 31, 2011:
Credit Rating
AAA
AA
A
BBB
Below BBB
Total
Percentage of
Portfolio
84.93%
2.64%
6.75%
2.99%
2.69%
100.00%
61
The following table provides the estimated change in fair value of our debt securities for various interest rate
shocks at December 31, 2011:
Interest Rate Shock
+100 basis points
+200 basis points
+300 basis points
Estimated Fair
Value Change
(0.34%)
(3.77%)
(8.24%)
The following table presents the contractual maturity distribution and the weighted average yields of our combined
available-for-sale and held-to-maturity securities portfolio as of December 31, 2011. Due to prepayments of
collateral underlying the securities, actual maturity may differ from contractual maturity.
(dollars in thousands)
Less than one year
Collateralized mortgage obligations
Other securities (1)
Total
One year to less than five years
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
Five years to less than 10 years
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
10 years and longer
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
All maturities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
Amortized Cost
Fair Value
Average Yield
$
661
87,344
88,005
$
$
1,782
8,209
29,087
39,078
$
$
13,746
150,202
237,440
401,388
$
$
$
1,147,588
4,736,888
585,638
6,470,114
$
$
1,163,116
4,895,960
939,509
6,998,585
667
95,191
95,858
1,873
8,636
29,854
40,363
14,806
153,055
232,172
400,033
1,187,879
4,808,420
536,683
6,532,982
1,204,558
4,970,778
893,900
7,069,236
3.90%
15.57%
15.48%
5.00%
5.05%
3.59%
3.96%
4.47%
3.99%
4.55%
4.34%
3.39%
3.42%
3.69%
3.44%
3.40%
3.44%
5.01%
3.64%
(1) Excludes equity securities, which do not have maturities.
62
Loan Portfolio
The following table presents information regarding the composition of our loan portfolio, including loans held for
sale, as of the dates indicated:
(dollars in thousands)
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
2011
2010
December 31,
2009
2008
2007
Mortgage loans:
Multi-family residential property
$
3,003,428
41.68%
1,716,248
30.68%
1,153,610
24.78%
721,166
19.59%
135,834
6.20%
Commercial property
2,218,053
30.78%
1,799,162
32.16%
1,492,877
32.06%
1,156,315
31.40%
441,759
20.16%
1-4 family residential property
Home equity lines of credit
Construction and land
259,418
198,375
63,775
3.60%
2.75%
0.88%
266,011
192,027
115,195
4.76%
3.43%
2.06%
260,986
170,891
178,740
5.61%
3.67%
3.84%
245,892
129,202
168,890
6.68%
3.51%
4.59%
209,489
90,023
116,040
9.56%
4.11%
5.30%
Other loans:
Commercial and industrial
1,098,805
15.24%
1,146,110
20.49%
1,107,850
23.79%
1,033,119
28.06%
1,008,655
46.03%
Commercial - SBA
guaranteed portion
Consumer
Sub-total / Total
Premiums, deferred
fees and costs
Total
354,060
11,837
4.91%
0.16%
346,454
13,086
6.19%
0.23%
276,802
14,208
5.95%
0.31%
208,977
18,504
5.68%
0.50%
165,613
23,984
7.56%
1.09%
7,207,751
100.00%
5,594,293
100.00%
4,655,964
100.00%
3,682,065
100.00%
2,191,397
100.00%
35,000
$
7,242,751
32,834
5,627,127
13,341
4,669,305
6,157
3,688,222
6,548
2,197,945
Total loans increased by $1.62 billion, or 28.7%, to $7.24 billion at December 31, 2011, from $5.63 billion at
December 31, 2010. Our total loan-to-deposit ratio, excluding loans held for sale, increased to 58.3% at
December 31, 2011from 55.6% at December 31, 2010. We continue to predominantly restrict lending to existing
clients in our market area with whom we have or expect to have deposit and/or brokerage relationships to assist
us in monitoring and controlling credit risk.
As of December 31, 2011, substantially all of the real estate collateral for the loans in our portfolio was located
within the New York metropolitan area. As a result, our financial condition and results of operations may be
affected by changes in the economy and the real estate market of the New York metropolitan area. A prolonged
period of economic recession or other adverse economic conditions in the New York metropolitan area, such as
the one we are experiencing now, may result in an increase in nonpayment of loans, a decrease in collateral
value, and an increase in our allowance for loan losses.
We only securitize the U.S. government guaranteed portion of SBA loans, and we have not securitized any of our
loans secured by real estate. As a result, we have not made any representations to, and do not have obligations
to, third-party purchasers regarding these loans.
At December 31, 2011, loans fully secured by cash and marketable securities represented 1.6% of outstanding
loan balances. The SBA portfolio, consisting only of the guaranteed portion of the SBA loans, represented 4.8%
of outstanding loan balances. Our fully unsecured loan portfolio represented 3.1% of our total outstanding loan
portfolio at December 31, 2011. We generally limit unsecured lending for consumer loans to private clients who
we believe possess ample net worth, liquidity and repayment capacity. The remainder of our loans is secured by
real estate, company assets, personal assets and other forms of collateral.
In order to assist us in managing credit quality, management views the loan portfolio by various segments and
classes of loans. For commercial loans, we assign individual credit ratings ranging from 1 (lowest risk) to 9
(highest risk) as an indicator of credit quality. These ratings are based on specific risk factors including (i)
historical and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may
affect the borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv)
nature of the underlying collateral, if any, and (v) borrower’s history of payment performance.
63
The following table summarizes the recorded investment of our portfolio of commercial loans by credit rating as of
the dates indicated:
(in thousands)
December 31, 2011
Commercial loans secured by real estate:
Multi-family residential property
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2010
Commercial loans secured by real estate:
Multi-family residential property
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
pass
pass
Rating 1-4 Rating 5-6
special
mention
Rating 7
substandard
Rating 8
doubtful
Rating 9
Non-rated
Total
$
2,436,175
1,393,854
37,121
5,166
512,767
755,644
40,905
43,250
441,753
4,314,069
$
540,329
1,892,895
$
1,282,318
1,041,618
25,956
429,789
709,110
47,767
463
102,939
410,587
2,760,942
$
604,184
1,893,789
32,838
26,140
6,800
597
20,576
86,951
1,593
34,918
476
3,988
25,525
66,500
19,573
39,876
1,269
14,762
34,807
110,287
369
11,746
7,852
7,805
39,690
67,462
-
2,500
-
-
7,707
10,207
-
3,001,353
39
2,218,053
-
-
86,095
63,775
53,633
53,672
1,098,805
6,468,081
-
-
-
-
-
-
-
-
1,714,069
1,797,392
82,051
115,195
9,201
9,201
56,923
56,923
1,146,110
4,854,817
For consumer loans, including residential mortgages and home equity lines of credit, we consider the borrower’s
payment history and current payment performance as lead indicators of credit quality. A consumer loan is
considered non-performing generally when it becomes 90 days delinquent based on contractual terms, at which
time the accrual of interest income is discontinued. In the case of residential mortgages and home equity lines of
credit, exceptions may be made if the loan has sufficient collateral value, based on a current appraisal, and is in
process of collection.
The following table summarizes the recorded investment of our portfolio of consumer loans by performance status
as of the dates indicated:
(in thousands)
December 31, 2011
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2010
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
172,792
198,026
11,501
382,319
187,909
191,576
12,567
392,052
2,606
349
336
3,291
-
451
519
970
175,398
198,375
11,837
385,610
187,909
192,027
13,086
393,022
64
The following table presents commercial and industrial loans and construction and land loans at fixed and variable
rates, by maturity for the periods indicated:
As of December 31, 2011
Within One
Year
One to Five
Years
After Five
Years
$
$
616,804
56,655
673,459
473,596
6,209
479,805
333,657
146,148
479,805
8,405
911
9,316
9,316
-
9,316
Total
1,098,805
63,775
1,162,580
(in thousands)
Loan Type
Commercial and Industrial
Construction and Land
Total
Loans at fixed interest rates
Loans at variable interest rates
Total
Asset Quality
Non-performing Assets
Non-performing assets include non-accrual loans and investment securities and other real estate owned. Loans
are generally placed on non-accrual status upon becoming 90 days past due as to interest or principal. Single
family property loans are considered for non-accrual status after becoming three payments past due as to interest
or principal. We generally do not place loans on non-accrual status if there is sufficient collateral value, based on
a current appraisal, and the loan is in process of collection. Consumer loans that are not secured by real estate,
however, are generally placed on non-accrual status when deemed uncollectible; such loans are generally
charged off when they reach 180 days past due.
At the time a loan is placed on non-accrual status, the accrued but uncollected interest receivable is reversed and
accounted for on a cash basis or cost recovery basis, until qualifying for return to accrual status. Management’s
classification of a loan as non-accrual does not necessarily indicate that the principal of the loan is uncollectible in
whole or in part.
The following table summarizes our non-performing assets, accruing loans that were 90 days past due as to
principal or interest, and certain asset quality indicators as of the dates indicated:
(dollars in thousands)
Non-accrual assets:
Loans
Troubled debt restructured loans
Investment securities, at fair value
Other real estate owned
Total non-performing assets
Accruing troubled debt restructured loans
Accruing loans past due 90 days or more:
Loans
Loans held for sale
Asset Quality Ratios:
2011
2010
December 31,
2009
2008
2007
46,606
31,885
18,559
$
40,432
1,786
5,772
566
48,556
$
$
44,685
$
9,000
$
1,307
31,155
2,979
4,445
1,667
40,246
8,530
15,740
1,778
-
8,216
700
55,522
-
12,494
3,883
-
975
-
32,860
-
1,902
4,183
0.92%
0.46%
-
-
-
18,559
-
2,001
1,990
0.92%
0.32%
98.26%
0.90%
0.47%
Total non-accrual loans to total loans
Total non-performing assets to total assets
0.62%
0.33%
0.65%
0.34%
1.07%
0.61%
Allowance for loan losses to non-accrual loans
204.09%
197.45%
118.27%
116.00%
Allowance for loan losses to total loans
Quarterly net charge-offs to average loans (annualized)
1.26%
0.71%
1.29%
1.16%
1.26%
0.61%
1.07%
0.32%
65
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
(in thousands)
December 31, 2011
Commercial loans
Past Due
30-89 Days
Past Due
90+ Days
Total
Past Due
Current
Total
Loans
Accruing
Loans Past
Due 90+ Days
Non-accruing
Loans
Loans secured by real estate:
Multi-family residential property
$
34,780
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
December 31, 2010
Commercial loans
3,589
6,755
-
8,100
1,547
1,635
62
56,468
$
Loans secured by real estate:
Multi-family residential property
$
15,149
Commercial property
1-4 family residential property
Construction and land
15,797
6,226
-
369
14,608
-
4,762
23,271
5,797
2,075
336
51,218
3,169
6,901
830
6,571
35,149
18,197
6,755
4,762
2,966,204
3,001,353
2,199,856
2,218,053
79,340
59,013
86,095
63,775
-
699
-
-
31,371
1,067,434
1,098,805
3,384
7,344
3,710
398
107,686
168,054
194,665
11,439
6,746,005
175,398
198,375
11,837
6,853,691
18,318
22,698
7,056
6,571
1,695,751
1,714,069
1,774,694
1,797,392
74,995
108,624
82,051
115,195
369
13,909
-
4,762
19,887
2,606
349
336
42,218
369
4,711
-
6,571
21,513
-
451
519
34,134
3,191
1,726
-
9,000
2,800
2,190
830
-
3,440
4,602
1,851
27
15,740
Commercial and industrial loans
13,635
24,953
38,588
1,107,522
1,146,110
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
5,868
156
240
57,071
$
4,602
2,302
546
49,874
10,470
2,458
786
106,945
177,174
189,569
12,300
5,140,629
187,644
192,027
13,086
5,247,574
Significant non-accrual loans at December 31, 2011, consisted of four commercial real estate loans totaling $12.5
million, five commercial and industrial loans totaling $10.2 million, two construction loans totaling $4.8 million, and
one residential mortgage for $1.4 million. Each of these non-accrual loans is being actively managed by the Bank,
and the allowance for loan losses includes a specific allocation for each of them.
If all non-accrual loans outstanding at December 31, 2011, 2010, and 2009 had been performing in accordance
with their original terms, we would have recorded interest income, with respect to such loans, of approximately
$4.2 million, $4.1 million, and $3.8 million for the years then ended, respectively. This compares to actual
payments recorded as interest income realized, with respect to such loans, of $363,000, $765,000, and $603,000
for the years ended December 31, 2011, 2010, and 2009, respectively.
Non-accrual investment securities at December 31, 2011 and 2010 consisted of eight bank-collateralized pooled
trust preferred securities and one collateralized debt obligation, which were classified as non-performing because
of a deferral of their interest payments. At December 31, 2011 and 2010, the fair value of our non-accrual pooled
trust preferred securities totaled $4.5 million and $3.0 million, respectively, and the fair value of our non-accrual
collateralized debt obligation was $1.3 million and $1.5 million, respectively. Non-accrual investment securities at
December 31, 2009, consisted of six bank-collateralized pooled trust preferred securities with fair value totaling
$6.3 million, which were classified as non-performing given their deferral of interest payments, and one Lehman
Brothers senior debenture with a fair value of $1.9 million classified as non-performing based on the issuer’s
default. The non-accrual investment securities at December 31, 2008 consisted solely of the Lehman Brothers
senior debenture.
Accruing loans past due 90 days or more, which are not included in the non-performing category, are presented in
the above tables. At December 31, 2011, accruing loans past due 90 days or more include $3.8 million of 1-4
family real estate loans that are well secured and in process of collection and a $1.9 million C&I loan that was paid
66
in full during January 2012. At December 31, 2010, accruing loans past due 90 days or more include matured
performing loans in the normal process of renewal ($519,000) and real estate loans that are well secured and in
process of collection ($3.7 million of 1-4 family, $2.8 million of multi-family, and $1.4 million of commercial real
estate). Accruing loans held for sale at December 31, 2011 and 2010 are comprised of U.S. Government
guaranteed SBA loans.
For economic reasons and to maximize the recovery of loans, we may work with borrowers experiencing financial
difficulties, and will consider modifications to a borrower’s existing loan terms and conditions that we would not
otherwise consider, commonly referred to as troubled debt restructurings (“TDRs”). Our TDR loans consist of
those loans where we modify the contractual terms of the loan, such as (i) a deferral of the loan’s principal
amortization through either interest-only or reduced principal payments, (ii) a reduction in the loan’s contractual
interest rate or (iii) an extension of loan’s contractual term.
At the time of restructuring, we determine whether a TDR loan should accrue interest based on the accrual
status of the loan immediately prior to modification. A non-accrual TDR loan will be returned to accrual status
when all the principal and interest amounts contractually due are brought current and future payments are
reasonably assured. Additionally, there should be a sustained period of repayment performance (generally a
period of six months) by the borrower in accordance with the modified contractual terms.
In years after the year of restructuring, the loan is not reported as a TDR loan if it was restructured at a market
interest rate and it is performing in accordance with its modified terms. For further discussion of our TDR loans
and the related financial effects, see Note 8 to our Consolidated Financial Statements.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level estimated by management to absorb probable losses
inherent in the loan portfolio and is based on management’s continuing evaluation of the portfolio, the related risk
characteristics, and the overall economic conditions affecting the loan portfolio. The estimation is inherently
subjective as it requires measurements that are susceptible to significant revision as more information becomes
available. At December 31, 2011, 2010, and 2009, our allowance for loan losses totaled $86.2 million,
$67.4 million, and $55.1 million, respectively, which represents 1.26%, 1.29%, and 1.26% of total loans (excluding
loans held for sale) at December 31, 2011, 2010, and 2009, respectively.
The provision for loan losses is a charge to earnings to maintain the allowance for loan losses at a level consistent
with management’s assessment of the loan portfolio in light of current economic conditions and market trends.
For the years ended December 31, 2011, 2010, and 2009, we recorded provisions of $51.9 million, $46.4 million,
and $42.7 million, respectively. These provisions were made to reflect management’s assessment of the inherent
and specific risk of loan losses relative to the growth of the portfolio.
Our methodology to determine the allowance for loan losses includes segmenting the loan portfolio into various
components and applying various loss factors to estimate the amount of probable losses. The largest segment of
our loan portfolio is comprised of credit-rated commercial loans, comprising 93.6% of our total loan portfolio,
excluding loans held for sale, as of December 31, 2011. Our credit-rated commercial loans include commercial
and industrial loans along with loans to commercial borrowers that are secured by real estate (commercial
property, multi-family residential property, 1-4 family residential property, and construction and land). For each
loan within this segment, a credit rating is assigned based on a review of specific risk factors including (i) historical
and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may affect the
borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv) nature of the
underlying collateral, if any, and (v) borrower’s history of payment performance.
When assigning a credit rating to a loan, we use an internal nine-level rating system in which a rating of one
carries the lowest level of credit risk and is used for borrowers exhibiting the strongest financial condition. Loans
rated one through six are deemed to be acceptable quality and are considered “Pass.” Loans that are deemed to
be of questionable quality are rated seven (special mention). Loans with adverse classifications (substandard or
doubtful) are rated eight or nine, respectively. A loan is considered substandard if it is inadequately protected by
the current net worth and paying capacity of the borrower, or of the collateral pledged. Substandard loans are
characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added
67
characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
The outstanding amounts of credit-rated commercial loans are aggregated by credit rating, and we estimate the
allowance for losses for each credit rating using loss factors based on historical loss experience and qualitative
adjustments reflecting the current economic conditions and outlook for housing, employment, manufacturing, and
consumer spending. The economic adjustments reflect the imprecision that is inherent in the estimates of
probable loan losses, and are intended to ensure adequacy of the overall allowance amount. The loss factors
assigned to each credit rating are adjusted based on management’s judgment, along with certain qualitative
factors such as the trend and severity of problem loans that can cause the estimation of inherent losses to differ
from historical experience. Any change to an individual credit rating affects the amount of the related allowance.
Our internal review process results in the periodic review of assigned credit ratings to reflect changes in specific
risk factors. Commercial lines of credit are generally issued with terms of one year, and upon annual renewal our
lenders perform a full review of the specific risk factors to assess the appropriateness of the assigned credit
ratings. Furthermore, loans classified as special mention, substandard, or doubtful are placed on our internal
watch list and our lenders perform a credit rating review on a quarterly basis (special mention loans) or monthly
basis (substandard and doubtful loans). In addition, our Risk Management function, which reports directly to the
Risk Committee of our Board of Directors, performs periodic credit reviews that provide an independent evaluation
of the assigned credit ratings. These reviews generally cover, in aggregate, between 40-50% of the commercial
loan portfolio, including all commercial loans over $500,000 with adverse credit ratings on an annual basis.
Additionally, our Risk Management function focuses its reviews on those loans with higher-risk attributes, such as
lines of credit with higher utilization percentages and loan facilities with delinquencies.
Our methodology to determine the allowance for loan losses for the non-rated segments of our loan portfolio is
based on historical loss experience and qualitative factors. Non-rated loans generally include commercial loans
with outstanding principal balances below $100,000, commercial overdrafts, residential mortgages, and consumer
loans. The outstanding amounts of loans in each of these segments are aggregated, and we apply percentages
based on historical losses and qualitative factors by segment to estimate the required allowance for loan losses.
Non-rated loans comprise 6.4% of our total loan portfolio as of December 31, 2011.
We consider all non-accrual loans to be impaired loans, and the related specific allowances for loan losses are
determined on an individual (non-homogeneous) basis. Factors contributing to the determination of specific
allowances on impaired loans include the creditworthiness of the borrower and, more specifically, changes in the
expected future receipt of principal and interest payments and/or in the value of pledged collateral. For impaired
loans in excess of $300,000, a specific allowance is recorded when the carrying amount of the loan exceeds the
discounted estimated cash flows using the loan’s initial effective interest rate or, for collateral-dependent loans, the
fair value of collateral. For smaller impaired loans, in the absence of other factors affecting the collectability of the
loan, we generally determine the amount of specific allowance using estimated loss percentages based on the
amount of time the loan has been delinquent.
The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is
designed to be responsive to changes in portfolio credit quality and inherent credit losses. The changes are
reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans
is regularly recalculated with new information as it becomes available. As our portfolio matures, historical loss
ratios are closely monitored. Currently, the review of reserve adequacy is performed by our senior management,
assessed by a credit review function, and presented to our Board of Directors for their review and consideration on
a quarterly basis.
68
The following table presents our allowance for loan losses and outstanding loan balances by segment of our loan
portfolio, based on the methodology followed in determining the allowance for loan losses:
(in thousands)
As of December 31, 2011
Allowance for loan losses:
Credit-rated
commercial
loans
Commercial
loans
Non-rated
Residential
mortgages
Consumer
loans
Total
Individually evaluated for impairment
$
4,651
Collectively evaluated for impairment
74,202
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
56,216
6,358,193
As of December 31, 2010
Allowance for loan losses:
Individually evaluated for impairment
$
8,011
Collectively evaluated for impairment
48,201
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
30,249
4,767,645
991
3,963
2,190
51,482
1,445
6,907
2,915
54,008
291
1,278
4,817
368,956
130
1,342
451
379,485
168
618
6,101
80,061
336
11,501
63,559
6,790,132
256
1,104
519
12,567
9,842
57,554
34,134
5,213,705
The following table allocates our allowance for loan losses to the respective portfolio categories:
(dollars in thousands)
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
2011
2010
2009
2008
2007
December 31,
Mortgage Loans:
Commercial property
$
23,844
27.67%
14,521
21.55%
10,778
19.55%
8,689
23.49%
3,347
18.35%
Multi-family residential property
25,160
29.20%
7,401
10.98%
Construction and land
1-4 family residential property
Home equity lines of credit
4,836
3,096
818
5.61%
3.59%
0.95%
2,386
3,352
831
3.54%
4.97%
1.23%
5,088
4,027
1,576
631
9.23%
7.31%
2.86%
1.14%
4,136
11.18%
2,116
828
194
5.72%
2.24%
0.52%
873
851
447
117
4.79%
4.67%
2.45%
0.64%
Other loans:
Commercial and industrial
27,622
32.06%
37,545
55.71%
32,279
58.57%
20,668
55.89%
12,335
67.64%
Consumer
Total
786
0.91%
1,360
2.02%
741
1.34%
356
0.96%
266
1.46%
$
86,162
100.00%
67,396
100.00%
55,120
100.00%
36,987
100.00%
18,236
100.00%
69
Summary of Loan Loss Experience
The table below presents the changes in the allowance for loan losses for the years indicated:
(in thousands)
2011
Years ended December 31,
2009
2010
2008
2007
Beginning balance - Allowance for loan losses
$
67,396
55,120
36,987
18,236
13,829
Charge-offs and recoveries:
Loans charged-off
Recoveries of loans previously charged off
Net charge-offs
Provision for loan losses
Ending balance - Allowance for loan losses
35,393
2,283
33,110
51,876
86,162
$
35,583
1,487
34,096
46,372
67,396
25,451
869
24,582
42,715
55,120
8,377
240
8,137
26,888
36,987
7,973
64
7,909
12,316
18,236
The table below presents a summary by loan portfolio segment of our allowance for loan losses, loan loss
experience, and provision for loan losses for the periods indicated:
(in thousands)
For the year ended December 31, 2011
Balance at beginning of year
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of year
For the year ended December 31, 2010
Balance at beginning of year
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of year
Credit-rated
commercial
loans
Commercial
loans
Non-rated
Residential
mortgages
Consumer
loans
Total
$
56,212
51,635
(29,502)
508
78,853
$
$
50,141
34,101
(28,070)
40
56,212
$
8,352
(429)
(4,467)
1,498
4,954
3,024
10,525
(6,369)
1,172
8,352
1,472
447
(350)
-
1,569
1,216
688
(644)
212
1,472
1,360
223
(1,074)
277
786
739
1,058
(500)
63
1,360
67,396
51,876
(35,393)
2,283
86,162
55,120
46,372
(35,583)
1,487
67,396
Our net charge-offs during 2011 decreased to $33.1 million compared to $34.1 million for the prior year.
Significant charge-offs for the year ended December 31, 2011 consisted of nine commercial and industrial
relationships totaling $21.1 million, one commercial real estate loan in the amount of $4.0 million, and one
construction loan in the amount of $616,000. The remainder of the 2011 charge-offs were primarily comprised of
small business and overdraft line of credit relationships, for which the individual charge-off amount did not exceed
$500,000.
Deferred Tax Asset/Liability
At December 31, 2011, after considering all available positive and negative evidence, management concluded that
a valuation allowance for deferred tax assets was not necessary because it is more likely than not that these tax
benefits will be fully realized. We will continue to monitor the need for a valuation allowance going forward;
however, we do not expect to need one based upon projected profitability and taxable income in the carry-back
period. Net deferred tax assets are included in other assets in our Consolidated Statements of Financial
Condition.
70
The following table presents the components of the net deferred tax asset at December 31, 2011 and 2010:
(in thousands)
DEFERRED TAX ASSETS
Allowance for loan losses
Depreciation
Unearned compensation - restricted shares
Non-accrual interest
Write-down for other-than-temporary impairment of securities
Other
Total deferred tax assets recognized in earnings
Net unrealized losses on securities available-for-sale
Total deferred tax assets
DEFERRED TAX LIABILITIES
Prepaid expenses
Other
Total deferred tax liabilities recognized in earnings
Net unrealized gains on securities available-for-sale
Total deferred tax liabilities
Net deferred tax asset
December 31,
2011
2010
$
38,034
1,388
4,987
2,617
17,393
2,357
66,776
-
66,776
241
6
247
23,542
23,789
42,987
$
29,642
992
1,232
2,026
19,930
1,943
55,765
14,456
70,221
368
-
368
-
368
69,853
Deferred tax assets arise from expected future tax benefits attributable to temporary differences and carry-
forwards. Deferred tax liabilities arise from expected future tax expense attributable to temporary differences.
Temporary differences are defined as differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible amounts in future years. Carry-forwards
are defined as deductions or credits that cannot be currently utilized for tax purposes that may be carried forward
to reduce taxable income or taxes payable in a future year.
Deposits
At December 31, 2011, we maintained approximately 78,000 deposit accounts, compared to approximately 70,000
accounts at December 31, 2010. Excluding brokered deposits, total deposits at December 31, 2011 and 2010
were $11.70 billion and $9.41 billion, respectively.
Included in deposits at December 31, 2011 and 2010 were approximately $774.0 million and $619.4 million,
respectively, of short-term escrow deposits. We have developed a core competency in catering to the needs of
law firms, accounting firms, claims administrators and title companies, which allows us to obtain from our clients
short-term escrow deposits. The majority of short-term escrows outstanding at December 31, 2011, due to their
nature, are expected to be released during the first quarter of 2012. Excluding the short-term escrow deposits and
brokered deposits, our total core deposits increased approximately $2.13 billion during 2011 as a result of the
addition of new private client groups, who assist us in growing our client base, and additional deposits by our
current clients.
71
The following table presents the composition of our deposits and deposit products as of the dates indicated:
(dollars in thousands)
Personal demand (1)
Business demand (1)
Rent security
Personal NOW
Business NOW and interest-bearing demand
Personal money market
Business money market
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand (1)
NOW and interest-bearing demand
Money market
Time deposits
Brokered time deposits
Total
Personal
Business
Brokered time deposits
Total
(1) Non-interest bearing.
December 31,
2011
2010
Amount
Percentage
Amount
Percentage
$
331,268
2,817,168
75,139
37,094
606,036
2,314,369
4,677,424
492,060
345,782
57,798
11,754,138
3,148,436
643,130
7,066,932
837,842
57,798
11,754,138
3,174,791
8,521,549
57,798
11,754,138
$
$
$
$
$
2.82%
23.97%
0.64%
0.32%
5.16%
19.68%
39.79%
4.19%
2.94%
0.49%
100.00%
26.79%
5.48%
60.11%
7.13%
0.49%
100.00%
27.01%
72.50%
0.49%
100.00%
286,166
2,163,802
47,062
70,215
630,336
1,654,597
3,660,446
501,296
400,641
26,666
9,441,227
2,449,968
700,551
5,362,105
901,937
26,666
9,441,227
2,512,274
6,902,287
26,666
9,441,227
3.03%
22.92%
0.50%
0.74%
6.68%
17.53%
38.77%
5.31%
4.24%
0.28%
100.00%
25.95%
7.42%
56.80%
9.55%
0.28%
100.00%
26.61%
73.11%
0.28%
100.00%
The following table presents our average deposits and average interest rates accrued for the periods indicated:
(dollars in thousands)
NOW and interest-bearing demand
Money market
Time deposits
Brokered time deposits
Non-interest-bearing demand deposits
Total deposits
Years ended December 31,
2011
2010
Average
Balance
Average
Rate
Average
Balance
Average
Rate
$
632,804
6,611,992
871,929
45,063
2,702,236
10,864,024
$
0.52%
1.08%
1.81%
1.07%
-
0.84%
724,458
4,816,609
873,259
18,927
2,020,265
8,453,518
$
0.55%
1.36%
2.11%
1.47%
-
1.04%
The following table presents time deposits of $100,000 or more by their maturity as of December 31, 2011:
(dollars in thousands)
Three months or less
Over three months through six months
Over six months through one year
Over one year
Total
72
December 31, 2011
$
177,625
69,901
156,380
290,471
694,377
$
Borrowings
The following table presents information regarding our borrowings:
At or for the year ended December 31,
2011
2010
2009
(dollars in thousands)
Amount
Federal Home Loan Bank advances
$
675,000
Repurchase agreements
Federal funds purchased
Other short-term borrowings
695,000
55,800
Weighted
Average
Rate
0.92%
3.23%
0.17%
Amount
558,000
540,000
118,000
6,200
Total borrowings
$
1,425,800
2.02%
1,222,200
Maximum total outstanding at any
month-end
Average balance
Average rate
$
1,425,800
$
1,073,430
1,222,200
913,199
Weighted
Average
Rate
1.64%
3.68%
0.18%
0.00%
2.39%
Weighted
Average
Rate
3.42%
4.08%
0.07%
0.00%
3.58%
Amount
305,000
627,000
70,000
6,900
1,008,900
1,166,129
944,144
2.76%
3.69%
4.06%
At December 31, 2011, our borrowings were $1.43 billion, or 10.8% of our funding liabilities, compared to $1.22
billion, or 11.5% of our funding liabilities, at December 31, 2010. These borrowings are collateralized by our
mortgage-backed and collateralized mortgage obligation securities. We also hold $30.4 million in Federal Home
Loan Bank of New York (“FHLB”) capital stock as required collateral for our outstanding borrowing position with
the FHLB. Based on our financial condition, our asset size, the available capacity under our repurchase
agreement lines and with the FHLB, and the amount of securities available for pledging, we estimate our available
consolidated borrowing capacity to be approximately $3.33 billion as of December 31, 2011.
The following table shows the maturity or re-pricing of our borrowings at December 31, 2011.
Maturity or repricing period (in thousands)
3 months or less
3 - 12 months
1 - 3 years
Over 3 years
Total
$
590,800
175,000
275,000
385,000
1,425,800
Fair Value of Financial Instruments
Our AFS securities, which represent $6.51 billion of our total assets at December 31, 2011, are carried at fair
value. Held-for-sale loans totaling $392.0 million at December 31, 2011, are carried at the lower of cost or fair
value.
U.S. GAAP establishes a three-level fair value hierarchy that prioritizes techniques used to measure the fair value
of assets and liabilities, based on the transparency and reliability of inputs to valuation methodologies. An
instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. Therefore, for assets classified in Levels 1 and 2 of the hierarchy where inputs are principally
based on observable market data, there is less judgment applied in arriving at a fair value measurement. For
instruments classified within Level 3 of the hierarchy, judgments are more significant.
Where available, fair value of AFS securities is based upon valuations obtained from third-party pricing sources.
In order to ensure the fair valuations obtained are appropriate, we typically compare data from two or more
independent third-party pricing sources. If there is a large price discrepancy between the two pricing sources for
an individual security, we utilize industry market spread data to assist in determining the most appropriate
valuation.
The valuations provided by the pricing services are derived from quoted market prices or using matrix pricing.
Matrix pricing is a valuation technique consistent with the market approach of determining fair value. The market
73
approach uses prices and other relevant information generated by market transactions involving identical or
comparable assets. Matrix pricing is a mathematical technique used principally to value debt securities without
relying exclusively on quoted prices of specific securities, but rather on the securities’ relationship to other
benchmark quoted securities. Most of our securities portfolio is priced using this method, and such securities are
classified as Level 2.
Securities are classified within Level 3 of the valuation hierarchy in cases where there is limited activity or less
transparency around inputs to the valuation. In these cases, we determine fair value based upon in-depth analysis
of the cash flow structure and credit analysis for each position. Relative market spreads are utilized to discount
the cash flow to determine current market values, as well as analysis of relative coverage ratios, credit
enhancements, and collateral characteristics.
Our held-for-sale loans predominantly consist of variable rate SBA loans, which are fully guaranteed by the U.S.
Government. Accordingly, the cost of these loans typically approximates fair value. We validate the fair value of
these loans through our active market participation in the SBA secondary market, where we are one of the top
market makers in the industry.
We believe our valuation methods are appropriate and consistent with other market participants; however, the use
of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. For further discussion of the determination of fair value, see
Note 3 to our Consolidated Financial Statements.
Contractual Obligations
The following table presents our significant contractual obligations as of December 31, 2011:
Less than
1 year
$
3,656
765,800
12,825
782,281
$
Payments due by period
3 - 5
years
More than
5 years
1 - 3
years
7,763
275,000
26,053
308,816
6,981
235,000
20,049
262,030
-
150,000
22,210
172,210
Total
18,400
1,425,800
81,137
1,525,337
(in thousands)
Information technology contract
Borrowings
Operating leases
Total contractual cash obligations
Off-Balance Sheet Arrangements
In the normal course of business, we have various outstanding commitments and contingent liabilities that are not
reflected in the accompanying Consolidated Financial Statements.
We enter into transactions that involve financial instruments with off-balance sheet risks in the ordinary course of
business to meet the financing needs of our clients. Such financial instruments include commitments to extend
credit, standby letters of credit, and unused balances under confirmed letters of credit, all of which are primarily
variable rate. Such instruments involve, to varying degrees, elements of credit and interest rate risk.
Our exposure to credit loss in the event of nonperformance by the other party with regard to financial instruments
is represented by the contractual notional amount of those instruments. Financial instrument transactions are
subject to our normal credit policies and approvals, financial controls and risk limiting and monitoring procedures.
We generally require collateral or other security to support financial instruments with credit risk.
74
A summary of commitments and contingent liabilities is as follows:
(in thousands)
Unused commitments to extend credit
Financial standby letters of credit
Commercial and similar letters of credit
Other
Total
December 31,
2011
2010
$
$
436,006
220,667
15,036
942
672,651
512,410
199,846
11,663
770
724,689
Commitments to extend credit consist of agreements having fixed expiration or other termination clauses and may
require payment of a fee. Total commitment amounts may not necessarily represent future cash requirements.
We evaluate each client's creditworthiness on a case-by-case basis. Upon the extension of credit, we will obtain
collateral, if necessary, based on our credit evaluation of the counterparty. Collateral held varies but may include
deposits held in financial institutions, commercial properties, residential properties, accounts receivable, property,
plant and equipment and inventory. At December 31, 2011, our reserve for losses on unused commitments to
extend credit amounted to $596,000 and is included in accrued expenses and other liabilities in our Consolidated
Statements of Financial Condition.
We recognize a liability at the inception of the guarantee that is equivalent to the fee received from the guarantor.
This liability is amortized over the life of the guarantee on a straight-line basis. At December 31, 2011 and 2010,
we had deferred revenue for commitment fees paid for the issuance of standby letters of credit in the amounts of
$742,000 and $678,000, respectively.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client’s
obligation to a third party. Standby letters of credit are primarily used to support clients' business trade
transactions and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to clients. We had reserves for credit losses on standby letters of
credit totaling $444,000 and $471,000 at December 31, 2011 and 2010, respectively.
At December 31, 2011 and 2010, we had commitments to sell residential mortgage loans and the U.S.
government-guaranteed portion of SBA loans of $8.9 million and $4.1 million, respectively.
Capital Resources
As a New York state-chartered bank, we are required to maintain minimum levels of regulatory capital. These
standards generally are as stringent as the comparable capital requirements imposed on national banks. The
FDIC is also authorized to impose capital requirements in excess of these standards on individual banks on a
case-by-case basis.
We are required by FDIC regulations to maintain a minimum ratio of qualifying total capital to total risk-weighted
assets (including off-balance sheet items) of 8%, at least one-half of which must be in the form of Tier 1 capital,
and a ratio of Tier 1 capital to total risk-weighted assets of 4%. Tier 1 capital is generally defined as the sum of
core capital elements less goodwill and certain other deductions. Core capital includes common shareholders’
equity, non-cumulative perpetual preferred stock and minority interests in equity accounts of consolidated
subsidiaries. Supplementary capital, which qualifies as Tier 2 capital and counts towards total capital subject to
certain limits, includes allowances for loan losses, perpetual preferred stock, subordinated debt and certain hybrid
instruments.
We are also required to maintain a certain leverage capital ratio - the ratio of Tier 1 capital (net of intangibles) to
adjusted total assets. Banks that have received the highest rating of five categories used by regulators to rate
banks and are not anticipating or experiencing any significant growth must maintain a leverage capital ratio of at
least 3.0%. All other institutions must maintain a minimum leverage capital ratio of 4.0%.
75
For an institution to be considered “well capitalized” by the FDIC, it must maintain a minimum leverage capital ratio
of 5.0% and a minimum risk-based capital ratio of 10.0%, of which at least 6.0% must be Tier 1 capital.
The actual capital amounts and ratios presented in the following table demonstrate that we are “well capitalized”
under the capital adequacy guidelines outlined above:
(dollars in thousands)
As of December 31, 2011:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
As of December 31, 2010:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
Amount
Ratio
Required for Capital
Adequacy Purposes
Ratio
Amount
Required to be
Well Capitalized
Amount
Ratio
$
1,465,422
1,378,219
1,378,219
18.17%
17.08%
9.67%
$
1,030,517
962,650
962,650
15.21%
14.21%
8.62%
645,350
322,675
570,201
541,981
270,991
446,782
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
806,688
484,013
712,752
10.00%
6.00%
5.00%
677,476
406,486
558,477
10.00%
6.00%
5.00%
Liquidity
Liquidity is the measurement of our ability to meet our cash needs. Our objective in managing liquidity is to
maintain our ability to meet loan commitments and deposit withdrawals, purchase investments and pay other
liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity
management is guided by policies developed and monitored by our asset/liability management committee and
approved by our Board of Directors. The asset/liability management committee consists of, among others, our
Chairman, President and Chief Executive Officer, Vice-Chairman, Chief Operating Officer, Chief Financial Officer
and Treasurer. These policies take into account the marketability of assets, the source and stability of deposits,
our wholesale borrowing capacity and the amount of our loan commitments. For the years ended December 31,
2011, 2010 and 2009, our primary source of liquidity has been core deposit growth.
Additionally, we have borrowing sources available to supplement deposit flows. These borrowing sources include
the FHLB and securities sold under repurchase agreements. We also have access to the brokered deposit
market, through which we have numerous alternatives and significant capacity, if needed.
Credit availability at the FHLB is based on our financial condition, our asset size, and the amount of collateral we
hold at the FHLB. At December 31, 2011, our FHLB borrowings included $675.0 million in advances with an
average rate of 0.92% that mature by September 1, 2017.
Also, we have repurchase agreement lines with several leading financial institutions totaling $1.98 billion. At
December 31, 2011, we had $695.0 million of securities sold under repurchase agreements to five of these
institutions.
Based on our financial condition, our asset size, the available capacity under our repurchase agreement lines and
with the FHLB, and the amount of securities available for pledging, we estimate our available consolidated
capacity for additional borrowings to be approximately $3.33 billion at December 31, 2011.
76
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is defined as the sensitivity of income, fair values and capital to changes in interest rates, foreign
currency exchange rates, commodity prices and other relevant market prices and rates. The primary risk to which
we are exposed is interest rate movement inherent in our lending, investment management, deposit taking and
borrowing activities. Substantially all of our interest rate risk arises from these activities, which are entered into for
purposes other than trading.
The principal objective of asset/liability management is to manage the sensitivity of net income to changes in
interest rates. Asset/liability management is governed by policies approved by our Board of Directors. Our Board
of Directors has delegated the day-to-day oversight of this function to our asset/liability management committee.
Senior management and our Board of Directors, on an ongoing basis, review our overall interest rate risk position
and strategies.
Interest Rate Risk Management
Our asset/liability management committee seeks to manage our interest rate risk by structuring our balance sheet
to maximize net interest income while maintaining an acceptable level of risk exposure to changes in market
interest rates. The achievement of this goal requires a balance among liquidity, interest rate risk, and profitability
considerations. The committee meets regularly to review the sensitivity of assets and liabilities to interest rate
changes, deposit rates and trends, the book and market values of assets and liabilities, unrealized gains and
losses, purchase and sales activities, and the maturities of investments and borrowings.
We use various asset/liability strategies to manage and control the interest rate sensitivity of our assets and
liabilities. These strategies include pricing of loans and deposit products, adjusting the terms of loans and
borrowings and managing the deployment of our securities and short-term assets to manage the mismatches in
interest rate re-pricing.
To effectively measure and manage interest rate risk, we use simulation analysis to determine the impact on net
interest income under various interest rate scenarios. Based on these simulations, we quantify interest rate risk
and develop and implement appropriate strategies. At December 31, 2011, we used a simulation model to
analyze net interest income sensitivity to a parallel and sustained shift in interest rates derived from the current
treasury and LIBOR yield curves, in which the base market interest rate forecast was increased by 100, 200, and
300 basis points. Given the current low interest rate environment, including the Federal Funds rate and other
short-term interest rates, we did not analyze net interest income sensitivity to a downward market interest rate
forecast.
The following table indicates the sensitivity of projected annualized net interest income to the interest rate
movements described above at December 31, 2011:
(dollars in thousands)
Interest Rate Scenario:
Up 300 basis points
Up 200 basis points
Up 100 basis points
Base
Adjusted Net
Interest Income
Percentage
Change from Base
$
475,681
493,848
505,790
479,191
(0.73)
3.06
5.55
-
We also use a simulation model to measure the impact that market interest rate changes will have on the net
present value of assets and liabilities, which is defined as market value of equity. At December 31, 2011, we used
a simulation model to analyze the market value of equity sensitivity to a parallel and sustained shift in interest
rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market
interest rate forecast was increased by 100, 200, and 300 basis points. Given the current low interest rate
77
environment, including the Federal Funds rate and other short-term interest rates, we did not analyze the market
value of equity sensitivity to a downward market interest rate forecast.
The following table indicates the sensitivity of market value of equity at December 31, 2011 to the interest rate
movements described above (base case market value of equity is $1.78 billion):
(dollars in thousands)
Interest Rate Scenario:
Up 300 basis points
Up 200 basis points
Up 100 basis points
Base
Sensitivity
Percentage Change
from Base
$
(336,250)
(68,263)
95,555
-
(18.87)
(3.83)
5.36
-
The market value of equity sensitivity analysis assumes an immediate parallel shift in interest rates and yield
curves. The computation of prospective effects of hypothetical interest rate changes is based on numerous
assumptions, including relative levels of interest rates, asset prepayments, deposit decay and changes in re-
pricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results.
Further, the computations do not take into account any actions that we may undertake in response to future
changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For our Consolidated Financial Statements, see index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s principal executive officer and principal
financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
‘‘Exchange Act’’)) as of the end of the period covered by this report. Based on such evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the
Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act, including this report, is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding the required disclosure.
78
a) Management’s Report on Internal Control over Financial Reporting
The management of Signature Bank (the “Company”) is responsible for establishing and maintaining effective
internal control over financial reporting. Our system of internal control is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s
consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted
accounting principles.
Internal control over financial reporting includes procedures that pertain to the maintenance of records that, in
reasonable detail, accurately reflect transactions and dispositions of assets; provide reasonable assurances that
transactions are recorded to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures are made only in accordance with the authorization of
management and the Board of Directors; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect
on our consolidated financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of
human error and the circumvention of controls. Furthermore, because of changes in conditions, the effectiveness
of internal control may vary over time. Accordingly, internal control over financial reporting may not prevent or
detect misstatements on a timely basis. Since these limitations are known features of the financial reporting
process, however, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2011, management evaluated the effectiveness of internal control over financial reporting
based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, management believes that the
Company’s internal control over financial reporting as of December 31, 2011 is effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2011 has been audited by KPMG LLP,
the independent registered public accounting firm that has also audited the Company’s consolidated financial
statements as of and for the year ended December 31, 2011. The report of KPMG LLP on the effectiveness of the
Company’s internal control over financial reporting is included below.
79
b) Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Signature Bank and subsidiaries:
We have audited the internal control over financial reporting of Signature Bank and subsidiaries (Signature Bank)
as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Signature Bank’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Signature Bank’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Signature Bank and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated statements of financial condition of Signature Bank and subsidiaries as of
December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and our report
dated February 29, 2012 expressed an unqualified opinion on those consolidated financial statements.
(signed) KPMG LLP
New York, New York
February 29, 2012
80
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 25, 2012.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 25, 2012.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 25, 2012.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 25, 2012.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 25, 2012.
81
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
A. Financial Statements and Financial Statement Schedules
PART IV
(1) The Consolidated Financial Statements of the Registrant are listed and filed as part of this report on
pages F-1 to F-48. The Index to the Consolidated Financial Statements appears on page F-1.
(2) Financial Statement Schedules: All schedule information is included in the notes to the Audited
Consolidated Financial Statements or is omitted because it is either not required or not applicable.
B. Exhibit Listing
Exhibit No.
Exhibit
3.1 Restated Organization Certificate. (Incorporated by reference to Signature Bank’s Quarterly Report
on Form 10-Q for the period ended June 30, 2005.)
3.2 Certificate of Amendment, dated December 5, 2008, to the Bank's Restated Organization Certificate
with respect to Signature Bank’s Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, par
value $0.01 per share. (Incorporated by reference to Signature Bank’s Current Report on Form 8-K
filed on December 17, 2008.)
3.3 Amended and Restated By-laws of the Registrant. (Incorporated by reference to Signature Bank’s
Current Report on Form 8-K filed on October 17, 2007.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
4.2 Specimen Warrant (Incorporated herein by reference to Exhibit 4.2 of the Bank’s Form 8-A filed on
March 10, 2010.)
10.1 Signature Bank Amended and Restated 2004 Long-Term Incentive Plan. (Incorporated by reference
from Appendix A to the 2008 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on March 19, 2008.)
10.2 Amended and Restated Signature Bank Change of Control Plan. (Incorporated by reference to
Signature Bank’s Current Report on Form 8-K, filed with the Federal Deposit Insurance Corporation
on September 19, 2007.)
10.3 Outsourcing Agreement, dated January 1, 2004, by and between Bank Hapoalim, Signature Bank
and Signature Securities. (Incorporated by reference to Signature Bank’s Registration Statement on
Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17,
2004.)
10.4 Networking Agreement, effective as of April 18, 2001, between Signature Securities and Signature
Bank. (Incorporated by reference to Signature Bank’s Registration Statement on Form 10 or
amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.5 Signature Securities Group Corporation Customer Agreement, effective as of May 31, 2003, between
Bank Hapoalim and Signature Securities. (Incorporated by reference to Signature Bank’s
Registration Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance
Corporation on March 17, 2004.)
10.6 Signature Securities Group Corporation Customer Agreement, dated April 25, 2003, between Bank
Hapoalim and Signature Securities. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
10.7
Brokerage and Consulting Agreement, dated August 6, 2001, by and between Signature Bank and
Signature Securities. (Incorporated by reference to Signature Bank’s Registration Statement on
Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17,
2004.)
82
Exhibit No.
Exhibit
10.10 Lease for 1225 Franklin Avenue, dated April 5, 2002, between Franklin Avenue Plaza LLC and
Signature Bank. (Incorporated by reference to Signature Bank’s Registration Statement on Form 10
or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.11 Sublease for 1177 Avenue of the Americas, dated as of April 4, 2001, by and between Bank
Hapoalim and Signature Bank. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
10.13 Employment Agreement, dated March 22, 2004, between Signature Bank and Joseph J. DePaolo.
(Incorporated by reference to Signature Bank’s Registration Statement on Form 10 or amendments
thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.14 Master Agreement for the provision of Hardware Software and/or Services, dated as of September 9,
2005, between Fidelity Information Services, Inc. and Signature Bank. (Incorporated by reference to
Signature Bank’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.)
10.15 Warrant Agreement, dated March 10, 2010, between Signature Bank and American Stock Transfer &
Trust Company, LLC, as warrant agent (Incorporated herein by reference to Exhibit 4.1 of the Bank’s
Form 8-A filed on March 10, 2010.)
14.1 Code of Ethics (Incorporated by reference from Signature Bank’s 2004 Form 10-K, filed with the
Federal Deposit Insurance Corporation on March 16, 2005.)
21.1 Subsidiaries of Signature Bank.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SIGNATURE BANK
By: /s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
Date: February 29, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 29, 2012 by the following persons on behalf of the registrant in the capacities indicated.
Signature
Title
/s/ SCOTT A. SHAY
(Scott A. Shay)
/s/ JOHN TAMBERLANE
(John Tamberlane)
Chairman of the Board of Directors
Vice Chairman, Director
/s/ ERIC R. HOWELL
(Eric R. Howell)
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ KATHRYN A. BYRNE
(Kathryn A. Byrne)
/s/ ALFONSE M. D’AMATO
(Alfonse M. D’Amato)
/s/ ALFRED B. DELBELLO
(Alfred B. DelBello)
/s/ YACOV LEVY
(Yacov Levy)
/s/ JEFFREY W. MESHEL
(Jeffrey W. Meshel)
/s/ IVANKA TRUMP
(Ivanka Trump)
Director
Director
Director
Director
Director
Director
84
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Financial Condition as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2011, 2010, and 2009 . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2011,
2010, and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010, and 2009 . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Signature Bank:
We have audited the accompanying consolidated statements of financial condition of Signature Bank and
subsidiaries (Signature Bank) as of December 31, 2011 and 2010, and the related consolidated statements of
operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2011. These consolidated financial statements are the responsibility of Signature Bank’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Signature Bank and subsidiaries as of December 31, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
As discussed in note 4 to the consolidated financial statements, Signature Bank changed its method of evaluating
other-than-temporary impairments of debt securities due to the adoption of new accounting requirements issued
by the FASB, as of April 1, 2009.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Signature Bank’s internal control over financial reporting as of December 31, 2011, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 29, 2012 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
(signed) KPMG LLP
New York, New York
February 29, 2012
F-2
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks
Short-term investments
Total cash and cash equivalents
Securities available-for-sale (pledged $2,672,093 and $1,553,412 at
December 31,
2011
2010
$
34,083
6,071
40,154
31,558
14,741
46,299
December 31, 2011 and 2010)
6,512,855
5,249,286
Securities held-to-maturity (fair value $571,980 and $450,315 at
December 31, 2011 and 2010; pledged $352,865 and $337,453 at
December 31, 2011 and 2010)
Federal Home Loan Bank stock
Loans held for sale
Loans, net
Premises and equipment, net
Accrued interest and dividends receivable
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest-bearing
Interest-bearing
Total deposits
Federal funds purchased and securities sold under agreements
to repurchase
Federal Home Loan Bank advances
Other short-term borrowings
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Preferred stock, par value $.01 per share; 61,000,000 shares authorized; none
556,044
48,152
392,025
6,764,564
30,574
60,533
261,219
14,666,120
$
3,148,436
8,605,702
11,754,138
750,800
675,000
-
78,066
13,258,004
447,896
38,439
382,463
5,177,268
29,385
53,211
248,842
11,673,089
2,449,968
6,991,259
9,441,227
658,000
558,000
6,200
65,115
10,728,542
issued at December 31, 2011 and 2010
-
-
Common stock, par value $.01 per share; 64,000,000 shares authorized;
46,181,890 and 41,347,540 shares issued and outstanding
at December 31, 2011 and December 31, 2010
Additional paid-in capital
Retained earnings
Net unrealized gains (losses) on securities available-for-sale, net of tax
Total shareholders' equity
Total liabilities and shareholders' equity
462
954,833
423,032
29,789
1,408,116
14,666,120
$
413
689,035
273,511
(18,412)
944,547
11,673,089
See accompanying notes to Consolidated Financial Statements.
F-3
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
INTEREST AND DIVIDEND INCOME
Loans held for sale
Loans, net
Securities available-for-sale
Securities held-to-maturity
Other short-term investments
Total interest income
INTEREST EXPENSE
Deposits
Federal funds purchased and securities sold under
agreements to repurchase
Federal Home Loan Bank advances
Other short-term borrowings
Total interest expense
Net interest income before provision for loan losses
Provision for loan losses
Net interest income after provision for loan losses
NON-INTEREST INCOME
Commissions
Fees and service charges
Net gains on sales of securities
Net gains on sales of loans
Other-than-temporary impairment losses on securities:
Portion of loss recognized in other comprehensive income (before taxes)
Net impairment losses on securities recognized in earnings
Net trading income (loss)
Other income
Total non-interest income
NON-INTEREST EXPENSE
Salaries and benefits
Occupancy and equipment
Other general and administrative
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Dividends on preferred stock and related discount accretion (1)
Net income available to common shareholders
PER COMMON SHARE DATA
Earnings per share – basic (1)
Earnings per share – diluted (1)
Years ended December 31,
2010
2009
2011
$
3,772
333,395
223,129
18,403
1,817
580,516
4,020
264,898
180,543
15,254
1,815
466,530
2,786
213,357
157,228
11,401
1,363
386,135
91,100
87,963
85,398
22,324
7,305
-
120,729
459,787
51,876
407,911
9,058
15,022
14,387
4,054
(12,272)
10,183
(2,089)
319
1,287
42,038
114,537
16,303
51,884
182,724
267,225
117,699
149,526
-
24,010
9,698
1
121,672
344,858
46,372
298,486
9,063
14,119
25,367
6,054
(38,613)
24,437
(14,176)
124
2,097
42,648
99,728
14,861
50,307
164,896
176,238
74,187
102,051
-
$
149,526
102,051
27,921
10,420
1
123,740
262,395
42,715
219,680
9,572
13,280
8,683
3,648
(23,719)
22,397
(1,322)
(1,009)
1,780
34,632
86,836
14,042
49,007
149,885
104,427
41,701
62,726
12,203
50,523
$
$
3.43
3.37
2.49
2.46
1.32
1.30
(1)
The year ended December 31, 2009 includes the negative effect of the $10.2 million deemed dividend associated with
the difference between the redemption payment and the carrying value of the preferred stock repurchased from the
United States Department of the Treasury. See note 20 for further discussion.
See accompanying notes to Consolidated Financial Statements.
F-4
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Preferred
stock
Common stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders'
equity
Balance at December 31, 2008
$
109,314
352
534,458
116,707
(62,696)
698,135
Cumulative effect of change in accounting
for securities impairment, net of tax
of $3,594
Redemption of preferred stock (TARP)
Deemed dividend on preferred stock
(TARP)
Dividends on preferred stock (TARP)
Accretion of discount on preferred
stock (TARP)
Common stock issued
Stock options activity, net
Restricted stock activity, net
Other
Comprehensive income, net of tax:
Net income
Net change in unrealized gains and losses
on securities, net of tax of $(37,527)
Reclassification adjustment for net
gains on sales of securities included
in net income, net of tax of $3,848
Other-than-temporary losses on
securities related to noncredit
factors, net of tax of $9,926
Reclassification adjustment for other-
than-temporary losses on securities
related to credit factors included in
net income, net of tax of $(586)
Total comprehensive income, net of tax
-
(120,000)
10,232
-
454
-
-
-
-
-
-
(95)
-
-
-
52
127,278
2
1,465
5,335
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at December 31, 2009
$
-
Stock options activity, net
Restricted stock activity, net
Warrant auction costs (TARP)
Other
Comprehensive income, net of tax:
Net income
Net change in unrealized gains and losses
on securities, net of tax of $(29,990)
Reclassification adjustment for net
gains on sales of securities included
in net income, net of tax of $11,157
Other-than-temporary losses on
securities related to noncredit
factors, net of tax of $10,748
Reclassification adjustment for other-
than-temporary losses on securities
related to credit factors included in
net income, net of tax of $(6,235)
Total comprehensive income, net of tax
-
-
-
-
-
-
-
-
-
Balance at December 31, 2010
$
-
Common stock issued
Stock options activity, net
Restricted stock activity, net
Other
Comprehensive income, net of tax:
Net income
Net change in unrealized gains and losses
on securities, net of tax of $(48,013)
Reclassification adjustment for net
gains on sales of securities included
in net income, net of tax of $6,351
Other-than-temporary losses on
securities related to noncredit
factors, net of tax of $4,496
Reclassification adjustment for other-
than-temporary losses on securities
related to credit factors included in
net income, net of tax of $(922)
Total comprehensive income, net of tax
-
-
-
-
-
-
-
-
-
406
3
4
-
-
-
-
-
-
-
413
47
2
-
-
-
-
-
-
-
4,539
-
(10,232)
(1,817)
(454)
-
-
(5)
62,726
-
-
-
-
-
-
(4)
102,051
-
-
-
-
-
-
-
(5)
149,526
-
-
-
-
(4,539)
-
-
-
-
-
-
-
-
-
-
(120,095)
-
(1,817)
-
127,330
1,465
5,337
(5)
62,726
47,153
47,153
(4,835)
(4,835)
(12,471)
(12,471)
736
93,309
803,659
9,423
11,493
(315)
(4)
102,051
7,941
120,291
944,547
253,347
4,004
8,496
(5)
149,526
-
-
-
-
-
-
-
-
-
-
60,757
60,757
(8,036)
(8,036)
(5,687)
(5,687)
1,167
1,167
197,727
736
171,464
(36,652)
38,198
38,198
(14,210)
(14,210)
(13,689)
(13,689)
7,941
273,511
(18,412)
-
-
-
-
-
668,441
9,420
11,489
(315)
-
-
-
-
-
-
689,035
253,300
4,002
8,496
-
-
-
-
-
-
Balance at December 31, 2011
$
-
462
954,833
423,032
29,789
1,408,116
See accompanying notes to Consolidated Financial Statements.
F-5
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Years ended December 31,
2010
2011
2009
Net income
$
149,526
102,051
62,726
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for loan losses
Net impairment losses on securities recognized in earnings
Net amortization/accretion of premium/(discount)
Stock-based compensation expense
Net gains on sales of securities and loans
Purchases and originations of loans held for sale
6,111
51,876
2,089
90,712
8,496
5,783
46,372
14,176
73,856
9,332
5,395
42,715
1,322
36,318
5,455
(18,441)
(31,421)
(12,331)
(1,023,633)
(806,819)
(803,775)
Proceeds from sales and principal repayments of loans held for sale
947,198
762,835
636,980
Net increase in accrued interest and dividends receivable
Deferred income tax benefit
Net increase in other assets
Net increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available-for-sale ("AFS")
Proceeds from sales of securities AFS
(7,322)
(11,132)
(39,243)
12,951
169,188
(10,018)
(13,089)
(59,357)
(45,892)
47,809
(6,867)
(8,460)
(12,612)
54,729
1,595
(2,791,800)
(3,554,431)
(2,112,128)
480,399
778,286
378,442
923,609
Maturities, redemptions, calls and principal repayments on securities AFS
1,130,447
1,299,273
Purchases of securities held-to-maturity ("HTM")
Maturities, redemptions, calls and principal repayments on securities HTM
Net purchases of Federal Home Loan Bank stock
Net increase in loans
Net purchases of premises and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest-bearing deposits
Net increase in interest-bearing deposits
Net increase in secured short-term borrowings
Proceeds from the issuance of long-term borrowings
Repayment of long-term borrowings
Tax benefit from stock-based compensation
Issuance of common stock and exercise of options
Warrant auction costs (TARP)
Redemption of preferred stock (TARP)
Dividends paid on preferred stock (TARP)
Other
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Interest paid during the year
Income taxes paid during the year
Non-cash investing activities:
(166,843)
(192,601)
(119,465)
54,792
(9,713)
36,929
(14,533)
59,227
(5,495)
(1,639,172)
(902,662)
(930,138)
(7,300)
(3,366)
(3,976)
(2,949,190)
(2,553,105)
(1,809,924)
698,468
1,614,443
103,600
250,000
480,234
1,738,447
335,300
105,000
406,327
1,428,333
9,000
95,000
(150,000)
(227,000)
(145,000)
2,118
255,233
-
-
-
(5)
5,967
5,617
(315)
-
-
(4)
403
128,274
-
(120,095)
(1,817)
(4)
2,773,857
2,443,246
1,800,421
(6,145)
(62,050)
(7,908)
46,299
40,154
$
108,349
46,299
116,257
108,349
$
120,995
126,550
122,817
85,125
125,100
47,326
Transfer of loans to other real estate owned, at fair value
-
1,101
700
See accompanying notes to Consolidated Financial Statements.
F-6
SIGNATURE BANK
Notes to Consolidated Financial Statements
(1) Organization
Signature Bank and subsidiaries (“we,” “us” or the “Bank”) is a New York State chartered bank. On April 5, 2001,
the Bank received its charter from the New York State Banking Department (known as the New York State
Department of Financial Services as of October 3, 2011). The Bank commenced business on May 1, 2001.
Signature Securities Group Corporation (“SSG” or “Signature Securities”), a wholly-owned subsidiary of Signature
Bank, was incorporated on May 26, 2000 in the State of New York and is a registered broker and dealer in
securities under the Securities Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Bank have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and practices within the banking industry. In the opinion of
management, these financial statements have been prepared to reflect all adjustments necessary to present fairly
the financial position and results of operations as of the dates and for the periods shown. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) General Accounting Policy
The accompanying Consolidated Financial Statements are presented on the accrual basis of accounting.
(c) Management’s Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from those estimates.
The most significant estimates include the adequacy of the allowance for loan losses, valuation of securities, and
the evaluation of other-than-temporary impairment of securities. Current market conditions increase the risk and
complexity of the judgments involved in these estimates.
(d) Cash and Cash Equivalents
For the purpose of presentation in the Consolidated Statements of Cash Flows, we have defined cash and cash
equivalents to include cash and due from banks and short-term investments with original maturities of 90 days or
less. Short-term investments consist of Federal funds sold, interest-bearing deposits with banks and money
market mutual funds.
Cash and cash equivalents at December 31, 2011 consisted of cash and due from banks of $34.1 million, interest-
bearing deposits with banks of $2.4 million and money market mutual funds of $3.7 million. Cash and cash
equivalents at December 31, 2010 consisted of cash and due from banks of $31.6 million, interest-bearing
deposits with banks of $7.8 million and money market mutual funds of $6.9 million.
We are required by the Federal Reserve System to maintain non-interest bearing cash reserves equal to a
percentage of certain deposits. The reserve requirement amounted to $85.8 million and $68.3 million for the
periods that included December 31, 2011 and 2010, respectively.
F-7
(e) Securities Available-for-Sale and Securities Held-to-Maturity
The designation of a security as available-for-sale (“AFS”) is made at the time of acquisition. The AFS
classification includes debt and equity securities that are carried at estimated fair value. Unrealized gains or
losses on securities available-for-sale are included as a separate component of shareholders’ equity, net of tax
effect. Amortization of premiums and accretion of discounts are recognized using the level yield method.
Realized gains and losses on sales of securities are computed using the specific identification method and are
reported in non-interest income.
The designation of a security as held-to-maturity (“HTM”) is made at the time of acquisition. Securities that we
have the positive intent and ability to hold to maturity are classified as HTM and carried at amortized cost.
Amortization of premiums and accretion of discounts are recognized using the level yield method.
One of the significant estimates related to securities is the evaluation of securities for other-than-temporary
impairment. We regularly evaluate our securities to identify declines in fair value that are considered other-than-
temporary. Our evaluation of securities for impairments is a quantitative and qualitative process, which is subject
to risks and uncertainties. If the amortized cost of an investment exceeds its fair value, we evaluate, among other
factors, general market conditions, the duration and extent to which the fair value is less than amortized cost, the
probability of a near-term recovery in value, whether we intend to sell the security and whether it is more likely
than not that we will be required to sell the security before full recovery of our investment or maturity. We also
consider specific adverse conditions related to the financial health, projected cash flow and business outlook for
the investee, including industry and sector performance, operational and financing cash flow factors and rating
agency actions. Once a decline in fair value is determined to be other-than-temporary, for equity securities, an
impairment charge is recorded through current earnings based upon the estimated fair value of the security at time
of impairment and a new cost basis in the investment is established. For debt investment securities deemed to be
other-than-temporarily impaired on or after April 1, 2009, the investment is written down to fair value with the
estimated credit loss charged to current earnings and the noncredit-related impairment loss charged to other
comprehensive income. Prior to April 1, 2009, the full amount of other-than-temporary impairment on debt
securities was charged to current earnings. We changed our accounting policy beginning April 1, 2009 in order to
adopt new accounting requirements issued by the Financial Accounting Standards Board (“FASB”). If market,
industry and/or investee conditions deteriorate, we may incur future impairments.
Securities, other than securitized financial assets that are in an unrealized loss position, are reviewed at least
quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and
qualitative factors. The primary factors considered in evaluating whether a decline in value for these securities is
other-than-temporary include: (a) the length of time and extent to which the fair value has been less than cost or
amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating, and future
prospects of the issuer, (c) whether the debtor is current on contractually-obligated interest and principal
payments, and (d) whether we intend to sell or whether we will be required to sell these instruments before
recovery of their cost basis.
In performing our other-than-temporary impairment analysis for securitized financial assets with contractual cash
flows (asset-backed securities, collateralized debt obligations, commercial mortgage-backed securities and
mortgage-backed securities), we estimate future cash flows for each security based upon our best estimate of
future delinquencies, estimated defaults, loss severity, and prepayments. We review the estimated cash flows to
determine whether we expect to receive all originally expected cash flows. Projected credit losses are compared
to the current level of credit enhancement to assess whether the security is expected to incur losses in any future
period and therefore would be deemed other-than-temporarily impaired.
Equity securities, including FHLB stock, that are not quoted on an exchange and not considered to be readily
marketable are recorded at cost, less impairment (if any).
F-8
(f) Loans Held for Sale
Loans originated and held for sale in the secondary market are carried at the lower of cost or estimated fair value
in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to
current earnings. Gains or losses resulting from sales of loans held for sale, net of unamortized deferred fees and
costs, are recognized at the time of sale and are included in net gains on sales of loans on the Consolidated
Statements of Operations.
(g) Loans, Net
Loans are carried at the principal amount outstanding, less unearned discounts, net of deferred loan origination
fees and costs and the allowance for loan losses. Unearned income and net deferred loan fees and costs are
accreted into interest income over the loan term on a basis that approximates the level yield method.
The accrual of interest income is generally discontinued at the time a loan becomes 90 days delinquent based on
contractual terms. In the case of commercial loans, residential mortgages, and home equity lines of credit,
exceptions may be made if the loan has sufficient collateral value, based on a current appraisal, and is in process
of collection. In all cases, loans are placed on non-accrual status or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
Once a loan is placed on non-accrual status, our accounting policies are applied consistently, regardless of loan
type. All interest previously accrued but not collected for loans that are placed on non-accrual status is reversed
against interest income. Payments received on non-accrual loans are applied against the outstanding loan
principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Impaired loans include non-accrual loans and troubled debt restructured loans. Loans classified as troubled debt
restructurings include those loans where a borrower experiences financial difficulty and the Bank makes certain
concessionary modifications to contractual terms, such as a reduction of the stated interest rate or face amount of
the loan, a reduction of accrued interest, or an extension of the maturity date(s) at a stated interest rate lower than
the current market rate for a new loan with similar risk.
(h) Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to current earnings. The
allowance for loan losses is maintained at a level estimated by management to absorb probable losses inherent in
the loan portfolio and is based on management’s continuing evaluation of the portfolio, the related risk
characteristics, and the overall economic conditions affecting the loan portfolio. This estimation is inherently
subjective as it requires measures that are susceptible to significant revision as more information becomes
available.
Our methodology to determine the allowance for loan losses includes segmenting the loan portfolio into various
components and applying various loss factors to estimate the amount of probable losses. The largest segment of
our loan portfolio is comprised of credit-rated commercial loans, comprising 93.6% of our total loan portfolio,
excluding loans held for sale, as of December 31, 2011. Our credit-rated commercial loans include commercial
and industrial loans along with loans to commercial borrowers that are secured by real estate (commercial
property, multi-family residential property, 1-4 family residential property, and construction and land). For each
loan within this segment, a credit rating is assigned based on a review of specific risk factors including (i) historical
and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may affect the
borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv) nature of the
underlying collateral, if any, and (v) borrower’s history of payment performance.
When assigning a credit rating to a loan, we use an internal nine-level rating system in which a rating of one
carries the lowest level of credit risk and is used for borrowers exhibiting the strongest financial condition. Loans
rated one through six are deemed to be acceptable quality and are considered “Pass.” Loans that are deemed to
be of questionable quality are rated seven (special mention). Loans with adverse classifications (substandard or
doubtful) are rated eight or nine, respectively. A loan is considered substandard if it is inadequately protected by
the current net worth and paying capacity of the borrower, or of the collateral pledged. Substandard loans are
characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
F-9
Loans classified as doubtful have all of the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and improbable.
The outstanding amounts of credit-rated commercial loans are aggregated by credit rating, and we estimate the
allowance for losses for each credit rating using loss factors based on historical loss experience and qualitative
adjustments reflecting the current economic conditions and outlook for housing, employment, manufacturing, and
consumer spending. The economic adjustments reflect the imprecision that is inherent in the estimates of
probable loan losses, and are intended to ensure adequacy of the overall allowance amount. The loss factors
assigned to each credit rating are adjusted based on management’s judgment, along with certain qualitative
factors such as the trend and severity of problem loans that can cause the estimation of inherent losses to differ
from historical experience. Any change to an individual credit rating affects the amount of the related allowance.
Our internal review process results in the periodic review of assigned credit ratings to reflect changes in specific
risk factors. Commercial lines of credit are generally issued with terms of one year, and upon annual renewal our
lenders perform a full review of the specific risk factors to assess the appropriateness of the assigned credit
ratings. Furthermore, loans classified as special mention, substandard or doubtful are placed on our internal
watch list, and our lenders perform a credit rating review on a quarterly basis (special mention loans) or monthly
basis (substandard and doubtful loans). In addition, our Risk Management function, which reports directly to the
Risk Committee of our Board of Directors, performs periodic credit reviews that provide an independent evaluation
of the assigned credit ratings. These reviews generally cover, in aggregate, between 40-50% of the commercial
loan portfolio, including all commercial loans over $500,000 with adverse credit ratings, on an annual basis.
Additionally, our Risk Management function focuses its reviews on those loans with higher-risk attributes, such as
lines of credit with higher utilization percentages and loan facilities with delinquencies.
Our methodology to determine the allowance for loan losses for the non-rated segments of our loan portfolio is
based on historical loss experience and qualitative factors. Non-rated loans generally include commercial loans
with outstanding principal balances below $100,000, overdrafts, residential mortgages, and consumer loans. The
outstanding amounts of loans in each of these segments are aggregated, and we apply percentages based on
historical losses and qualitative factors by segment to estimate the required allowance for loan losses. Non-rated
loans comprise 6.4% of our total loan portfolio, excluding loans held for sale, as of December 31, 2011.
We consider all non-accrual loans to be impaired loans, and the related specific allowances for loan losses are
determined on an individual (non-homogeneous) basis. Factors contributing to the determination of specific
allowances on impaired loans include the creditworthiness of the borrower and, more specifically, changes in the
expected future receipt of principal and interest payments or, for collateral-dependent loans, the value of pledged
collateral. For impaired loans in excess of $300,000, a specific allowance is recorded when the carrying amount
of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate or, for
collateral-dependent loans, the fair value of collateral. For smaller impaired loans, in the absence of other factors
affecting the collectability of the loan, we generally determine the amount of specific allowance using estimated
loss percentages based on the amount of time the loan has been delinquent.
For economic reasons and to maximize the recovery of loans, we may work with borrowers experiencing financial
difficulties, and will consider modifications to a borrower’s existing loan terms and conditions that we would not
otherwise consider, commonly referred to as troubled debt restructurings (“TDRs”). We record an impairment loss
associated with TDRs, if any, based on the present value of expected future cash flows discounted at the original
loan’s effective interest rate or, if the loan is collateral dependent, based on the fair value of the collateral less
costs to sell. At the time of restructuring, we determine whether a TDR loan should accrue interest based on the
accrual status of the loan immediately prior to modification. A non-accrual TDR loan will be returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are
reasonably assured. Additionally, there should be a sustained period of repayment performance (generally a
period of six months) by the borrower in accordance with the modified contractual terms. In years after the year of
restructuring, the loan is not reported as a TDR loan if it was restructured at a market interest rate and it is
performing in accordance with its modified terms. Other TDRs are reported as such for as long as the loan
remains outstanding.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related allowance for loan losses. These regulatory agencies may require us to increase our provision for
loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
F-10
An increase in the allowance for loan losses required by these regulatory agencies could materially adversely
affect our financial condition and results of operations.
(i) Charge-off of Uncollectible Loans
Loan losses are charged-off in the period the loans, or a portion thereof, are deemed uncollectible. For collateral
dependent risk-rated commercial loans, charge-offs are recorded no later than when the Bank takes possession of
collateral, and charge-offs are generally measured as the excess of the loan carrying value over the estimated fair
value of the collateral, net of selling costs. Fair value is estimated based on credible, verifiable indicators of value
such as appraisals, evaluations, documented discussions with brokers, or recent sales or market listings of
comparable properties. In the case of other loan segments, including non-rated commercial loans, consumer
loans, and residential mortgages, charge-offs are generally recorded when a loan reaches 180 days of
delinquency unless there are extenuating circumstances that can be clearly evidenced. Such circumstances
include loans that are well secured and in process of collection along with loans undergoing extensive
restructuring/settlement discussions with the borrower.
(j) Loan Origination and Commitment Fees
Loan origination and commitment fees are deferred and amortized into interest income on a basis that
approximates the level yield method. Net commitment fees on revolving lines of credit are recognized in interest
income on the straight-line method over the period the revolving line is active. Any fees that are unamortized at
the time a loan is paid off or a commitment is closed are recognized into income immediately.
(k) Securitizations
The Bank purchases, securitizes and sells the government-guaranteed portions of U.S. Small Business
Administration (“SBA”) loans. When the Bank securitizes SBA loans, we may retain interest-only strips, which are
generally considered residual interests in the securitized assets. These SBA interest-only strips are accounted for
and classified as AFS securities. Gains and losses upon sale of the securitized SBA loans depend, in part, on our
allocation of the previous carrying amount of the loans to the retained interests. Previous carrying amounts are
allocated in proportion to the relative fair values of the loans sold and interests retained. The Bank uses an
internal valuation process to determine the fair value of its SBA interest-only strip securities.
The excess of cash flows expected to be received over the amortized cost of the retained interests is recognized
as interest income using the effective yield method. If the fair value of the retained interest has declined below its
carrying amount and there has been an adverse change in estimated cash flows of the underlying loans, then the
decline in fair value is considered to be other-than-temporary and the retained interest is written down to fair value
with a corresponding charge to earnings.
(l) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of
furniture, fixtures, and equipment is computed by the straight-line method over the estimated useful lives of the
related assets. Furniture and fixtures are normally amortized over seven years and equipment; computer
hardware and computer software are normally amortized over five years. Amortization of leasehold improvements
is computed by the straight-line method over their estimated useful lives or the terms of the leases, whichever is
shorter.
F-11
(m) Bank-owned Life Insurance
The Bank has purchased life insurance policies on certain employees. These Bank-owned life insurance (“BOLI”)
policies are carried at the amount that could be realized under our BOLI policies as of the date of the Consolidated
Statements of Financial Condition and are included in other assets. Increases in the carrying value are recorded
as “Other Income” in the Consolidated Statements of Operations and insurance proceeds received are generally
recorded as a reduction of the carrying value. The carrying value consists of cash surrender value of $61.8 million
at December 31, 2011, and $60.4 million at December 31, 2010, and deferred acquisition costs of $435,000 at
December 31, 2011, and $560,000 at December 31, 2010. Our investment in BOLI generated income of $1.9
million, $2.1 million, and $1.8 million for the years ended December 31, 2011, 2010, and 2009, respectively.
(n) Other Real Estate Owned
Other real estate (“ORE”) owned represents real estate acquired through foreclosure on loans secured by real
estate and is carried at the lower of cost or fair value, less estimated selling costs. ORE is included in other
assets. As of December 31, 2011 and 2010, our ORE totaled $566,000 and $1.7 million, respectively. Any write-
downs at the date of foreclosure are charged to the allowance for loan losses. Expenses incurred to maintain
ORE, unrealized losses resulting from write-downs after the date of foreclosure, and realized gains and losses
upon sale of the properties are included in other non-interest expense and other non-interest income, as
appropriate.
(o) Securities Sold Under Agreements to Repurchase
When we maintain effective control over the underlying securities, securities sold under agreements to repurchase
are accounted for as financings (rather than as sales) and the obligations to repurchase securities sold are
reflected as liabilities in the Consolidated Statements of Financial Condition at the amounts at which the securities
will be subsequently repurchased. All of our agreements have been accounted for as financings through
December 31, 2011. The dollar amount of securities underlying the agreements remains in the asset accounts,
although the securities underlying the agreements are delivered to the counterparties who arranged the
transactions. In certain instances, the counterparties may have sold, loaned, or disposed of the securities to other
parties in the normal course of their operations, and have agreed to resell to us substantially similar securities at
the maturity of the agreements.
(p) Income Taxes
Signature Bank files consolidated Federal and combined New York State and New York City income tax returns
with its subsidiaries, with the exception of Signature Preferred Capital, Inc. which files separately as a real estate
investment trust. Additionally, SSG files other state and local returns on a separate basis.
Income tax expense consists of current and deferred income tax expense (benefit). Deferred income tax expense
(benefit) is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and certain unused carry-forward deductions and credits. The realization of deferred tax assets is
assessed and if necessary, a valuation allowance is provided to reduce the asset to the amount that will more
likely than not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are expected to be recovered or settled
and carry-forward deductions and credits are expected to be utilized. The effect on deferred tax assets and
liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the
enactment date of the change.
(q) Stock-Based Compensation
We recognize compensation expense in our Consolidated Statement of Operations for all stock-based compensation
awards over the requisite service period with a corresponding credit to equity, specifically additional paid-in capital.
Compensation expense is measured based on grant date fair value and is included in salaries and benefits (non-
interest expense). The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. The fair value of restricted stock grants is measured based on the market price of the shares at
the date of grant.
F-12
(r) Earnings Per Common Share
Basic earnings per common share is computed by dividing net income available to common shareholders by the
weighted-average common shares outstanding during the year.
Diluted earnings per common share is computed using the same method as basic earnings per share, but includes
the potential dilutive effect of stock options outstanding and the unvested portions of restricted stock awards. The
dilutive effect is calculated using the treasury stock method.
(s) Segment Reporting
Public companies are required to report certain financial information about operating segments for which such
information is available and utilized by the chief operating decision maker in deciding how to allocate resources
and in assessing performance. Specific information to be reported for individual operating segments includes a
measure of segment profit and loss, certain specific revenue and expense items and segment assets. As
presented in Note 21, we have identified two operating segments, the Bank and Signature Securities.
(t) Derivatives
The Bank accounts for interest rate cap derivatives on the Consolidated Statements of Financial Condition at their
respective fair values. As of December 31, 2011, the Bank had no derivatives designated in any hedging
relationship that qualify for hedge accounting. Changes in the fair value of derivatives are recognized as trading
income (loss) in the Consolidated Statements of Operations.
(u) New Accounting Standards
In July 2010, the FASB issued Accounting Standards Update 2010-20, which amends ASC Topic 310
(Receivables) to require significant new disclosures about the credit quality of financing receivables and the
allowance for credit losses. The objective of the new disclosures is to improve financial statement users’
understanding of (1) the nature of an entity’s credit risk associated with its financing receivables, and (2) the
entity’s assessment of that risk in estimating its allowance for credit losses, as well as changes in the allowance
and the reasons for those changes. The disclosures are to be presented at the level of disaggregation that
management uses when assessing and monitoring the portfolio’s risk and performance (by portfolio segment).
The required disclosures include, among other things, a rollforward of the allowance for credit losses by portfolio
segment, as well as information about credit quality indicators and modified, impaired, non-accrual, and past due
loans. The disclosures related to period-end information (e.g., credit-quality information and the ending financing
receivables balance segregated by impairment method) are required in all interim and annual reporting periods
ending on or after December 15, 2010 (December 31, 2010 for the Bank). Disclosures of activity that occurs
during a reporting period (e.g., the rollforward of the allowance for credit losses by portfolio segment) will be
required in interim or annual periods beginning on or after December 15, 2010; disclosures of activity related to
TDRs are anticipated to be required in interim or annual periods ending after June 15, 2011 based on ASU 2011-
01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. We
adopted the applicable requirements for the period-ended December 31, 2010 and have provided the related
disclosures as required
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements,
which amends the provisions of ASC Topic 860 (Transfers and Servicing) related to whether or not the transferor
has maintained effective control over the transferred assets that affects the determination of whether the
transaction is accounted for as a sale or a secured borrowing. In the assessment of effective control, ASU 2011-
03 removed the criterion that requires transferors to have the ability to repurchase or redeem the financial assets
on substantially the agreed terms, even in the event of default by the transferee. Other criteria applicable to the
assessment of effective control have not been changed. This guidance is effective for prospective periods
beginning on or after December 15, 2011, or January 1, 2012 for the Bank. Early adoption is prohibited. We do
not expect the adoption of ASU 2011-03 to have a material impact on our Consolidated Financial Statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which expands existing disclosure
requirements found in ASC Topic 820 (Fair Value Measurement and Disclosures). This ASU is the result of efforts
to converge GAAP and International Financial Reporting Standards (“IFRSs”), and provides guidance on how fair
F-13
value should be measured and disclosed. This guidance is effective for interim and annual periods beginning after
December 15, 2011. Early adoption is prohibited. We do not expect the adoption of ASU 2011-04 to have a
material impact on our Consolidated Financial Statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends ASC Topic
220 (Comprehensive Income). The new guidance requires entities to report components of comprehensive
income in either (1) a single financial statement, where total net income and its components, total other
comprehensive income (OCI) and its components, and total comprehensive income are presented in a continuous
format, or (2) in two consecutive financial statements, where net income is reported in one statement, immediately
followed by a statement presenting OCI and its components and a total for comprehensive income. The earnings
per share computation is not affected by the new guidance. This guidance is effective for annual and interim
periods beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted.
We do not expect the adoption of ASU 2011-05 to have a material impact on our Consolidated Financial
Statements.
(3) Fair Value Measurements
The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. Fair value measurements are recorded on a recurring basis for certain assets
and liabilities when fair value is the measure for accounting purposes, such as investment securities classified as
available-for-sale and derivatives. Certain other assets and liabilities are measured at fair value on a non-
recurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence
of impairment.
U.S. GAAP establishes a three-level fair value hierarchy that prioritizes techniques used to measure the fair value
of assets and liabilities, based on the transparency and reliability of inputs to valuation methodologies. The three
levels are defined as follows:
•
•
•
Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities.
Accordingly, valuation of these assets and liabilities does not entail a significant degree of judgment.
Examples include most U.S. Government securities and exchange-traded equity securities.
Level 2 – Valuations are based on either quoted prices in markets that are not considered to be active or
significant inputs to the methodology that are observable, either directly or indirectly. Examples include
U.S. Agency securities, municipal bonds, corporate bonds, certain residential and commercial mortgage-
backed securities, deposits, and most structured notes.
Level 3 – Valuations are based on inputs to the methodology that are unobservable and significant to the
fair value measurement. These inputs reflect management’s own judgments about the assumptions that
market participants would use in pricing the assets and liabilities. Examples include certain commercial
loans, certain residential and commercial mortgage-backed securities, private equity investments, and
complex over-the-counter derivatives.
Valuation Methodology
The Bank has an established and well documented process for determining fair values. The Bank uses quoted
market prices, when available, to determine fair value and classifies such items as Level 1. In many cases, the
Bank utilizes valuation techniques, such as matrix pricing, to determine fair value, in which case the items are
classified as Level 2. Fair value estimates may also be based upon internally-developed valuation techniques that
use current market-based inputs such as discount rates, credit spreads, default and delinquency rates, and
prepayment speeds. Items valued using internal valuation techniques are classified according to the lowest level
input that is significant to the valuation, and are typically classified as Level 3.
We utilize independent third-party pricing sources to value most of our investment securities. Two independent
third-party pricing sources are employed to value positions and validate market values. If there is a large price
discrepancy between the two pricing services for an individual security, we utilize industry market spread data to
assist in determining the most appropriate fair value. In addition, the third-party pricing sources have an
established challenge process in place for all security valuations, which facilitates identification and resolution of
F-14
potentially erroneous prices. We believe that the prices received from our pricing sources are representative of
prices that would be received to sell the assets at the measurement date (exit prices) and are classified
appropriately in the hierarchy.
The valuations provided by the pricing services are derived from quoted market prices or using matrix pricing.
Matrix pricing is a valuation technique consistent with the market approach of determining fair value. The market
approach uses prices and other relevant information generated by market transactions involving identical or
comparable assets. Matrix pricing is a mathematical technique used principally to value debt securities without
relying exclusively on quoted prices of specific securities, but rather on the securities’ relationship to other
benchmark quoted securities. Most of our securities portfolio is priced using this method, and such securities are
classified as Level 2.
Securities are classified within Level 3 of the valuation hierarchy in cases where there is limited activity or less
transparency around inputs to the valuation. In these cases, the valuations are determined based upon an
analysis of the cash flow structure and credit analysis for each position. Relative market spreads are utilized to
discount the cash flow to determine current market values, as well as analysis of relative coverage ratios, credit
enhancements, and collateral characteristics.
Markets for Small Business Administration (“SBA”) interest-only strip securities are relatively inactive, with limited
observable secondary market transactions. Our SBA interest-only strip securities are classified as other debt
securities available-for-sale and reported at fair value, with changes in fair value recognized in accumulated other
comprehensive income or loss. The securities are valued using Level 3 inputs and had fair values of $70.1 million
at December 31, 2011 and $90.7 million at December 31, 2010. The decrease in fair value of the SBA interest-
only strip securities is attributed to the sale of a portion of our portfolio during the first and second quarters,
resulting in realized gains of $5.3 million and $2.1 million, respectively. The securities sold in the first and second
quarters had an amortized cost of $44.5 million and $16.0 million, and a fair value of $47.6 million and $15.2
million at December 31, 2010 and March 31, 2011, respectively. Since the cash flows of the SBA interest-only
strip securities are guaranteed by the U.S. Government, there is limited credit risk involved in the cash flows.
Therefore, the primary assumptions built into the pricing model to generate the projected cash flows used to
compute the fair values of the SBA interest-only strip securities are the discount yield and prepayment speeds.
The Bank determined the inputs to the discounted cash flow model based on historical performance and
information provided by brokers.
Our derivatives, at December 31, 2011, consisted of interest rate caps. At December 31, 2010, our derivatives
included interest rate caps and credit default swaps. The fair value of our interest rate caps is provided by a third
party and validated using third party inputs such as LIBOR, Swap and Treasury curves. The fair value of our
credit default swaps is determined by using externally-developed pricing models based on market observable
inputs. The fair values of our derivatives are classified as Level 2 measurements.
F-15
Financial Instruments Measured at Fair Value on a Recurring Basis
The following tables present the assets and liabilities carried at fair value as of December 31, 2011 and 2010,
classified according to the three-level valuation hierarchy:
(in thousands)
December 31, 2011
ASSETS
Securities available-for-sale:
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Commercial mortgage-backed securities
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Collateralized debt obligations
Other
Equity securities (1)
Total securities available-for-sale
Derivatives (interest rate caps)
Total assets
LIABILITIES
Derivatives (interest rate caps)
Total liabilities
December 31, 2010
ASSETS
Securities available-for-sale:
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Commercial mortgage-backed securities
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Collateralized debt obligations
Other
Equity securities (1)
Total securities available-for-sale
Derivatives (interest rate caps)
Total assets
LIABILITIES
Derivatives (interest rate caps and credit default swaps)
Total liabilities
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
38,649
1,141,619
697,542
2,968,904
786,670
322,026
336,623
-
-
119,415
14,356
6,425,804
9
6,425,813
10
10
25,538
1,065,450
646,627
2,084,165
791,803
191,063
203,416
-
-
120,296
15,167
5,143,525
55
5,143,580
78
78
-
-
-
-
5,844
-
-
7,116
2,757
70,091
1,243
87,051
-
87,051
-
-
-
-
-
-
5,675
-
-
4,562
4,874
90,650
-
105,761
-
105,761
-
-
38,649
1,141,619
697,542
2,968,904
792,514
322,026
336,623
7,116
2,757
189,506
15,599
6,512,855
9
6,512,864
10
10
25,538
1,065,450
646,627
2,084,165
797,478
191,063
203,416
4,562
4,874
210,946
15,167
5,249,286
55
5,249,341
78
78
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-16
Changes in Level 3 Fair Value Measurements
We recognize transfers between levels of the valuation hierarchy at the end of reporting periods. The following
table presents information for recurring assets classified by the Bank within Level 3 of the valuation hierarchy for
the years ended December 31, 2011, 2010 and 2009:
(in thousands)
Beginning balance
Transfers into Level 3
Transfers out of Level 3
Total gains or (losses) (realized/unrealized):
Included in earnings
Included in other comprehensive income
Sales
Ending balance
Securities Available-for-sale
2010
2009
2011
$
105,761
1,384
-
7,433
40,452
(67,979)
87,051
$
123,445
-
(3,332)
(12,192)
(2,160)
-
105,761
126,936
102,341
(79,965)
(702)
(25,165)
-
123,445
Assets Measured at Fair Value on a Non-recurring Basis
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value
on an on-going basis but are subject to fair value adjustments only in certain circumstances, such as when there is
an impairment or when an adjustment is required to reduce the carrying value to the lower of cost or fair value.
These assets may include collateral-dependent impaired loans, securities HTM that are other-than-temporarily
impaired, loans held-for-sale, other real estate owned, and certain long-lived assets.
The following tables present the assets measured at fair value on a non-recurring basis as of December 31, 2011
and 2010, classified according to the three-level valuation hierarchy:
(in thousands)
December 31, 2011
Held-to-maturity securities:
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
Collateralized mortgage obligations - Private
$
-
6,346
-
Other debt securities - CDO
Collateral-dependent impaired loans:
Commercial property
Construction and land
Commercial and industrial
Other real estate owned
Total assets
December 31, 2010
Held-to-maturity securities:
-
-
-
-
-
$
-
-
-
-
-
-
6,346
2,710
13,012
4,929
9,392
566
30,609
Collateralized mortgage obligations - Private
$
-
7,287
-
Other debt securities - CDO
Collateral-dependent impaired loans:
Commercial property
Construction and land
Commercial and industrial
Other real estate owned
Total assets
-
-
-
-
-
$
-
-
-
-
-
-
7,287
3,687
4,247
6,730
8,379
1,667
24,710
6,346
2,710
13,012
4,929
9,392
566
36,955
7,287
3,687
4,247
6,730
8,379
1,667
31,997
HTM securities for which other-than-temporary impairment losses were recognized during the current period are
reflected in the above table at their fair values based on the valuation methodology for investment securities, as
previously described. In accordance with FASB requirements, when debt securities are determined to be other-
than-temporarily impaired and management believes it is not more likely than not that we will be required to sell
F-17
the security before recovery of its amortized cost, the investment is written down through current earnings for the
impairment related to the estimated credit loss, while the noncredit related impairment loss is recognized in other
comprehensive income. During the year ended December 31, 2011, we recognized other-than-temporary
impairment totaling $1.7 million on one HTM debt security, for which we recognized the credit component
($503,000) in earnings and the noncredit component ($1.2 million) in other comprehensive income. During the
year ended December 31, 2010, we recognized other-than-temporary impairment totaling $3.5 million on one HTM
debt security with a carrying value of $3.9 million, for which we recognized the credit component of $1.5 million in
earnings and the noncredit component of $1.9 million in other comprehensive income. In 2009, we recognized a
$180,000 other-than-temporary impairment loss in earnings on an HTM debt security with a carrying value of $9.8
million.
Collateral-dependent impaired loans are reported at the fair value of the underlying collateral, which is determined
based on individual appraisals that may be discounted by management for unobservable factors resulting from its
knowledge of the property. Fair value adjustments for collateral-dependent impaired loans are recorded through a
specific allocation of the allowance for loan losses. During the years ended December 31, 2011, 2010 and 2009
we recorded fair value adjustments totaling $24.5 million, $13.7 million and $11.5 million, respectively, on
collateral-dependent impaired loans.
Other real estate owned represents real estate acquired as a result of foreclosure and is carried at the lower of
cost or fair value, less estimated selling costs. Fair value is determined through current appraisals, and fair value
adjustments are reported through a valuation allowance against the asset. During the years ended December 31,
2011 and 2010, we recorded fair value adjustments of $476,000 and $134,000, respectively, on other real estate
owned (none during the year ended December 31, 2009).
Other Fair Value Disclosures
The preparation of financial statements in accordance with U.S. GAAP requires disclosure of the fair value of
financial assets and liabilities, including those items that are not measured and reported at fair value on a recurring
or non-recurring basis. The methodologies for estimating the fair value of financial assets and liabilities that are
measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for
estimating the fair value of other items, which are carried on the Consolidated Statements of Financial Condition at
cost or amortized cost, are discussed below.
Fair value estimates for our financial instruments are made at a specific point in time, based on relevant market
information and information about the financial instrument. Fair value estimates are not necessarily representative
of our total enterprise value. Fair value estimates, methods and assumptions are set forth below.
The carrying amounts for cash and cash equivalents are reasonable estimates of fair value.
The redemption (par) value of Federal Home Loan Bank stock is a reasonable estimate of fair value.
Our loans held for sale consist of the government-guaranteed portion of SBA loans. The fair value of our loans
held for sale approximates cost, as these loans have adjustable rates and are backed by the full faith and credit of
the U.S. Government.
The estimated fair value of our loans, net, was based on the discounted value of contractual cash flows using
interest rates that approximated those offered for loans with similar maturities and collateral requirements to
borrowers of comparable credit worthiness. Since this method of estimating fair value is based on a comparison
to current market rates for similar loans, it does not fully incorporate an exit-value approach to estimating fair
value, which would also consider adjustments for other factors such as liquidity and credit quality. The fair value
estimate could be affected significantly by these other factors.
Deposits are mostly non-interest-bearing or NOW and money market deposits that bear floating interest rates that
are re-priced based on market considerations and the Bank’s strategy. Therefore, the carrying value equals fair
value. The carrying and fair values do not include the intangible fair value of core deposit relationships, which
comprise a significant portion of our deposit base. Management believes that the Bank’s core deposit
relationships represent a relatively stable, low-cost source of funding that has a substantial intangible value
separate from the deposit balances. Time deposits, 58.5% of which mature within one year, had a carrying value
F-18
of $895.6 million and an estimated fair value of $909.5 million at December 31, 2011. The estimated fair value is
based on the discounted value of contractual cash flows using interest rates that approximated those offered for
time deposits with similar maturities and terms.
The estimated fair value of borrowings is based on the discounted value of contractual cash flows using interest
rates that approximate those offered for borrowings with similar maturities and collateral requirements.
The following table summarizes the carrying amounts and estimated fair values of our financial assets and
liabilities:
(in thousands)
Financial assets
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Federal Home Loan Bank stock
Loans held for sale
Loans, net (1)
Derivatives
Total financial assets
Financial liabilities
Deposits (2)
Repurchase agreements
Federal funds purchased
Federal Home Loan Bank advances
Other short-term borrowings
Derivatives
Total financial liabilities
December 31, 2011
December 31, 2010
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
$
40,154
6,512,855
556,044
48,152
392,025
6,764,564
9
14,313,803
$
40,154
6,512,855
571,980
48,152
392,025
6,877,829
9
14,443,004
11,754,138
695,000
55,800
675,000
11,768,043
737,455
55,800
681,428
-
-
10
13,179,948
$
10
13,242,736
46,299
5,249,286
447,896
38,439
382,463
5,177,268
55
11,341,706
9,441,227
540,000
118,000
558,000
6,200
78
10,663,505
46,299
5,249,286
450,315
38,439
382,463
5,246,039
55
11,412,896
9,446,165
572,925
118,000
568,484
6,199
78
10,711,851
(1)
The fair values of loans do not include adjustments other than those related to market interest rates, such as
adjustments for liquidity and credit quality.
(2) The carrying and fair values of deposits do not include the intangible fair value of core deposit relationships.
(4) Securities
We generally invest in U.S. Government agency obligations, securities guaranteed by U.S. Government-
sponsored enterprises, and other investment grade securities. The fair value of these investments fluctuates
based on several factors, including general interest rate changes. For collateralized mortgage obligations and
certain other debt securities, fair value fluctuates based on credit quality, changes in credit spreads, and the
degree of market liquidity, among other factors.
F-19
The following table summarizes the components of our securities portfolios as of the dates indicated:
2011
Gross
Gross
2010
Gross
Gross
December 31,
(in thousands)
AVAILABLE-FOR-SALE
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
36,437
1,103,380
681,869
2,902,349
818,904
2,212
38,278
20,177
86,281
11,208
-
38,649
24,764
(39)
1,141,619
1,048,591
(4,504)
697,542
642,741
(19,726)
2,968,904
2,060,430
(37,598)
792,514
825,674
779
19,946
9,236
40,037
8,421
(5)
25,538
(3,087)
1,065,450
(5,350)
646,627
(16,302)
2,084,165
(36,617)
797,478
Commercial mortgage-backed securities
315,573
7,329
(876)
322,026
191,293
1,650
(1,880)
191,063
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Collateralized debt obligations
Other
Equity securities (1)
Total available-for-sale
HELD-TO-MATURITY
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Commercial mortgage-backed securities
Collateralized debt obligations
Other
Total held-to-maturity
345,324
28,216
6,487
204,002
3,076
-
-
(11,777)
(21,100)
(3,730)
336,623
7,116
2,757
7,938
(22,434)
189,506
15,708
6,458,249
$
166
176,665
(275)
(122,059)
15,599
6,512,855
207,363
28,608
6,992
228,949
15,475
5,280,880
$
3,286
20,013
122,560
358,859
11,419
358
5,309
34,240
556,044
$
145
846
5,647
16,808
4
1
-
762
24,213
-
-
(22)
(6)
(3,451)
-
(2,599)
(2,199)
(8,277)
3,431
20,859
128,185
375,661
7,972
359
2,710
32,803
571,980
3,796
9,465
83,858
279,497
12,838
12,495
6,342
39,605
447,896
981
(4,928)
203,416
-
-
3,443
-
84,493
124
533
2,534
8,881
46
26
-
889
13,033
(24,046)
(2,118)
4,562
4,874
(21,446)
210,946
(308)
(116,087)
15,167
5,249,286
-
-
(434)
(2,202)
(2,526)
(26)
(2,654)
(2,772)
(10,614)
3,920
9,998
85,958
286,176
10,358
12,495
3,688
37,722
450,315
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
Gross realized gains on sales of AFS securities for the years ended December 31, 2011, 2010 and 2009 were
$14.6 million, $25.4 million, and $8.9 million, respectively. Gross realized losses on sales of AFS securities for the
years ended December 31, 2011, 2010 and 2009 were $185,000, $40,000 and $244,000, respectively.
We use securities as collateral for debtor-in-possession deposit accounts in excess of FDIC insurance, clients’
treasury tax and loan deposits, public deposits, securities sold under agreements to repurchase and advances
from the Federal Home Loan Bank of New York. At December 31, 2011 and 2010, the total amount of collateral
we were required to pledge was $2.99 billion and $1.72 billion, respectively. In order to readily facilitate future
borrowing needs, we typically pledge securities in excess of our required collateral obligation. If necessary, the
excess collateral can be returned. At December 31, 2011, our total pledged securities had a fair value of $3.66
billion and a carrying value of $3.64 billion. At December 31, 2010, our total pledged securities had a fair value of
$3.62 billion and a carrying value of $3.59 billion.
Trade date security purchases totaling $6.4 million were included in accrued expenses and other liabilities at
December 31, 2010. We had no trade date security purchases at December 31, 2011.
During the year-ended December 31, 2011, we recognized other-than-temporary impairment losses totaling $12.3
million on ten debt securities that we do not intend to sell and for which it is not more likely than not that we will be
required to sell the security prior to recovery. We recognized the credit component of the other-than-temporary
impairment in earnings ($2.1 million) and the noncredit component in other comprehensive income ($10.2 million).
F-20
During the years ended December 31, 2011, 2010, and 2009, we recorded other-than-temporary impairment on
debt securities as follows:
(in thousands)
December 31, 2011
Available-for-sale
Held-to-maturity
Collateralized
Debt
Obligations
Pooled Trust
Preferred
Securities
Private
CMOs
Other
Collateralized
Debt
Obligations
Private
CMOs
Total
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
$
-
-
$
-
-
-
-
December 31, 2010
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
December 31, 2009
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
$
(8,743)
80
(8,663)
$
(19,586)
16,269
(3,317)
$
-
-
$
-
(9,931)
(10,973)
9,229
(702)
10,533
(440)
(9,328)
7,968
(1,360)
(6,830)
6,178
(652)
(1,226)
1,000
(226)
-
-
-
-
-
-
(1,718)
1,215
(503)
(3,454)
1,910
(1,544)
-
-
-
-
-
-
(12,272)
10,183
(2,089)
(38,613)
24,437
(14,176)
-
-
-
(2,815)
(23,719)
2,635
(180)
22,397
(1,322)
(1)
(2)
Represents the noncredit component impact of the other-than-temporary impairment on debt securities.
Represents the credit component impact of the other-than-temporary impairment on debt securities.
The following table presents a rollforward of activity related to the credit component of other-than-temporary
impairments recognized in pre-tax earnings on debt securities for which a portion of the impairment was
recognized in other comprehensive income at period-end:
(in thousands)
Year ended December 31, 2011
Cumulative credit component of other-than-temporary impairment losses
at beginning of period
Additions for the credit component on debt securities for which other-than-temporary
impairment was not previously recognized
Additions for the credit component on debt securities for which other-than-temporary
impairment was previously recognized
Cumulative credit component of other-than-temporary impairment losses
at end of period
Year ended December 31, 2010
Cumulative credit component of other-than-temporary impairment losses
at beginning of period
Additions for the credit component on debt securities for which other-than-temporary
impairment was not previously recognized
Additions for the credit component on debt securities for which other-than-temporary
impairment was previously recognized
Cumulative credit component of other-than-temporary impairment losses
at end of period
Year ended December 31, 2009
Credit component of all prior other-than-temporary impairment not reclassified to OCI in
conjunction with the cumulative effect transition adjustment as of April 1, 2009 (1)
Activity after April 1, 2009:
Additions for the credit component on debt securities for which other-than-temporary
impairment was not previously recognized
Cumulative credit component of other-than-temporary impairment losses
at end of period
$
43,267
1,286
803
$
45,356
$
29,091
233
13,943
$
43,267
$
27,769
1,322
$
29,091
(1)
As of April 1, 2009, we had securities with $35.9 million of other-than-temporary impairment previously recognized in
earnings, of which $27.8 million represented the credit component and $8.1 million represented the noncredit
componentthat was reclassified back to OCI through a cumulative-effect type adjustment ($4.5 million, net of tax effect).
F-21
For the periods ended December 31, 2011, 2010, and 2009, our securities for which other-than-temporary
impairment has been recorded, where a portion of the loss was specifically related to credit, consisted of
collateralized debt obligations (“CDOs”), private collateralized mortgage obligations (“CMOs”), pooled trust
preferred securities, and certain securities classified as other debt securities. When estimating the portion of loss
attributable to credit, we use a discounted cash flow model that considers credit enhancement and structural
protection. The estimation of cash flow incorporates numerous assumptions including default rates, severity
estimates, recovery rates, prepayment speeds and structural enhancement characteristics. Assumptions will vary
based upon the specific underlying characteristics and collateral profiles of the underlying securities. Specifically,
assumptions will be determined based upon collateral vintage, borrower characteristic, geographical data and
payment performance. Market data and third-party inputs are utilized to validate assumptions. Subsequent
assessments may result in additional estimated credit losses on previously impaired securities. These additional
estimated credit losses are recorded as reclassifications from the portion of other-than-temporary impairment
previously recognized in other comprehensive income to earnings in the period of such assessments.
In our evaluation of CDOs and CMOs for other-than-temporary impairment, we evaluated the collateral
performance and structural credit enhancements for each security. During the year ended December 31, 2011,
seven CMOs classified as AFS were deemed to have other-than-temporary impairment totaling $9.3 million, of
which $1.4 million was due to estimated credit losses and charged to earnings, and $7.9 million was recognized in
other comprehensive income. Additionally, one CDO classified as HTM was deemed to have other-than-
temporary impairment totaling $1.7 million, of which $503,000 was due to estimated credit losses and charged to
earnings, and $1.2 million was recognized in other comprehensive income. During 2010, three CDOs and five
CMOs classified as AFS were deemed to have other-than-temporary impairment totaling $8.7 million and $6.8
million, respectively, of which $8.7 million and $652,000 was due to estimated credit loss and was charged to
earnings, respectively, and $80,000 and $6.2 million was recognized in other comprehensive income, respectively.
Additionally, one CDO classified as HTM was deemed to have other-than-temporarily impaired totaling $3.5
million, of which $1.6 million was due to estimated credit loss and was charged to earnings and $1.9 million was
recognized in other comprehensive income. Six CMOs classified as AFS were deemed to have other-than-
temporary impairment during 2009, of approximately $11.0 million, of which $400,000 was due to estimated credit
losses and charged to earnings, and $10.5 million was recognized in other comprehensive income.
In our evaluation of bank-collateralized pooled trust preferred securities for other-than-temporary impairment, we
considered various annual default scenarios. Additionally, the collateral was reviewed to determine if additional
bank issuers should be assumed to be an immediate default or would cure (resume paying interest) based on
Fitch credit scoring, TARP participation, ratio of non-performing assets to tangible common equity and loan loss
reserves, capital levels, and FDIC quarterly trends. Based on this review, we assumed that certain bank issuers
on our watch list will default and others will cure in the future. Utilizing our assumptions, we then discounted the
cash flows to assess the amount of credit loss. During the year ended December 31, 2010, six bank-collateralized
pooled trust preferred securities classified as AFS were deemed to have other-than-temporary impairment totaling
$19.6 million, of which $3.3 million was due to estimated credit loss and was charged to earnings, and $16.3
million was recognized in other comprehensive income. During the year ended December 31, 2009, three bank-
collateralized pooled trust preferred securities classified as AFS were deemed to have other-than-temporary
impairment totaling $11.1 million, of which $702,000 was due to estimated credit losses and charged to earnings,
and $10.4 million was recognized in other comprehensive income. We did not recognize any other-than-
temporary impairment on our pooled trust preferred securities during 2011.
In our evaluation of other debt securities for other-than-temporary impairment, we reviewed the collateral
performance and market considerations and assumptions in conjunction with any credit enhancements for each
security. During the year ended December 31, 2011, two AFS securities classified within other debt securities was
deemed to have other-than-temporary impairment totaling $1.2 million, of which $225,000 was due to estimated
credit loss and charged to earnings and $1 million was recognized in other comprehensive income. We did not
recognize any other-than-temporary impairment within other debt securities during 2010 or 2009.
F-22
The following table presents information regarding AFS securities, categorized by type of security and length of
time that individual securities have been in a continuous unrealized loss position at the dates indicated.
Unrealized losses on other-than-temporarily impaired securities include noncredit impairments recorded in other
comprehensive income.
(in thousands)
December 31, 2011
Temporarily-impaired securities
Residential mortgage-backed securities:
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
27,416
(34)
182
(5)
27,598
(39)
165,195
555,067
143,216
(4,391)
(15,081)
(4,028)
13,321
26,984
107,134
(113)
(4,645)
(17,329)
178,516
582,051
250,350
(4,504)
(19,726)
(21,357)
Commercial mortgage-backed securities
40,697
(535)
19,798
(341)
60,495
(876)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
140,568
(3,686)
-
36,005
-
-
(509)
-
60,490
2,627
61,028
8,581
(8,091)
(4,008)
(9,680)
(275)
201,058
2,627
97,033
8,581
(11,777)
(4,008)
(10,189)
(275)
Total temporarily-impaired securities
1,108,164
(28,264)
300,145
(44,487)
1,408,309
(72,751)
Other-than-temporarily impaired securities
Collateralized mortgage obligations - private
3,847
(1,651)
29,897
(14,590)
33,744
(16,241)
Other debt securities:
Pooled trust preferred securities
Collateralized debt obligations
Other
-
-
-
-
-
-
4,489
2,757
9,833
Total other-than-temporarily impaired securities
3,847
(1,651)
46,976
(17,092)
(3,730)
(12,245)
(47,657)
4,489
2,757
9,833
50,823
(17,092)
(3,730)
(12,245)
(49,308)
Total temporarily-impaired and other-than-
temporarily impaired securities
$
1,112,011
(29,915)
347,121
(92,144)
1,459,132
(122,059)
December 31, 2010
Temporarily-impaired securities
Residential mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
$
3,420
(4)
248,698
(3,087)
269,934
478,160
203,558
(5,184)
(16,172)
(3,991)
79
51
15,247
20,363
(1)
-
(166)
(130)
147,661
(28,100)
3,499
248,749
285,181
498,523
351,219
(5)
(3,087)
(5,350)
(16,302)
(32,091)
Commercial mortgage-backed securities
99,906
(1,572)
8,889
(308)
108,795
(1,880)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
91,964
(2,542)
-
61,454
6,757
-
(4,085)
(51)
51,051
1,607
27,884
8,260
(2,386)
(5,045)
(8,228)
(257)
143,015
1,607
89,338
15,017
(4,928)
(5,045)
(12,313)
(308)
Total temporarily-impaired securities
1,463,851
(36,688)
281,092
(44,621)
1,744,943
(81,309)
Other-than-temporarily impaired securities
Collateralized mortgage obligations - private
Other debt securities:
Pooled trust preferred securities
Collateralized debt obligations
Other
Total other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
-
-
-
-
-
-
-
-
-
-
29,374
(4,526)
29,374
(4,526)
2,955
4,874
12,017
49,220
(19,001)
(2,118)
(9,133)
(34,778)
2,955
4,874
12,017
49,220
(19,001)
(2,118)
(9,133)
(34,778)
$
1,463,851
(36,688)
330,312
(79,399)
1,794,163
(116,087)
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-23
The following table presents information regarding HTM securities, categorized by type of security and length of
time that individual securities have been in a continuous unrealized loss position at the dates indicated.
Unrealized losses on other-than-temporarily impaired securities include noncredit impairments recorded in other
comprehensive income.
(in thousands)
December 31, 2011
Temporarily-impaired securities
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Other debt securities:
Other
Total temporarily-impaired securities
Other-than-temporarily impaired securities
Collateralized mortgage obligations - private
Collateralized debt obligations
Total other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
December 31, 2010
Temporarily-impaired securities
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Other debt securities:
Commercial mortgage-backed securities
Other
Total temporarily-impaired securities
Other-than-temporarily impaired securities
Collateralized mortgage obligations - private
Collateralized debt obligations
Total other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
16,946
4,051
-
20,997
-
-
-
(22)
(6)
-
(28)
-
-
-
-
-
21,978
21,978
6,346
2,710
9,056
-
-
(2,199)
(2,199)
(3,451)
(2,599)
(6,050)
16,946
4,051
21,978
42,975
6,346
2,710
9,056
(22)
(6)
(2,199)
(2,227)
(3,451)
(2,599)
(6,050)
$
20,997
(28)
31,034
(8,249)
52,031
(8,277)
$
16,686
51,545
(434)
(2,202)
3,160
-
(1)
-
71,391
(2,637)
-
1,467
1,467
-
(996)
(996)
-
-
4,098
26,753
30,851
7,287
2,221
9,508
-
-
(25)
(2,772)
(2,797)
(2,526)
(1,658)
(4,184)
16,686
51,545
7,258
26,753
102,242
7,287
3,688
10,975
(434)
(2,202)
(26)
(2,772)
(5,434)
(2,526)
(2,654)
(5,180)
$
72,858
(3,633)
40,359
(6,981)
113,217
(10,614)
F-24
The contractual maturities of investments in AFS and HTM debt securities are summarized in the following table.
Expected maturities will differ from contractual maturities since borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
(in thousands)
AVAILABLE-FOR-SALE
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total available-for-sale debt securities
HELD-TO-MATURITY
Due after one year through five years
Due after five years through ten years
Due after ten years
Total held-to-maturity debt securities
December 31, 2011
Amortized Cost
Fair Value
$
88,005
24,993
373,815
5,955,728
6,442,541
$
$
14,085
27,573
$
514,386
556,044
95,858
25,181
370,988
6,005,229
6,497,256
15,182
29,045
527,753
571,980
The unrealized losses in our securities portfolio are primarily due to the prevailing interest rate environment, wider
credit spreads on securities, and reduced levels of liquidity in the mortgage and credit markets. Sharp declines in
residential home values, increased unemployment, a slowdown in consumer spending, and contraction in the
credit markets, among other factors, led to decreased market liquidity for certain assets, increased credit risk for
certain securities in our portfolio, and the corresponding widening of credit spreads.
In performing our other-than-temporary impairment analysis for private CMOs and other debt securities, which had
a total temporary unrealized loss position of $50.4 million at December 31, 2011, we estimated future cash flows
for each security based upon our best estimate of future delinquencies, estimated defaults, loss severity, and
prepayments. We reviewed the estimated cash flows to determine whether we expect to receive all originally
scheduled cash flows. Projected credit losses were compared to the current level of credit enhancement to
assess whether the security is expected to incur losses in any future period and therefore would be deemed other-
than-temporarily impaired at December 31, 2011. Based on our review, we have determined that the estimated
future cash flows were not less than amortized cost; therefore, the decline in fair value of these securities is
attributable to a substantial widening of interest rate spreads across market sectors related to the continued
illiquidity and uncertainty of the securities markets. Since we have no intent to sell and we believe it is not more
likely than not that we will be required to sell these investments before recovery of their amortized cost basis, we
do not consider these securities to be other-than-temporarily impaired as of December 31, 2011.
Continued deterioration in general market conditions could have a negative effect on the projected cash flows and
ultimate recoverability of our securities. If a security is deemed to be other-than-temporarily impaired, we are
required to write down the security to fair value. Losses on securities that become other-than-temporarily impaired
(where we do not intend to sell the security and it is not more likely than not that we will be required to sell the
security prior to recovery of the security’s amortized cost) are bifurcated with the credit portion of the loss
recognized in earnings and the noncredit loss portion of the impairment recognized in other comprehensive
income, net of tax. The private CMOs and other debt securities, with total unrealized losses of $21.4 million and
$29.0 million, respectively, at December 31, 2011, are the securities in our portfolio that are the most exposed to
impairment losses.
It is reasonably possible that the underlying collateral of these securities may perform at a level below our current
expectations, which may result in adverse changes in cash flows for these securities and potential other-than-
temporary impairment losses in the future. Events that may cause material declines in fair values for these
securities include, but are not limited to, the deterioration of credit metrics, higher default levels, further illiquidity,
or increased levels of losses in underlying collateral.
F-25
(5) Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (“FHLB”) of New York, Signature Bank is required to maintain a
specified minimum investment in the FHLB’s Class B capital stock. The minimum stock investment requirement is
the sum of the membership stock purchase requirement, determined on an annual basis at the end of each
calendar year, and the activity-based stock purchase requirement, determined on a daily basis.
At December 31, 2011 and 2010, Signature Bank was in compliance with the FHLB’s minimum investment
requirement with stock investments of $48.2 million and $38.4 million, respectively, carried at cost on the
Consolidated Statements of Financial Condition. Collateral pledged for outstanding FHLB borrowings at
December 31, 2011 and 2010 included $30.4 million and $25.1 million, respectively, of FHLB capital stock.
In performing our other-than-temporary impairment analysis of FHLB stock, we evaluated, among other things, (i)
the FHLB’s earnings performance, including the significance of any decline in net assets of the FHLB as compared
to the regulatory capital amount of the FHLB, (ii) the commitment by the FHLB to make dividend payments, and
(iii) the liquidity position of the FHLB. We do not consider this security to be other-than-temporarily impaired at
December 31, 2011.
(6) Loans Held for Sale
Loans held for sale at December 31, 2011 and 2010 were $392.0 million and $382.5 million, respectively. Gains
on sales associated with the securitization of pooled loans and sale of mortgage loans for the years ended
December 31, 2011, 2010 and 2009 amounted to $4.1 million, $6.1 million and $3.6 million, respectively.
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA loans. Most SBA loans have adjustable rates and float at a spread over
prime and reset monthly or quarterly. The guaranteed portions of SBA loans are backed by the full faith and credit
of the U.S. Government and therefore carry a 0% risk weight for regulatory capital purposes.
We utilize the services of SSG to act as agent for and consultant to the Bank on the purchase, assembly, and sale
of SBA loans and pools.
We warehouse loans for generally up to 180 days until there are sufficient loans with similar characteristics to
securitize the pool. We may strip excess servicing from loans with different coupons to create a pool at a common
rate. This process results in the creation of two assets: a par pool, which is sold to accredited investors, and an
interest-only strip, which we retain as an available-for-sale security. The interest-only strip represents the portion
of the coupon stripped from a loan.
F-26
(7) Loans, Net
The following table summarizes our loan portfolio as of the dates indicated:
(in thousands)
Mortgage loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Total mortgage loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Less:
Net deferred fees and costs
Allowance for loan losses
Net loans
December 31,
2011
December 31,
2010
$
3,003,428
2,218,053
259,418
198,375
63,775
5,743,049
1,098,805
11,837
1,110,642
(2,965)
(86,162)
6,764,564
$
1,716,248
1,799,162
265,746
192,027
115,195
4,088,378
1,146,110
13,086
1,159,196
(2,910)
(67,396)
5,177,268
As of December 31, 2011 and 2010, commercial and industrial loans include overdrafts of commercial deposit
accounts totaling $27.9 million and $28.1 million, respectively, and other consumer loans include overdrafts of
personal deposit accounts totaling $2.5 million and $3.1 million, respectively.
In order to assist us in managing credit quality, management views the loan portfolio by various segments and
classes of loans. For commercial loans, we assign individual credit ratings ranging from 1 (lowest risk) to 9
(highest risk) as an indicator of credit quality. These ratings are based on specific risk factors including (i)
historical and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may
affect the borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv)
nature of the underlying collateral, if any, and (v) borrower’s history of payment performance. Non-rated loans
generally include commercial loans with outstanding principal balances below $100,000, commercial overdrafts,
residential mortgages, and consumer loans.
F-27
The following table summarizes the recorded investment of our portfolio of commercial loans by credit rating as of
the dates indicated:
(in thousands)
December 31, 2011
Commercial loans secured by real estate:
Multi-family residential property
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2010
Commercial loans secured by real estate:
Multi-family residential property
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
pass
pass
Rating 1-4 Rating 5-6
special
mention
Rating 7
substandard
Rating 8
doubtful
Rating 9
Non-rated
Total
$
2,436,175
1,393,854
37,121
5,166
512,767
755,644
40,905
43,250
441,753
4,314,069
$
540,329
1,892,895
$
1,282,318
1,041,618
25,956
429,789
709,110
47,767
463
102,939
410,587
2,760,942
$
604,184
1,893,789
32,838
26,140
6,800
597
20,576
86,951
1,593
34,918
476
3,988
25,525
66,500
19,573
39,876
1,269
14,762
34,807
110,287
369
11,746
7,852
7,805
39,690
67,462
-
2,500
-
-
7,707
10,207
-
3,001,353
39
2,218,053
-
-
86,095
63,775
53,633
53,672
1,098,805
6,468,081
-
-
-
-
-
-
-
-
1,714,069
1,797,392
82,051
115,195
9,201
9,201
56,923
56,923
1,146,110
4,854,817
For consumer loans, including residential mortgages and home equity lines of credit, we consider the borrower’s
payment history and current payment performance as lead indicators of credit quality. A consumer loan is
considered non-performing generally when it becomes 90 days delinquent based on contractual terms, at which
time the accrual of interest income is discontinued. In the case of residential mortgages and home equity lines of
credit, exceptions are made if the loan has sufficient collateral value, based on a current appraisal, and is in
process of collection.
The following table summarizes the recorded investment of our portfolio of consumer loans by performance status
as of the dates indicated:
(in thousands)
December 31, 2011
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2010
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
172,792
198,026
11,501
382,319
187,909
191,576
12,567
392,052
2,606
349
336
3,291
-
451
519
970
175,398
198,375
11,837
385,610
187,909
192,027
13,086
393,022
Loans to related parties include loans to directors and their related companies and our executive officers. Such
loans are made in the ordinary course of business on substantially the same terms as loans to other individuals
and businesses of comparable risks. Related party loans were $6.1 million and $809,000 at December 31, 2011
and 2010, respectively, and all related party loans are current as to payments.
F-28
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
(in thousands)
December 31, 2011
Commercial loans
Past Due
30-89 Days
Past Due
90+ Days
Total
Past Due
Current
Total
Loans
Accruing
Loans Past
Due 90+ Days
Non-accruing
Loans
Loans secured by real estate:
Multi-family residential property
$
34,780
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
December 31, 2010
Commercial loans
3,589
6,755
-
8,100
1,547
1,635
62
56,468
$
Loans secured by real estate:
Multi-family residential property
$
15,149
Commercial property
1-4 family residential property
Construction and land
15,797
6,226
-
369
14,608
-
4,762
23,271
5,797
2,075
336
51,218
3,169
6,901
830
6,571
35,149
18,197
6,755
4,762
2,966,204
3,001,353
2,199,856
2,218,053
79,340
59,013
86,095
63,775
-
699
-
-
31,371
1,067,434
1,098,805
3,384
7,344
3,710
398
107,686
168,054
194,665
11,439
6,746,005
175,398
198,375
11,837
6,853,691
18,318
22,698
7,056
6,571
1,695,751
1,714,069
1,774,694
1,797,392
74,995
108,624
82,051
115,195
369
13,909
-
4,762
19,887
2,606
349
336
42,218
369
4,711
-
6,571
21,513
-
451
519
34,134
3,191
1,726
-
9,000
2,800
2,190
830
-
3,440
4,602
1,851
27
15,740
Commercial and industrial loans
13,635
24,953
38,588
1,107,522
1,146,110
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
5,868
156
240
57,071
$
4,602
2,302
546
49,874
10,470
2,458
786
106,945
177,174
189,569
12,300
5,140,629
187,644
192,027
13,086
5,247,574
Non-accrual loans at December 31, 2011 and 2010 totaled $42.2 million and $34.1 million, respectively. If all non-
accrual loans outstanding at December 31, 2011, 2010, and 2009 had been performing in accordance with their
original terms, we would have recorded interest income with respect to such loans of approximately $4.2 million,
$4.1 million, and $3.8 million for the years then ended, respectively. This compares to actual payments recorded
as interest income realized with respect to such loans of $363,000, $765,000, and $603,000 for the years ended
December 31, 2011, 2010, and 2009, respectively. As of December 31, 2011, there were no commitments to lend
additional funds on non-accrual loans.
Accruing loans past due 90 days or more at December 31, 2011 and 2010, totaled $9.0 million and $15.7 million,
respectively, excluding loans held for sale. At December 31, 2011, accruing loans past due 90 days or more
include $3.8 million of 1-4 family real estate loans that are well secured and in process of collection and a $1.9
million commercial loan that was paid in full during January 2012. At December 31, 2010, accruing loans past due
90 days or more include matured performing loans in the normal process of renewal ($519,000) and real estate
loans that are well secured and in process of collection ($3.7 million of 1-4 family, $2.8 million of multi-family, and
$1.4 million of commercial real estate).
Commercial loans (including commercial and industrial loans along with loans to commercial borrowers that are
secured by real estate) constitute a substantial portion of our loan portfolio. Substantially all of the real estate
collateral for the loans in our portfolio is located within the New York metropolitan area. As a result, our financial
condition and results of operations may be affected by changes in the economy and the real estate market of the
New York metropolitan area. A prolonged period of economic recession or other adverse economic conditions in
the New York metropolitan area, such as the one we are experiencing now, may result in an increase in
nonpayment of loans, a decrease in collateral value, and an increase in our allowance for loan losses.
F-29
(8) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31, 2011, 2010 and 2009 are as follows:
(in thousands)
Balance at beginning of year
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of year
December 31,
2010
55,120
46,372
(35,583)
1,487
67,396
2011
67,396
51,876
(35,393)
2,283
86,162
$
$
2009
36,987
42,715
(25,451)
869
55,120
The table below presents a summary by loan portfolio segment of our allowance for loan losses, loan loss
experience, and provision for loan losses for the periods indicated:
(in thousands)
For the year ended December 31, 2011
Balance at beginning of year
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of year
For the year ended December 31, 2010
Balance at beginning of year
Provision for loan losses
Loans charged off
Recoveries of loans previously charged off
Balance at end of year
Credit-rated
commercial
loans
Commercial
loans
Non-rated
Residential
mortgages
Consumer
loans
Total
$
56,212
51,635
(29,502)
508
78,853
$
$
50,141
34,101
(28,070)
40
56,212
$
8,352
(429)
(4,467)
1,498
4,954
3,024
10,525
(6,369)
1,172
8,352
1,472
447
(350)
-
1,569
1,216
688
(644)
212
1,472
1,360
223
(1,074)
277
786
739
1,058
(500)
63
1,360
67,396
51,876
(35,393)
2,283
86,162
55,120
46,372
(35,583)
1,487
67,396
The following table presents our allowance for loan losses and outstanding loan balances by loan portfolio
segment, based on the methodology followed in determining the allowance for loan losses:
(in thousands)
As of December 31, 2011
Allowance for loan losses:
Credit-rated
commercial
loans
Commercial
loans
Non-rated
Residential
mortgages
Consumer
loans
Total
Individually evaluated for impairment
$
4,651
Collectively evaluated for impairment
74,202
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
56,216
6,358,193
As of December 31, 2010
Allowance for loan losses:
Individually evaluated for impairment
$
8,011
Collectively evaluated for impairment
48,201
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
30,249
4,767,645
991
3,963
2,190
51,482
1,445
6,907
2,915
54,008
291
1,278
168
618
6,101
80,061
4,817
368,956
336
11,501
63,559
6,790,132
130
1,342
451
379,485
256
1,104
519
12,567
9,842
57,554
34,134
5,213,705
F-30
In determining whether a loan is impaired, we review the payment performance and, for all loan classes, we
consider a loan to be impaired once it is placed on non-accrual status. In addition, if a loan is restructured as
troubled debt (“TDR”) at a market rate at the TDR date, we consider the loan as impaired during the year of
restructuring. If that loan is performing in accordance with the modified terms, we do not consider the loan as
impaired in subsequent years. Other TDRs are reported as such for as long as the loan remains outstanding.
The following table summarizes the recorded investment, unpaid principal balance, and related allowance for our
impaired loans as of the dates indicated:
(in thousands)
With no related allowance recorded:
Commercial loans secured by real estate:
Commercial property
Construction and land
Multi-family residential property
1-4 family residential property
Commercial and industrial loans
Residential mortgages
Home equity lines of credit
Other consumer loans
With an allowance recorded:
Commercial loans secured by real estate:
Commercial property
Construction and land
Multi-family residential property
1-4 family residential property
December 31, 2011
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
December 31, 2010
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
$
32,062
32,062
3,191
1,590
1,269
24,645
4,203
-
-
2,639
2,821
-
-
3,191
1,590
1,269
24,645
4,203
-
-
2,639
2,821
-
-
-
-
-
-
-
-
-
-
208
202
-
-
2,511
3,750
369
-
8,545
1,200
-
-
2,200
2,821
-
-
2,511
3,750
369
-
8,545
1,200
-
-
2,200
2,821
-
-
-
-
-
-
-
-
-
-
164
210
-
-
Commercial and industrial loans
13,531
13,531
5,232
20,298
20,298
9,082
Residential mortgages
Home equity lines of credit
Other consumer loans
Total:
Commercial loans secured by real estate
Commercial and industrial loans
Residential mortgages
Home equity lines of credit
Other consumer loans
Total impaired loans
267
349
336
43,572
38,176
4,470
349
336
267
349
336
43,572
38,176
4,470
349
336
67
224
168
410
5,232
67
224
168
-
451
519
11,651
28,843
1,200
451
519
-
451
519
11,651
28,843
1,200
451
519
-
130
256
374
9,082
-
130
256
$
86,903
86,903
6,101
42,664
42,664
9,842
F-31
The following table summarizes the average recorded investment of impaired loans and interest income
recognized on impaired loans for the periods indicated:
(in thousands)
With no related allowance recorded:
Commercial loans secured by real estate:
Commercial property
Construction and land
Multi-family residential property
1-4 family residential property
Commercial and industrial loans
Residential mortgages
Home equity lines of credit
Other consumer loans
With an allowance recorded:
Commercial loans secured by real estate:
Commercial property
Construction and land
Multi-family residential property
1-4 family residential property
Commercial and industrial loans
Residential mortgages
Home equity lines of credit
Other consumer loans
Total:
Commercial loans secured by real estate
Commercial and industrial loans
Residential mortgages
Home equity lines of credit
Other consumer loans
Total
Years ended December 31,
2011
2010
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
8,446
2,031
857
254
11,257
2,366
-
-
7,850
4,131
-
58
19,915
53
444
470
23,627
31,172
2,419
444
470
$
58,132
490
26
9
13
326
23
-
-
-
-
-
-
-
-
-
5
538
331
23
-
-
892
502
750
74
-
3,423
240
-
-
6,108
9,495
755
50
21,763
-
561
406
17,734
25,186
240
561
406
44,127
-
-
-
-
138
-
-
-
-
-
-
-
88
-
-
-
-
226
-
-
-
226
For economic reasons and to maximize the recovery of loans, we may work with borrowers experiencing financial
difficulties, and will consider modifications to a borrower’s existing loan terms and conditions that we would not
otherwise consider, commonly referred to as TDR loans. Our TDR loans consist of those loans where we modify
the contractual terms of the loan, such as (i) a deferral of the loan’s principal amortization through either interest-
only or reduced principal payments, (ii) a reduction in the loan’s contractual interest rate or (iii) an extension of the
loan’s contractual term.
F-32
During the years ended December 31, 2011 and 2010, we recorded TDR loans as follows:
(dollars in thousands)
Commercial loans secured by real estate:
Commercial property
Multi-family residential property
Construction and land
Commercial and industrial loans
Residential mortgages
Total
December 31, 2011
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
December 31, 2010
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
9
1
1
22
6
39
$
20,803
1,221
1,231
21,452
1,744
$
46,451
20,792
1,221
1,250
20,075
1,933
45,271
-
-
-
7
1
8
-
-
-
9,851
1,200
11,051
-
-
-
10,309
1,200
11,509
There were no TDR loans recorded during the year ended December 31, 2009.
The following table summarizes how the TDR loans recorded during 2011 were modified:
(in thousands)
December 31, 2011
Deferred Principal
Amortization with
Rate Reduction
Deferred Principal
Amortization
Term
Extension
Rate
Reduction
Total
Commercial loans secured by real estate:
Commercial property
$
7,400
1-4 family residential property
Construction and land
Multi-family residential property
Commercial and industrial loans
-
-
1,221
454
Total
$
9,075
828
1,533
-
-
2,315
4,676
12,564
400
1,250
-
17,140
31,354
-
-
-
-
166
-
20,792
1,933
1,250
1,221
20,075
45,271
Our impaired loans at December 31, 2011 and 2010 include TDR loans totaling $46.5 million and $11.5 million,
respectively.
During the year of restructuring, we consider a TDR loan as impaired. In subsequent years, we do not consider
the loan as impaired if it was restructured at a market rate and continues to perform in accordance with its
modified terms. Other TDR loans are reported as such for as long as the loan remains outstanding. For all loans
classified as a TDR, we record an impairment loss, if any, based on the present value of expected future cash
flows discounted at the original loan’s effective interest rate, or, if the loan is collateral dependent, based on the
fair value of the collateral less costs to sell.
We had four TDR loans for which there was a payment default during the year ended December 31, 2011,
including two commercial and industrial loans totaling $350,000 and two residential mortgages totaling $1.4
million, one of which ($1.2 million) was restructured during 2010 and continues to be reported as a TDR loan as a
result of its non-performance.
For the years ended December 31, 2011 and 2010, we recorded interest income on impaired loans during the
period of impairment totaling $892,000 and $226,000, respectively; no interest income was recorded on impaired
loans during the period of impairment for the year ended December 31, 2009. If all impaired loans had been
performing in accordance with their original terms, we would have recorded interest income, with respect to such
loans, of approximately $5.1 million, $4.3 million, and $3.8 million for the years ended December 31, 2011, 2010,
and 2009, respectively. Average impaired loans for the years ended December 31, 2011, 2010 and 2009 totaled
$58.1 million, $44.1 million, and $44.5 million, respectively.
F-33
(9) Premises and Equipment
Premises and equipment are summarized as follows as of the dates indicated:
(in thousands)
Leasehold improvements
Furniture, fixtures and equipment
Less accumulated depreciation and amortization
Premises and equipment, net
December 31,
2011
2010
$
41,154
21,360
62,514
(31,940)
30,574
$
36,617
18,597
55,214
(25,829)
29,385
Depreciation and amortization expense amounted to $6.1 million, $5.8 million and $5.4 million for the years ended
December 31, 2011, 2010 and 2009, respectively.
(10) Deposits
The types of deposits are summarized as follows as of the dates indicated:
December 31,
(in thousands)
Non-interest-bearing demand
NOW and interest-bearing demand
Money market
Time deposits
Brokered time deposits
Total deposits
$
2011
3,148,436
643,130
7,066,932
837,842
57,798
11,754,138
$
2010
2,449,968
700,551
5,362,105
901,937
26,666
9,441,227
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2011 and 2010
were $694.4 million and $765.1 million, respectively. The related interest expense on these types of deposits for
the years ended December 31, 2011 and 2010 amounted to $13.6 million and $15.8 million, respectively.
At December 31, 2011, the scheduled maturities of time deposits are as follows:
(in thousands)
2012
2013
2014
2015
2016
Total time deposits
December 31, 2011
$
523,901
183,614
72,635
67,465
48,025
895,640
$
At December 31, 2011 and 2010, we had approximately $42.2 million and $13.4 million, respectively, in deposits
held by our directors and their related interests.
F-34
(11)
Incentive Savings Plan
We have a 401(k) program under which employees may make personal contributions of up to 60% of their pretax
earnings by means of payroll deductions. We match 100% of the first 3% of compensation contributed to the plan
and 50% of the next 4% of compensation contributed. Our contributions, included in salaries and benefits
expense, were $3.8 million, $2.4 million and $2.1 million, respectively, for the years ended December 31, 2011,
2010 and 2009. In addition, the Bank made a 2010 profit-sharing contribution to the 401(k) program on behalf of
eligible employees, resulting in an expense of $1.1 million (or 2% of compensation paid to eligible employee
participants) recorded during the year ended December 31, 2010.
(12) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
The following is a summary of Federal funds purchased and securities sold under agreements to repurchase at or
for the years ended:
(dollars in thousands)
Federal Funds Purchased
Year-end balance
Maximum amount outstanding at any month-end
Average outstanding balance
Weighted-average interest rate paid
Weighted-average interest rate at year-end
Securities Sold Under Agreements to Repurchase
Year-end balance
Maximum amount outstanding at any month-end
Average outstanding balance
Weighted-average interest rate paid
Weighted-average interest rate at year-end
December 31,
2011
2010
$
$
$
55,800
133,350
74,570
0.18%
0.17%
$
$
$
118,000
170,000
38,735
0.22%
0.18%
$
$
$
695,000
695,000
645,027
3.44%
3.23%
$
$
$
540,000
627,000
595,759
4.02%
3.68%
During the years ended December 31, 2011, 2010, and 2009, interest expense recorded on Federal funds
purchased and securities sold under agreements to repurchase totaled $22.3 million, $24.0 million, and $27.9
million, respectively.
At December 31, 2011, securities with a fair value of $804.7 million and a carrying value of $802.2 million were
pledged to meet our collateral requirement of $729.6 million on repurchase agreements. At December 31, 2010,
securities with a fair value of $621.7 million and a carrying value of $620.0 million were pledged to meet our
collateral requirement of $567.0 million on repurchase agreements.
F-35
The Federal funds purchased at December 31, 2011 were overnight transactions, while the securities sold under
repurchase agreements at December 31, 2011 have contractual maturities as follows:
(in thousands)
Amount
2012
2013
2014
2015
2016
2017
Total advances
$
$
150,000
50,000
145,000
205,000
20,000
125,000
695,000
(13) Federal Home Loan Bank Advances
As a member of the FHLB of New York, we are required to acquire and hold shares of capital stock in the FHLB in
an amount at least equal to 1% of the aggregate principal amount of our unpaid residential mortgage loans and
similar obligations at the beginning of each year, 4.5% of our borrowings from the Federal Home Loan Bank, or
0.3% of assets, whichever is greater. As of December 31, 2011, we were in compliance with this requirement.
The following is a summary of Federal Home Loan Bank (“FHLB”) advances at or for the years ended:
(dollars in thousands)
Year-end balance
Maximum amount outstanding at any month-end
Average outstanding balance
Weighted-average interest rate paid
Weighted-average interest rate at year-end
December 31,
2011
2010
$
$
$
675,000
675,000
347,567
2.10%
0.92%
$
$
$
558,000
558,000
273,474
3.55%
1.64%
During the years ended December 31, 2011, 2010, and 2009, interest expense recorded on FHLB advances
totaled $7.3 million, $9.7 million, and $10.4 million, respectively.
At December 31, 2011, securities with a fair value and carrying value of $1.17 billion were available to meet our
collateral requirement of $708.8 million on FHLB advances. At December 31, 2010, securities with a fair value
and carrying value of $1.59 billion were available to meet our collateral requirement of $257.3 million on FHLB
advances.
FHLB advances at December 31, 2011 have contractual maturities as follows:
(in thousands)
Amount
2012
2013
2014
2015
2016
2017
Total advances
F-36
$
$
560,000
65,000
15,000
-
10,000
25,000
675,000
Certain of the long-term FHLB advances are callable by the issuer for redemption prior to their scheduled maturity
date. Advances reported in the table above include $95.0 million in advances that are callable in 2012, which
have interest rates ranging from 2.85% to 4.59% and a weighted average interest rate of 4.03%.
(14) Other Short-Term Borrowings
The following table summarizes our Federal Reserve Treasury Tax and Loan borrowings at or for the years ended:
(dollars in thousands)
Year-end balance
Maximum amount outstanding at any month-end
Average outstanding balance
Weighted-average interest rate paid
Weighted-average interest rate at year-end
December 31,
2011
$
-
$
7,200
$
6,266
0.00%
0.00%
2010
$
$
$
6,200
14,717
5,231
0.01%
0.00%
(15)
Income Taxes
The following table presents the components of income tax expense for the periods indicated:
(in thousands)
FEDERAL
Current expense
Deferred income tax benefit
Total
STATE AND LOCAL
Current expense
Deferred income tax benefit
Total
TOTAL
Current expense
Deferred income tax benefit
Total
Years ended December 31,
2010
2011
2009
$
$
86,403
(5,969)
80,434
$
$
42,428
(5,163)
37,265
$
$
128,831
(11,132)
117,699
62,238
(7,684)
54,554
25,038
(5,405)
19,633
87,276
(13,089)
74,187
39,043
(5,974)
33,069
11,118
(2,486)
8,632
50,161
(8,460)
41,701
Management has concluded that a valuation allowance for deferred tax assets is not necessary at December 31,
2011 based on the Bank’s historical and anticipated future pre-tax earnings. We will continue to monitor the need
for a valuation allowance in future periods. Net deferred tax assets are reflected in other assets in the
Consolidated Statements of Financial Condition.
F-37
The following table presents the components of our net deferred tax asset as of the dates indicated:
(in thousands)
DEFERRED TAX ASSETS
Allowance for loan losses
Depreciation
Unearned compensation - restricted shares
Non-accrual interest
Write-down for other-than-temporary impairment of securities
Other
Total deferred tax assets recognized in earnings
Net unrealized losses on securities available-for-sale
Total deferred tax assets
DEFERRED TAX LIABILITIES
Prepaid expenses
Other
Total deferred tax liabilities recognized in earnings
Net unrealized gains on securities available-for-sale
Total deferred tax liabilities
Net deferred tax asset
December 31,
2011
2010
$
38,034
1,388
4,987
2,617
17,393
2,357
66,776
-
66,776
241
6
247
23,542
23,789
42,987
$
29,642
992
1,232
2,026
19,930
1,943
55,765
14,456
70,221
368
-
368
-
368
69,853
In April 2007, the State of New York enacted tax legislation that included, for companies with average assets in
excess of $8 billion, a four-year phase out of the tax benefit received on income from REIT subsidiaries. Since our
average assets are in excess of $8 billion, the income tax benefit on income from our REIT subsidiary was
completely eliminated beginning January 1, 2011. Accordingly, our effective tax rate for the year ended December
31, 2011 increased to 44.0%, compared to 42.1% for the prior year.
The following table presents a reconciliation of statutory federal income tax expense to combined effective income
tax expense for the periods indicated:
(in thousands)
Years ended December 31,
2011
2010
2009
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Statutory federal income tax expense
$
93,529
35%
61,683
35%
36,546
35%
State and local income taxes, net of
federal income tax benefit
Tax exempt income
Other items, net
Effective income tax expense
* - Less than 1%.
24,222
(443)
391
117,699
$
9%
*
*
44%
12,761
(731)
474
74,187
7%
*
*
42%
5,611
(674)
218
41,701
6%
(1%)
*
40%
We have not recognized any liabilities for unrecognized tax benefits related to uncertain tax positions. Our policy
is to recognize interest and penalties on income taxes in income tax expense. We remain subject to examination
for income tax returns for the years ending after December 31, 2007.
F-38
(16) Equity Incentive Plan
We have an equity incentive plan designed to assist us in attracting, retaining and motivating officers, employees,
directors and/or consultants and to provide us and our subsidiaries and affiliates with a stock plan providing
incentives directly related to increases in our shareholder value. Activity related to the equity incentive plan for the
years ended December 31, 2011 and 2010 is summarized as follows:
Shares available for future awards at beginning of the year
Options
Years ended December 31,
2011
1,461,118
2010
1,359,560
Granted
Forfeited or expired
Shares sold to cover minimum tax withholding and/or option price upon exercise
- -
- 500
233,554
73,301
Restricted stock
Granted
Forfeited
Shares sold to cover minimum tax withholding upon vesting
Shares available for future awards at end of the year
(290,849) (277,663)
3,668
3,838
- 141,329
1,247,238
1,461,118
Stock Options
As of December 31, 2011, all outstanding options were fully vested and exercisable. Accordingly, no additional
compensation cost will be expensed for these options. During the years ended December 31, 2011 and 2010, we
recognized no compensation expense for stock options. All options granted under the equity incentive plan expire
ten years from the date of grant. At the time of grant, all options vested in whole or in part over three years from
the date of issuance.
The following table summarizes information regarding the stock option component of the 2004 equity incentive
plan for the years ended December 31, 2011 and 2010:
Years ended December 31,
2011
2010
Shares
Underlying
Options
723,750
Weighted
Average
Exercise
Price
$ 17.27
Shares
Underlying
Options
1,070,500
Weighted
Average
Exercise
Price
$ 16.93
- -
15.79
(119,350)
- -
$ 17.57
604,400
- -
16.22
(346,250)
15.50
(500)
$ 17.27
723,750
Outstanding at beginning of the year
Granted
Exercised
Forfeited or expired
Outstanding at end of the year
The total intrinsic values of options exercised during the years ended December 31, 2011 and 2010 were $4.8
million and $8.7 million, respectively, and the cash received from those exercises was $1.9 million and $5.6
million. Available authorized common shares are issued for stock options exercised.
F-39
The following is a summary of outstanding and exercisable stock options as of December 31, 2011:
Exercise Price
$ 15.50
24.98
26.11
26.87
28.97
At
December 31, 2011
Weighted Average Remaining
Contractual Life
487,000
1,750
108,500
7,000
150
604,400
2.22 years
3.80 years
3.22 years
3.55 years
3.89 years
2.42 years
As of December 31, 2011, the intrinsic value of options outstanding and exercisable was $25.6 million.
Restricted Stock
The following table summarizes information regarding the restricted stock component of the 2004 equity incentive
plan for the years ended December 31, 2011 and 2010:
Years ended December 31,
2011
2010
Weighted
Average
Grant Price
Weighted
Average
Grant Price
Shares
Shares
Outstanding at beginning of the year
Granted
Vested
Forfeited
Outstanding at end of the year
619,300
290,849
$ 29.89
53.98
- -
48.11
(3,668)
$ 37.55
906,481
727,208
277,663
(381,733)
(3,838)
619,300
$ 27.22
38.22
30.81
34.47
$ 29.89
As of December 31, 2011, there was $22.8 million of total unrecognized compensation cost related to unvested
restricted shares that is expected to be recognized over a weighted-average period of 3.76 years. During the
years ended December 31, 2011, 2010, and 2009, we recognized compensation expense of $8.5 million, $9.3
million, and $5.5 million, respectively, for restricted shares. Included in compensation expense for the year ended
December 31, 2010 was $1.6 million from the December 13, 2010 accelerated vesting of 214,330 restricted
shares originally scheduled to vest on March 22, 2011. No restricted shares vested during the year ended
December 31, 2011. The total fair value of restricted shares that vested during the year ended December 31,
2010 was $16.7 million.
F-40
(17) Earnings Per Share
The following table shows the computation of basic and diluted earnings per common and common equivalent
share for the years ended December 31, 2011, 2010 and 2009:
(in thousands, except per share amounts)
Net income available to common shareholders
Common and common equivalent shares:
Weighted average common shares outstanding
Weighted average common equivalent shares
Weighted average common and common equivalent shares
Basic earnings per share
Diluted earnings per share
Years ended December 31,
2010
2011
2009
$
149,526
102,051
50,523
43,622
796
44,418
3.43
3.37
$
$
40,923
635
41,558
2.49
2.46
38,306
421
38,727
1.32
1.30
For the year ended December 31, 2009, outstanding options and warrants to purchase approximately 597,000
shares of the Bank’s common stock at a weighted average price of $30.21 were excluded from the computation of
diluted earnings per share because the exercise price exceeded the average market price of the Company’s
common shares. The outstanding options and warrants were primarily comprised of the 595,829 ten-year warrant
issued to the U.S. Treasury with a strike price of $30.21. There were no options or warrants excluded from the
computation of diluted earnings per share for the years ended December 31, 2011 and 2010.
(18) Commitments and Contingent Liabilities
In the normal course of business, we have various outstanding commitments and contingent liabilities that are not
reflected in the accompanying Consolidated Financial Statements.
(a) Lease Commitments
We have entered into noncancelable operating lease agreements for premises and equipment with expiration
dates through the year 2024. Our premises are used principally for private client offices and administrative
operations.
Rental expense for our premises for the years ended December 31, 2011, 2010, and 2009 amounted to $13.3
million, $12.1 million and $11.5 million, respectively.
The required minimum rental payments under the terms of the noncancelable leases at December 31, 2011 are
summarized as follows:
(in thousands)
2012
2013
2014
2015
2016
Thereafter
Total
F-41
December 31, 2011
$
12,825
13,164
12,889
11,542
8,507
22,210
81,137
$
(b) Information Technology Services Contract
On September 9, 2005, we entered into a Master Agreement for the Provision of Hardware, Software and/or
Services (the “Agreement”) with Fidelity Information Services, Inc. (“Fidelity”). Under the terms of the agreement,
Fidelity provides us with hardware, software and account processing services related to our core banking
applications. Particularly, Fidelity is providing us with enterprise banking services, core data processing services
and managed operations services. Additionally, Fidelity also provides us with implementation and training
services for the software and hardware provided under the Agreement.
We began making monthly payments on July 1, 2006, and during the years ended December 31, 2011, 2010, and
2009, we incurred contractual costs of $3.5 million, $3.4 million, and $3.2 million, respectively. During 2010, the
original 84 month contractual term was extended by 38 months, and the Agreement now terminates in August
2016. We have the right to terminate the Agreement upon a change of control of us, or a failure by Fidelity to
meet the terms of the Agreement, subject to certain penalties.
The required payments under the terms of the Agreement at December 31, 2011 are as follows:
(in thousands)
2012
2013
2014
2015
2016
Thereafter
Total
December 31, 2011
3,656
$
3,804
3,959
4,121
2,860
-
18,400
$
(c) Financial Instruments with Off-Balance Sheet Risks
In the normal course of business, we have various outstanding commitments and contingent liabilities that are not
reflected in the accompanying Consolidated Financial Statements.
We enter into transactions that involve financial instruments with off-balance sheet risks in the ordinary course of
business to meet the financing needs of our clients. Such financial instruments include commitments to extend
credit, standby letters of credit, and unused balances under confirmed letters of credit, all of which are primarily
variable rate. Such instruments involve, to varying degrees, elements of credit and interest rate risk.
Our exposure to credit loss in the event of nonperformance by the other party with regard to financial instruments
is represented by the contractual notional amount of those instruments. Financial instrument transactions are
subject to our normal credit policies and approvals, financial controls and risk limiting and monitoring procedures.
We generally require collateral or other security to support financial instruments with credit risk.
A summary of our commitments and contingent liabilities is as follows:
December 31,
2011
2010
$
$
436,006
220,667
15,036
942
672,651
512,410
199,846
11,663
770
724,689
(in thousands)
Unused commitments to extend credit
Financial standby letters of credit
Commercial and similar letters of credit
Other
Total
F-42
Commitments to extend credit consist of agreements having fixed expiration or other termination clauses and may
require payment of a fee. Total commitment amounts may not necessarily represent future cash requirements.
We evaluate each client's creditworthiness on a case-by-case basis. Upon the extension of credit, we will obtain
collateral, if necessary, based on our credit evaluation of the counterparty. Collateral held varies but may include
deposits held in financial institutions, commercial properties, residential properties, accounts receivable, property,
plant and equipment and inventory. At December 31, 2011, our reserve for losses on unused commitments to
extend credit amounted to $596,000 and is included in accrued expenses and other liabilities in our Consolidated
Statements of Financial Condition.
We recognize a liability at the inception of the guarantee that is equivalent to the fee received from the guarantor.
This liability is amortized to income over the term of the guarantee on a straight-line basis. At December 31, 2011
and December 31, 2010, we had deferred revenue for commitment fees paid for the issuance of standby letters of
credit in the amounts of $742,000 and $678,000, respectively.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of our clients’
obligations to third parties. Standby letters of credit are primarily used to support clients' business trade
transactions and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to clients. We had reserves for credit losses on standby letters of
credit totaling $444,000 and $471,000 at December 31, 2011 and 2010, respectively. During the years ended
December 31, 2011 and 2010, there were no charge-offs recorded on standby letters of credit and provisions for
losses totaling $(26,000) and $146,000, respectively, were reported in other general and administrative expenses
in our Consolidated Statements of Operations.
At December 31, 2011 and 2010, we had commitments to sell residential mortgage loans and SBA loans of $8.9
million and $4.1 million, respectively. Related fair values were insignificant at December 31, 2010 and 2009.
(d) Litigation
In the normal course of business, the Bank has been named as a defendant in various legal actions. In the
opinion of management, after reviewing such claims with legal counsel, resolution of these matters will not have a
material adverse impact on our financial condition, results of operations or liquidity.
(19) Regulatory Matters
We are subject to various regulatory capital requirements administered by state and Federal regulatory agencies.
Failure to meet minimum capital requirements can initiate certain mandatory—and possible additional
discretionary—actions by regulators that, if undertaken, could have a direct material adverse effect on our financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we
must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications
are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
In addition, we are subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of
1991 (“FDICIA”) which imposes a number of mandatory supervisory measures. Among other matters, FDICIA
established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Such
classifications are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of
applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire
other institutions. Under the provisions of FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier
1 and Total Capital ratios of 5%, 6% and 10%, respectively.
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum
amounts and ratios of total and Tier I capital to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). As of December 31, 2011 and 2010, we met all capital adequacy requirements to
which we were subject.
The most recent notification from the Federal Deposit Insurance Corporation categorized us as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we must
F-43
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have changed the Bank’s category.
Our actual capital amounts and ratios are presented in the table below.
(dollars in thousands)
As of December 31, 2011:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
As of December 31, 2010:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
Amount
Ratio
Required for Capital
Adequacy Purposes
Amount
Ratio
Required to be
Well Capitalized
Amount
Ratio
$
1,465,422
1,378,219
1,378,219
18.17%
17.08%
9.67%
$
1,030,517
962,650
962,650
15.21%
14.21%
8.62%
645,350
322,675
570,201
541,981
270,991
446,782
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
806,688
484,013
712,752
10.00%
6.00%
5.00%
677,476
406,486
558,477
10.00%
6.00%
5.00%
A depository institution, under federal law, is prohibited from paying a dividend if such dividend would cause the
depository institution to be “undercapitalized” as determined by federal bank regulatory agencies. The relevant
federal regulatory agencies and the state regulatory agency, the New York State Department of Financial
Services, also have the authority to prohibit a bank from engaging in what, in the opinion of such regulatory body,
constitutes an unsafe or unsound practice in conducting its business. We would require the approval of the
Superintendent of the New York State Department of Financial Services if the dividends we declared in any
calendar year were to exceed net profit for that year combined with retained net profits of the preceding two
calendar years, less any required transfer to paid-in capital. The term “net profit” is defined as the remainder of all
earnings from current operations plus actual recoveries on loan and investment and other assets, after deducting
from the total thereof all current operating expenses, actual losses, if any, and all federal and local taxes. The
payment of dividends could, depending upon our financial condition, be deemed to constitute such an unsafe or
unsound practice.
(20) Issuances of Preferred Stock and Warrant
On December 12, 2008, we completed the issuance of 120,000 shares senior preferred stock (with an aggregate
liquidation preference of $120.0 million) and a warrant to purchase 595,829 common shares to the U.S. Treasury
through the Troubled Asset Relief Program Capital Purchase Program (the “TARP Offering”). We began to use
the proceeds from the TARP Offering to fund our continued loan growth, and we believe our active lending to
credit-worthy borrowers during our participation in the program supported the U.S. Treasury’s stated goal of
increasing the flow of credit to both consumers and businesses.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) was enacted.
The Recovery Act included limitations and other provisions that have affected the manner in which participants in
the TARP Capital Purchase Program conduct their business. In light of the restrictions of the Recovery Act, on
March 31, 2009, we repurchased the preferred stock we issued to the U.S. Treasury for $120.0 million (the
aggregate liquidation preference of such preferred stock) plus accrued and unpaid dividends of $767,000. We
believe exiting the program was in our best interest, and we remain significantly above “well capitalized” as
defined for regulatory purposes. On March 12, 2010, the U.S. Treasury sold the ten-year warrant to purchase up
to 595,829 shares of our common stock that was issued in connection with the TARP Offering. We did not
repurchase any portion of the warrant auctioned by the U.S. Treasury.
F-44
The following table provides reconciliations of net interest income, non-interest income, non-interest expense, net
income, and total assets for reportable segments to the Consolidated Financial Statement totals:
(in thousands)
Net interest income:
Bank
2011
2010
2009
$
459,721
344,841
F-46
(22) Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the accumulated other comprehensive income (loss) for the periods
indicated:
(in thousands)
At or for the years ended December 31,
2010
2009
2011
Accumulated other comprehensive income (loss) at beginning of the year, net of tax
$
(18,412)
(36,652)
(62,696)
Cumulative effect of change in accounting for securities impairment
Tax effect
Net of tax
Net change in unrealized gains and losses on securities
Tax effect
Net of tax
Reclassification adjustment for net gains on sales of securities
included in net income
Tax effect
Net of tax
Other-than-temporary losses on securities related to noncredit factors
Tax effect
Net of tax
Reclassification adjustment for other-than-temporary losses on securities
related to credit factors included in net income
Tax effect
Net of tax
-
-
-
108,770
(48,013)
60,757
(14,387)
6,351
(8,036)
(10,183)
4,496
(5,687)
2,089
(922)
1,167
-
-
-
68,188
(29,990)
38,198
(25,367)
11,157
(14,210)
(24,437)
10,748
(13,689)
14,176
(6,235)
7,941
(8,133)
3,594
(4,539)
84,680
(37,527)
47,153
(8,683)
3,848
(4,835)
(22,397)
9,926
(12,471)
1,322
(586)
736
Accumulated other comprehensive income (loss) at end of the year, net of tax
$
29,789
(18,412)
(36,652)
F-47
(23) Quarterly Data (unaudited)
(dollars in thousands, except per share amounts)
March 31
June 30
September 30 December 31
2011 QUARTER
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Other-than-temporary impairment losses on
securities
Non-interest income excluding other-than-
temporary impairment losses on securities
Non-interest expense
Income before taxes
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
2010 QUARTER
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Other-than-temporary impairment losses on
securities
Non-interest income excluding other-than-
temporary impairment losses on securities
Non-interest expense
Income before taxes
Income tax expense
Net income
Basic earnings per common share
Diluted earnings per common share
$
133,068
29,396
103,672
12,322
91,350
15,067
143,834
30,846
112,988
12,851
100,137
10,248
148,819
30,959
117,860
12,122
105,738
8,821
154,795
29,528
125,267
14,581
110,686
7,902
(726)
(806)
(216)
(341)
15,793
44,669
61,748
27,164
$
34,584
$
$
0.84
0.82
11,054
45,220
65,165
28,548
36,617
0.89
0.87
9,037
45,704
68,855
30,505
38,350
0.84
0.83
8,243
47,131
71,457
31,482
39,975
0.87
0.85
$
108,780
112,477
120,131
125,142
30,023
78,757.00
11,233
67,524.00
11,127.00
31,387
81,090
11,128
69,962
10,259
31,026
89,105
10,433
78,672
11,257
29,236
95,906
13,578
82,328
10,005
(9,505)
(1,919)
(2,093)
(659)
20,632
39,744.00
38,907.00
16,813.00
$
22,094
$
$
0.54
0.54
12,178
41,715
38,506
16,237
22,269
0.54
0.54
13,350
42,463
47,466
20,104
27,362
0.67
0.66
10,664
40,974
51,359
21,033
30,326
0.74
0.72
F-48
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Exhibit No.
Exhibit Index
Exhibit
3.1 Restated Organization Certificate. (Incorporated by reference to Signature Bank’s Quarterly Report
on Form 10-Q for the period ended June 30, 2005.)
3.2 Certificate of Amendment, dated December 5, 2008, to the Bank's Restated Organization Certificate
with respect to Signature Bank’s Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, par
value $0.01 per share. (Incorporated by reference to Signature Bank’s Current Report on Form 8-K
filed on December 17, 2008.)
3.3 Amended and Restated By-laws of the Registrant. (Incorporated by reference to Signature Bank’s
Current Report on Form 8-K filed on October 17, 2007.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
4.2 Specimen Warrant (Incorporated herein by reference to Exhibit 4.2 of the Bank’s Form 8-A filed on
March 10, 2010.)
10.1 Signature Bank Amended and Restated 2004 Long-Term Incentive Plan. (Incorporated by reference
from Appendix A to the 2008 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on March 19, 2008.)
10.2 Amended and Restated Signature Bank Change of Control Plan. (Incorporated by reference to
Signature Bank’s Current Report on Form 8-K, filed with the Federal Deposit Insurance Corporation
on September 19, 2007.)
10.3 Outsourcing Agreement, dated January 1, 2004, by and between Bank Hapoalim, Signature Bank
and Signature Securities. (Incorporated by reference to Signature Bank’s Registration Statement on
Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17,
2004.)
10.4 Networking Agreement, effective as of April 18, 2001, between Signature Securities and Signature
Bank. (Incorporated by reference to Signature Bank’s Registration Statement on Form 10 or
amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.5 Signature Securities Group Corporation Customer Agreement, effective as of May 31, 2003, between
Bank Hapoalim and Signature Securities. (Incorporated by reference to Signature Bank’s
Registration Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance
Corporation on March 17, 2004.)
10.6 Signature Securities Group Corporation Customer Agreement, dated April 25, 2003, between Bank
Hapoalim and Signature Securities. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
10.7
Brokerage and Consulting Agreement, dated August 6, 2001, by and between Signature Bank and
Signature Securities. (Incorporated by reference to Signature Bank’s Registration Statement on
Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17,
2004.)
10.10 Lease for 1225 Franklin Avenue, dated April 5, 2002, between Franklin Avenue Plaza LLC and
Signature Bank. (Incorporated by reference to Signature Bank’s Registration Statement on Form 10
or amendments thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.11 Sublease for 1177 Avenue of the Americas, dated as of April 4, 2001, by and between Bank
Hapoalim and Signature Bank. (Incorporated by reference to Signature Bank’s Registration
Statement on Form 10 or amendments thereto, filed with the Federal Deposit Insurance Corporation
on March 17, 2004.)
Exhibit No.
Exhibit
10.13 Employment Agreement, dated March 22, 2004, between Signature Bank and Joseph J. DePaolo.
(Incorporated by reference to Signature Bank’s Registration Statement on Form 10 or amendments
thereto, filed with the Federal Deposit Insurance Corporation on March 17, 2004.)
10.14 Master Agreement for the provision of Hardware Software and/or Services, dated as of September 9,
2005, between Fidelity Information Services, Inc. and Signature Bank. (Incorporated by reference to
Signature Bank’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.)
10.15 Warrant Agreement, dated March 10, 2010, between Signature Bank and American Stock Transfer &
Trust Company, LLC, as warrant agent (Incorporated herein by reference to Exhibit 4.1 of the Bank’s
Form 8-A filed on March 10, 2010.)
14.1 Code of Ethics (Incorporated by reference from Signature Bank’s 2004 Form 10-K, filed with the
Federal Deposit Insurance Corporation on March 16, 2005.)
21.1 Subsidiaries of Signature Bank.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURE BANK
LIST OF SUBSIDIARIES AS OF FEBRUARY 29, 2012
(all subsidiaries are 100% owned by Signature Bank, except as indicated)
EXHIBIT 21.1
Subsidiary
Signature Securities Group Corporation
Signature Preferred Capital, Inc. (1)
State or Jurisdiction
Under Which Organized
New York
New York
(1) Signature Bank owns 100% of Signature Preferred Capital, Inc. ("SPC") common shares
and 88% of SPC preferred shares issued and outstanding as of February 29, 2012.
EXHIBIT 31.1
I, Joseph J. DePaolo, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended
December 31, 2011;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the Examining Committee of the registrant's
Board of Directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 29, 2012
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
CERTIFICATION
EXHIBIT 31.2
I, Eric R. Howell, certify that:
1.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended
December 31, 2011;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the Examining Committee of the registrant's
Board of Directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 29, 2012
/s/ ERIC R. HOWELL
Eric R. Howell
Executive Vice President and Chief Financial Officer
Certification
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of
title 18, United States Code), each of the undersigned officers of Signature Bank, a New York bank (the "Company"),
does hereby certify, to the best of such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2011 (the "Form 10-K") of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: February 29, 2012
Dated: February 29, 2012
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
/s/ ERIC R. HOWELL
Eric R. Howell
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of
the Form 10-K or as a separate disclosure document.
(This page has been left blank intentionally.)
C o r p o r at e I n f o r m at i o n
Board of Directors
Advisory Board
Stockholder Infor m ation
Scott A. Shay
Chairman of the Board
Signature Bank
Kathryn A. Byrne, CPA
Partner
WeiserMazars LLP
Alfonse M. D’Amato
Managing Director
Park Strategies, LLC
Former U.S. Senator
Alfred B. DelBello
Partner
DelBello Donnellan Weingarten
Wise & Wiederkehr, LLP
Former New York State
Lieutenant Governor
Joseph J. DePaolo
President & Chief Executive Officer
Signature Bank
Yacov Levy
Managing Partner
KerenTwo, LLC
Jeffrey W. Meshel
President
Paradigm Capital Corp.
John Tamberlane
Vice Chairman
Signature Bank
Ivanka M. Trump
Executive Vice President,
Development & Acquisitions
The Trump Organization
President, Ivanka Trump Collection
Senior M anagement
Scott A. Shay
Chairman of the Board of Directors
Joseph J. DePaolo
President & Chief Executive Officer
John Tamberlane
Vice Chairman
Mark T. Sigona
Executive Vice President &
Chief Operating Officer
Michael J. Merlo
Executive Vice President &
Chief Credit Officer
Eric R. Howell
Executive Vice President &
Chief Financial Officer
Peter S. Quinlan
Executive Vice President & Treasurer
Michael Sharkey
Senior Vice President &
Chief Technology Officer
Stanley Kreitman
Director, Medallion Financial Corp.
Director, KSW Corp.
Chairman of the Board,
CCA Industries, Inc.
Trustee,
North Shore LIJ Health System, Inc.
Lewis S. Ranieri
Founder & Managing Partner
Hyperion Partners & Ranieri Partners
John P. Sullivan
Managing Director
CapGen Financial
Locations
Manhattan
261 Madison Avenue
300 Park Avenue
71 Broadway
565 Fifth Avenue
950 Third Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Office)
Brooklyn
26 Court Street
84 Broadway
6321 New Utrecht Avenue
Queens
36-36 33rd Street, Long Island City
78-27 37th Avenue, Jackson Heights
8936 Sutphin Boulevard, Jamaica
Bronx
421 Hunts Point Avenue
Staten Island
2066 Hylan Boulevard
Westchester
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
Long Island
1225 Franklin Avenue, Garden City
279 Sunrise Highway, Rockville Centre
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
Signature Securities Group
Institutional Trading
(Services limited to institutional clients)
9 Greenway Plaza, Houston, TX 77046
Signature Bank
565 Fifth Avenue
New York, NY 10017
646-822-1500
866-SIG-LINE (866-744-5463)
www.signatureny.com
Counsel
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019
212-373-3000
Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154-0102
212-758-9700
Stock Transfer Agent & Registrar
American Stock Transfer
59 Maiden Lane
New York, NY 10038
212-936-5100
Stock Trading Information
The Bank’s common stock is traded on
the NASDAQ National Market under
the symbol SBNY.
Annual Meeting
The annual meeting of stockholders will
be held on Wednesday, April 25, 2012,
9:30 AM at:
The Roosevelt Hotel
45 East 45th Street
New York, NY 10017
212-661-9600
Form 10-K
A copy of Signature Bank’s Annual
Report on Form 10-K filed with the FDIC is
available without charge by download from
www.signatureny.com, or by written request to:
Signature Bank
Attention: Investor Relations
565 Fifth Avenue
New York, NY 10017
Certain statements in this Annual Report that are not
historical facts constitute “forward-looking statements”
within the meaning of the Private Securities Litigation
Reform Act of 1995 (the “Reform Act”). Such forward-
looking statements are based on the Bank’s current
expectations, speak only as of the date on which they
are made and are susceptible to a number of risks, un-
certainties and other factors. The Bank’s actual results,
performance and achievements may differ materially
from any future results, performance or achieve-
ments expressed or implied by such forward-looking
statements. For those statements, the Bank claims the
protection of the safe harbor for forward-looking state-
ments contained in the Reform Act. See “Private Securi-
ties Litigation Reform Act Safe Harbor Statement” and
“Part I, Item 1A. Business−Risk Factors,” appearing in
the Bank’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2011, included herein.
565 Fifth Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com