565 Fifth Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com
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2013 ANNUAL REPORT
C O M PA N Y P R O F I L E
C O R P O R AT E I N F O R M AT I O N
Signature Bank (NASDAQ:SBNY), member FDIC, is a full-service commercial bank with 27
private client offi ces located throughout the New York metropolitan area. Th e Bank primarily
serves privately owned businesses, their owners and senior managers. Signature Bank off ers 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.
In addition, Signature Bank’s wholly owned specialty fi nance subsidiary, Signature Financial LLC,
provides equipment fi nance and leasing along with taxi medallion and transportation fi nancing.
F I N A N C I A L H I G H L I G H T S
(in thousands)
Total assets
Total loans
Total deposits
2009
2010
2011
2012
2013
$ 9,146,112
11,673,089
14,666,120
17,456,057
22,376,663
4,376,098
5,244,664
6,850,726
9,771,770
13,519,471
7,222,546
9,441,227
11,754,138
14,082,652
17,057,097
Shareholders’ equity
803,659
944,547
1,408,116
1,650,327
1,799,939
Net interest income after provision
for loan losses
Non-interest income
Non-interest expense
219,680
298,486
34,632
42,648
407,911
42,038
508,379
36,239
149,885
164,896
182,724
218,243
Income before income taxes
104,427
176,238
267,225
326,375
606,700
32,011
247,177
391,534
Net income available to common
shareholders
$ 50,523
102,051
149,526
185,483
228,744
BOARD OF DIRECTORS
LOCATIONS
STOCKHOLDER INFORMATION
Manhattan
261 Madison Avenue
300 Park Avenue
71 Broadway
565 Fifth Avenue
950 Th ird Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
Brooklyn
26 Court Street
6321 New Utrecht Avenue
97 Broadway
84 Broadway
(Accommodation Offi ce)
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
1688 Victory Boulevard
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
Long Island
1225 Franklin Avenue, Garden City
53 North Park Avenue, Rockville Centre
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
360 Motor Parkway, Hauppauge
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
American Stock Transfer
6201 15th Avenue
Brooklyn, NY 11219
718-921-8200
Stock Transfer Agent & Registrar
Stock Trading Information
Th e Bank’s common stock is traded on
the NASDAQ National Market under
the symbol SBNY.
Annual Meeting
Th e annual meeting of stockholders will
be held on April 24, 2014, 9:00 AM at:
Th e 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 fi led 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. Th e Bank’s actual results,
performance and achievements may diff er 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. Risk Factors,” appearing in the Bank’s
Annual Report on Form 10-K for the fi scal year ended
December 31, 2013, included herein.
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 Offi cer
Signature Bank
Judith A. Huntington
President
Th e College of New Rochelle
Jeff rey W. Meshel
Founder, President and
Chief Executive Offi cer
Paradigm Capital Corp.
Michael V. Pappagallo
President & Chief Financial Offi cer
Brixmor Property Group
John Tamberlane
Vice Chairman
Signature Bank
Scott A. Shay
Chairman of the Board of Directors
Joseph J. DePaolo
President & Chief Executive Offi cer
John Tamberlane
Vice Chairman
Mark T. Sigona
Executive Vice President &
Chief Operating Offi cer
Michael J. Merlo
Executive Vice President &
Chief Credit Offi cer
Eric R. Howell
Executive Vice President -
Corporate & Business Development
Peter S. Quinlan
Executive Vice President &
Treasurer
Michael Sharkey
Senior Vice President &
Chief Technology Offi cer
Vito Susca
Senior Vice President &
Chief Financial Offi cer
SENIOR MANAGEMENT
Westchester
T O O U R S H A R E H O L D E R S
Strength in Numbers takes on many
meanings. 2013 commemorated Signature
Bank’s sixth consecutive year of record
earnings, where we achieved record-setting
deposit and loan growth. Our unrelenting
commitment to clients is the fundamental
factor contributing to our success, thereby
allowing us to standout in the marketplace.
(Left to right) Joseph J. DePaolo, President and Chief Executive Officer
and Scott A. Shay, Chairman of the Board
The consistent, significant growth Signature Bank
delivered across key metrics throughout 2013
We successfully compete against the mega, too-big-to-
generated an increased return on equity for our valued
fail banks by firmly adhering to this model. Throughout
shareholders. Over the years, our shareholders have
the years, groups of experienced bankers have brought
witnessed the Bank’s overall conservative approach to
their business relationships to the Bank, where they
risk, which has been both appreciated and rewarded
can operate with autonomy typically alien to the
by our depositors.
THE SECRET TO OUR STRENGTH
Since 2001, our founding philosophy has been based on
placing our clients at the forefront of all we do. Our
commitment to the depositor is derived from our proven
abilities to continually attract some of the industry’s
most talented bankers who join our network as teams.
They provide unrivaled service through our distinctive
single-point-of-contact approach. Our highly focused
business model limits both bureaucracy and red tape
and removes long, drawn out processes. This enables the
experienced bankers who join Signature Bank with solid
relationships to simply get the job done, and our senior
management team to devote their time to serving the
needs of clients. This is the secret to our strength.
mega banks. During 2013, we added 10 private client
banking teams to the Signature Bank network. Our
pipeline for attracting banking professionals remains
solid as our reputation grows. Furthermore, the ongoing
chaos at the too-big-to-fail banks also continues to
contribute to our growth.
Signature Bank’s network, which we built from the
ground up, spans 89 private client banking teams, led
by 124 Group Directors who work from 27 banking
offices – indicative of our Strength in Numbers.
Our Group Directors control the client experience;
whether its cash management, specialty lending or
investments, our teams bring our expertise to the client,
which has enabled us to achieve extraordinary growth.
1
2013 ANNUAL REPORT 2
2
EMBRACING DIVERSITY Just like Lady Liberty welcomed new immigrants to our great country almost 130 years ago, Signature Bank welcomes seasoned banking professionals and clients frustrated by the never-ending turmoil at the mega institutions. Signature Bank offers a better banking alternative to these mega-banks amid a highly competi-tive landscape. In fact, the Bank continually outperforms its peers and the industry sector. For example, in only 13 years, Signature Bank ranks among the top 1 percent of commercial banks in the U.S., based on assets, according to the FDIC Market Share Report. We are extremely diligent and prudent as we seek ways to diversify through the careful and methodical addition of complementary business offerings. In late 2007, we embarked on a path to expand our commer-cial real estate lending efforts, and appointed a commercial real estate banking team who we believe possesses the best track record in the metropolitan New York area. Over the past six years, this expert commercial real estate banking team has helped fuel the Bank’s loan portfolio growth, which increased 515 percent since they joined. Signature Financial LLC, our specialty finance subsidiary dedicated to equipment finance and leasing, transportation financing and taxi medallion financing, was responsible for growing loans in this division by more than $800 million during 2013. Since this team of 45 professionals joined in the spring of 2012 when we launched Signature Financial, the subsidiary has added approximately 30 sales and operations colleagues who work from 16 locations throughout the country. Signature Financial ended the year with a portfolio in excess of $1.6 billion. To further broaden our client offerings and diversify revenue streams, in keeping with Signature Bank’s philosophy, we added a team strictly focused on asset-based lending in 2013, marking our entry into that arena. They are already on their way to enhancing the Bank’s presence in this specialized area. Despite the tumultuous economic environment in which we operated during the past several years, we maintained strong disciplines in our lending efforts, which resulted in a very low non-performing loan-to-asset ratio of 0.16 percent for 2013 – among the lowest ratio of any bank in the nation. Additionally, net charge-offs to average loans for 2013 was an extremely low 0.12 percent, and the allowance for loan and lease losses to non-accrual loans was a strong 431 percent – another Strength in Numbers example.In 2013, we grew top-line revenue while maintaining stellar credit quality, contributing to our sixth consecu-tive year of record earnings. The premise of our model – to hire experienced bankers who act as a magnet for on-boarding clients that are already known to them – is a key driver to our success, not just as it relates to growth but also as it aids in maintaining strong credit metrics. And, to further elaborate, even our most seasoned banking teams who have already brought their clients over to us, continue to expand at a rapid pace as they attract new clients under the Signature Bank banner.Our financial performance is solid across all facets of Signature Bank, and we continue to invest heavily in the future of our institution, again demonstrating our Strength in Numbers. DE P OSITS
(in billions)
17.1
14.1
11.8
9.4
7.2
LOANS
(in billions)
13.5
9.8
6.9
5.2
4.4
N ET INCOM E
(in millions)
228.7
185.5
149.5
102.1
50.5
09
10
11
YEAR
12 13
09
10
11
YEAR
12 13
09
10
11
YEAR
12 13
3
2013 ANNUAL REPORTFINANCIAL FREEDOMSignature Bank again set records in terms of financial performance during 2013, delivering unprecedented results across various key metrics. For the fiscal year ended December 31, 2013, net income reached a record $228.7 million, or $4.76 diluted earnings per share, an increase of $43.3 million, or 23.3 percent, versus $185.5 million, or $3.91 diluted earnings per share reported in 2012 – showing our Strength in Numbers. The record net income for the year is primarily attributed to an increase in net interest income, fueled by both record growth in deposits and loans. Deposits in 2013 reached a high as well, totaling $17.06 billion at December 31, 2013. Deposits were up a record $2.97 billion, or 21.1 percent, for the year. Excluding short-term escrow and brokered deposits of $1.66 billion at year-end 2013 and $994.8 million at year-end 2012, core deposits increased a record $2.31 billion, or 17.6 percent, during 2013. This extraordinary deposit growth is a direct reflection of the efforts and relationships of our growing network of private client banking teams.The Bank’s loan portfolio grew to $13.52 billion at year-end 2013, compared with $9.77 billion in 2012, a record increase of $3.75 billion, or 38.4 percent. The considerable increase in loans for the year was primarily driven by growth in commercial real estate and multi-family loans as well as contributions from Signature Financial. At December 31, 2013, loans accounted for 60.4 percent of total assets, compared with 56.0 percent at the end of 2012. In the past five years, loans to assets grew from 48.3 to 60.4 percent, on top of more than $15 billion, or 211 percent, of balance sheet growth.The Bank maintains one of the best capital positions industrywide. At the end of 2013, Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were approximately 8.54 percent, 14.07 percent and 15.10 percent, respectively. Our strong risk-based capital ratios reflect the relatively low-risk profile of the Bank’s balance sheet. Furthermore, the Bank’s tangible common equity ratio remained strong at 8.04 percent.We have always carefully managed a pristine balance sheet, maintained stellar credit quality and delivered solid financial performance. Our stringent disciplines have contributed to the leadership position we hold today and will help to lead us forward. EXCELLING IN ASSET GROWTH AND MIX
$ 5.8 billion
12%
34%
54%
$ 22.4 billion
5%
35%
2007
60%
Total Loans, net
Investment Securities
Other Assets
STANDING TALL
2013
The foundation we have created is built to last. We have
demonstrated our Strength in Numbers by our
financial performance, our growing network of banking
Bank the #1 Attorney Escrow Provider, the #2
Business Bank and the #2 Private Bank. We were
gratified to be recognized by this important sector
teams and our sizable client base. We are confident that
within our client base.
we are well positioned for success in the years ahead,
and through discipline and readiness,
are able to adapt to economic down-
turns by placing depositor safety first
and foremost.
We are extremely proud of all these acknowledge-
ments, which are purely reflective of how our clients
feel about us and how appreciative we are of them.
We built this institution for them, and are grateful for
each and every client’s loyalty to and confidence in
Many third parties and banking
Signature Bank.
industry observers are also taking
notice of our model and ability to
execute. In 2013, Forbes named
Signature Bank the second Best Bank
in America in its annual listing,
having ranked in the top 10 for the
past four years. The Bank also was
named the 7th Top Performing Big
Bank domestically by the ABA
Banking Journal, a trade publication, on their annual
list. In another trade magazine, Bank Director,
Signature Bank placed fifth on its 2013 Bank
Each year at this time we thank our Board for their
guidance and our shareholders for their continued
investment in our business and support of our
management team. We also want to highlight the
hard work and efforts put forth by our dedicated
colleagues – all 945 of them – because of the integral
role they play collectively in helping us stand tall by
delivering exceptional and unparalleled financial care
to our clients.
It is our Strength in Numbers – our people, our
leadership, our clients and our performance – that gives
Ending the year on another
high note was the fact
that American Banker
named Joseph J. DePaolo,
President and CEO,
Community Banker of the
Year, a well-deserved honor
that exemplifies the
reputation he has garnered
throughout the industry
during his distinguished
banking career.
Performance Scorecard among mid-sized banks (those
us confidence as we look out to successful years ahead.
between $5 billion and $50 billion in assets), based on
profitability, asset quality and capital strength.
Respectfully,
Perhaps most importantly, we value what our clients
are saying about us. They said their piece in the
New York Law Journal’s annual reader survey, when
members of the legal community named Signature
4
Scott A. Shay
Chairman of the Board
Joseph J. DePaolo
President and Chief Executive Officer
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, 2013
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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, 2013 was $3.87 billion.
As of February 27, 2014, the Registrant had outstanding 47,295,412 shares of Common Stock.
Portions of the registrant’s definitive Proxy Statement for Annual Meeting of Stockholders to be held April 24, 2014. (Part III)
DOCUMENTS INCORPORATED BY REFERENCE
SIGNATURE BANK
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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86
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 such statements because they are subject to numerous risks and uncertainties
relating to our operations and the business environment in which we operate, all of which are difficult to predict
and many of which 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 industry experience 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;
• net interest margin;
• 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 and lease 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
• the 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;
• monetary and currency fluctuations;
3
• our inability to successfully implement our business strategy;
• our inability to successfully integrate new business lines into our existing operations;
• our vulnerability to changes in interest rates;
• our vulnerability to changes in inflation;
• 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;
• a downturn in the economy of the U.S.;
• 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 mortgage loans underlying our investment portfolio;
• our allowance for loan and lease 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 private client banking teams 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;
• severe weather;
• acts of war or terrorism;
• technological changes;
• work stoppages, financial difficulties, fire, earthquakes, flooding or other natural disasters;
• changes in the federal or state tax laws;
• changes in accounting standards or interpretation in new or existing standards;
• increases in FDIC insurance premiums;
• regulatory net capital requirements that constrain our brokerage business;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to successfully integrate acquired entities, if any;
• changes in consumer spending, borrowing and savings habits;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial
Accounting Standards Board, the Securities and Exchange Commission (the “SEC”) and the Public Company
Accounting Oversight Board;
• changes in our organization, compensation and benefit plans;
• changes in our financial condition or results of operations that reduce capital available to pay dividends; and
• changes in the financial condition or future prospects of issuers of securities that we own.
See “Part I, Item 1A. – Risk Factors” for a full discussion of these risks.
4
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 arise 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, and disclaim any obligation to, update or revise
any industry information or 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.
5
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”) and Signature Financial, LLC (“Signature Financial”).
Introduction
We are a New York-based full-service commercial bank with 27 private client offices located in the New York
metropolitan area, offering a wide variety of business and personal banking products and services. The Bank’s
growing network of private client banking teams serves the needs of privately owned businesses, their owners and
senior managers. Through our Signature Securities subsidiary, a licensed broker-dealer and investment adviser,
we offer brokerage, asset management and insurance products and services. Additionally, through Signature
Securities, we purchase, securitize and sell the guaranteed portions of U.S. Small Business Administration (“SBA”)
loans. During March 2012, the Bank established a new wholly-owned subsidiary, Signature Financial, a specialty
finance company based in Melville, Long Island. Signature Financial is focused on equipment finance and leasing,
transportation financing and taxi medallion financing provided to clients located throughout the United States.
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.
Since commencing operations in May 2001, we have grown to $22.38 billion in assets, $17.06 billion in deposits,
$13.52 billion in loans, $1.80 billion in equity capital and $2.24 billion in other assets under management as of
December 31, 2013. We intend to continue our growth and maintain our position as a premier relationship-based
financial services organization in the New York metropolitan area, guided by our Chairman and senior
management team who have extensive experience developing, managing and growing financial service
organizations.
Recent Highlights
Core Deposit Growth
During 2013, our deposits grew $2.97 billion, or 21.1%, to $17.06 billion. Deposits at December 31, 2013 included
$404.2 million of brokered deposits and approximately $1.26 billion of short-term escrow deposits, which due to
their nature and as expected, have been or will be released in early 2014. At year end 2012, deposits included
$108.5 million of brokered deposits and approximately $886.3 million of short-term escrow deposits. Core
deposits, which exclude brokered deposits and short-term escrow deposits, increased $2.31 billion, or 17.6%,
during 2013. This growth in our core deposits can be attributed to the addition of new private client banking
teams, who assist us in growing our client base, as well as additional deposits raised by our existing private client
banking teams. 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 36.6% of our total deposits and time
deposits accounting for only 7.2% of our total deposits as of December 31, 2013. Our average cost for total
deposits was 0.51% for the year ended December 31, 2013.
6
Short-Term Escrow Deposits
At December 31, 2013 and 2012, approximately $1.26 billion and $886.3 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 2013, we increased our network of seasoned banking professionals by adding ten new private client
banking teams and 18 new banking group directors. Our full-time equivalent number of employees grew from 844
to 945 during 2013.
Private Client Banking Teams and Offices
As of December 31, 2013, we had 89 private client banking teams located 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 teams 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 and an established team of two to
four additional professionals to assist with business development and client services. Each additional private
client banking team brings client relationships that allow us to grow our core deposits as well as expand our
lending opportunities.
To facilitate our growth, we opened one additional private client office during 2013 located in Staten Island, New
York. We currently operate 27 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 teams that we recruit.
Asset-based Lending
To further broaden our client offerings and diversify revenue streams, during September 2013, the Bank added a
team strictly focused on asset-based lending, marking our entry into that arena. The appointment of this
complementary asset-based lending practice strengthens the Bank’s product offerings to our middle market
commercial clients.
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 $200 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 banking team 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
7
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
and services are presented to clients by the private client banking team 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 banking 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 banking teams 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 teams. We believe the current market to be a favorable
environment for locating and recruiting qualified private client banking teams. Our experience has been that such
displacement and change leads select private client banking teams to smaller, less bureaucratic organizations
such as Signature.
Offer progressive incentive-based compensation that rewards private client banking teams for developing
their business and retaining their clients
Our private client banking team 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 banking team 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 banking teams 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. Although we have
centralized many of our critical operations, such as finance, information technology, client services, cash
management services, loan administration and human resources, 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 banking
teams with the lending process. In addition, most of our private client offices have an investment group director or
team 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.
8
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, credit,
operations, finance and auditing. We have put internal 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. Our group
directors and their teams 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, 2001, 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.
9
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.
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.
During the third quarter of 2013, 25,513 warrants that were issued through the TARP Capital Purchase
Program were exercised. The exercise resulted in the creation of 8,652 shares of treasury stock, which
were subsequently reissued in connection with the exercise of options granted under the Bank’s equity
incentive plan.
Products and Services
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;
Equipment finance and leasing, transportation financing, and taxi medallion financing;
Asset-based lending;
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.
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
10
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 automated teller machines.
The following table presents the composition of our deposit accounts as of December 31, 2013 and 2012:
(dollars in thousands)
Amount
Percentage
Amount
Percentage
December 31,
2013
2012
Personal demand deposit accounts (1)
Business demand deposit accounts (1)
Rent security
Personal NOW
Business NOW
Personal money market accounts
Business money market accounts
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand deposit accounts (1)
NOW
Money market accounts
Time deposits
Brokered time deposits
Total
Personal
Business
Brokered time deposits
Total
(1) Non-interest bearing.
Lending Activities
$
511,911
4,879,572
98,987
38,797
812,100
3,172,224
6,318,277
415,040
405,959
404,230
17,057,097
5,391,483
850,897
9,589,488
820,999
404,230
17,057,097
4,137,972
12,514,895
404,230
17,057,097
$
$
$
$
$
3.00%
28.61%
0.58%
0.23%
4.76%
18.60%
37.04%
2.43%
2.38%
2.37%
100.00%
31.61%
4.99%
56.22%
4.81%
2.37%
100.00%
24.26%
73.37%
2.37%
100.00%
501,577
3,943,387
90,766
38,478
752,843
2,747,746
5,061,632
473,442
364,276
108,505
14,082,652
4,444,964
791,321
7,900,144
837,718
108,505
14,082,652
3,761,243
10,212,904
108,505
14,082,652
3.56%
28.00%
0.64%
0.27%
5.35%
19.52%
35.94%
3.36%
2.59%
0.77%
100.00%
31.56%
5.62%
56.10%
5.95%
0.77%
100.00%
26.71%
72.52%
0.77%
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
aggressively marketing to our core clients and accommodating, to the extent permitted by our credit standards,
11
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 99% 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, 2013, approximately 37% 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, 2013, funded C&I loans totaled approximately 18% 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, 2013.
(dollars in thousands)
Taxi Medallions
Transportation Services
Real Estate and Real Estate Management
Manufacturing
Building and Construction Contractors
Wholesale Trade
Professional Services
Financial Services
Health Services
Retail Trade
Business Services
Legal Services
Special Trade Contractors
Mining
Recreational Services
Accomodation and Food Services
Membership Organizations
Educational Services
Audio/Video Services
Other Industries
Total
December 31, 2013
Loan Amount
$
596,713
369,194
239,859
208,723
160,122
154,612
113,865
95,059
66,424
47,796
43,136
41,224
40,545
29,384
26,972
24,140
14,363
12,387
11,949
268,549
2,565,016
$
Percentage
23.26%
14.39%
9.35%
8.14%
6.24%
6.03%
4.44%
3.71%
2.59%
1.86%
1.68%
1.61%
1.58%
1.15%
1.05%
0.94%
0.56%
0.48%
0.47%
10.47%
100.00%
As of December 31, 2013, the largest component of our C&I portfolio consisted of loans to finance taxi medallions,
which are the licenses required to operate taxicabs. We conduct this business in stable, well-regulated markets,
such as New York City, where the supply of these medallions is limited. Accordingly, these loans have historically
had strong credit performance. “Other Industries” include a diverse range of industries, including service-oriented
firms that provide introductions to new client relationships and private households.
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, 2013, funded real estate loans totaled approximately $10.93 billion, representing approximately
79% of our total funded loans.
13
The following table shows the distribution of our real estate loans as of December 31, 2013 by collateral type:
(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, 2013
Loan Amount
6,637,353
$
3,651,538
346,795
170,441
125,334
10,931,461
$
Percentage
60.72%
33.40%
3.17%
1.56%
1.15%
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 may result in an increase in nonpayment of loans, a
decrease in collateral value, and an increase in our allowance for loan and lease losses (“ALLL”).
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, 2013, our commitments under letters of credit totaled approximately
$229.7 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, 2013, our consumer
loans totaled $11.5 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 National Association of
Securities Dealers, Inc. (“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
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
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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 25% 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 minimal credit risk and carry a 0% risk weight for capital purposes. At
December 31, 2013, we had $420.8 million in SBA loans held for sale, representing approximately 3.0% of our
total funded loans, compared to $369.5 million at December 31, 2012.
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, 2013, the carrying amount
of our SBA excess servicing strip assets was $89.4 million.
Colson Services Corp. (“Colson”) is the third party government appointed fiscal and transfer agent for the SBA’s
Secondary Market Program. As the designated servicer, Colson 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.
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,
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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 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 several 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 $1.3 trillion in total deposits, as
of June 30, 2013 – 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.
As of December 31, 2013, we operated 27 private client offices located in the New York metropolitan area. These
27 offices housed a total of 89 private client banking teams. As part of the continuing development of our
business strategy, we expect to open additional offices in 2014. 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 certain disaster recovery
services. Our core banking application software (Demand Deposit, Savings, Commercial Loans, 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 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
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security breach. For disaster recovery purposes, full redundancy of the Little Rock technology center is provided
through a separate facility located in Jacksonville, Florida.
Employees
As of December 31, 2013, we had 945 full-time equivalent employees, 581 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
The following is a general summary of the material aspects of certain statutes and regulations applicable to
Signature Bank and its subsidiaries. These summary descriptions are not complete, and you should refer to the
full text of the statutes, regulations, and corresponding guidance for more information. These statutes and
regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be
adopted. We are unable to predict these future changes or the effects, if any, that these changes could have on
the business, revenues, and results of Signature Bank and its subsidiaries.
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. We are also subject to the regulations of the other states in which we do business. 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 and lease losses, perpetual preferred stock, subordinated debt, and
certain hybrid instruments. At December 31, 2013, our total risk-based capital ratio was 15.10%, and our Tier 1
risk-based capital ratio was 14.07%.
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
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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 leverage capital ratio of 4.0%. At December 31, 2013, our
leverage capital ratio was 8.54%.
On July 9, 2013, the Federal Deposit Insurance Corporation approved final rules that substantially amend the
regulatory risk-based capital rules applicable to Signature Bank. The final rules were adopted following the
issuance of proposed rules by the federal banking regulators in June 2012, and implement the “Basel III”
regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative
documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in
December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank
capital, leverage and liquidity requirements.
The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and
would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum
capital level requirements applicable to Signature Bank under the final rules would be: (i) a new common equity
Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also
establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must
consist entirely of common equity Tier 1 capital. Common equity Tier 1 capital consists of common stock
instruments that meet the eligibility criteria in the final rules, retained earnings, accumulated other comprehensive
income and common equity Tier 1 minority interest. The capital conservation buffer will be phased-in over four
years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for
2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter, resulting in the following minimum
ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii)
a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends,
engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer
amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for
such actions.
Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5%
of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive
credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach
banks” ( i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which
currently excludes Signature Bank. The final rules also implement revisions and clarifications consistent with
Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and
losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out
over time.
The final rules also contain revisions to the prompt corrective action framework, which is designed to place
restrictions on insured depository institutions, including Signature Bank, if their capital levels begin to show signs
of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements,
which are designed to complement the capital conservation buffer, insured depository institutions will be required
to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new
common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital
ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).
The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to
utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk
exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness
consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules
for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-
style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in
total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion
in consolidated assets. Based on our current capital composition and levels, we believe that we would be in
compliance with the requirements as set forth in the final rules if they were presently in effect.
The federal banking agencies in 2013 also proposed a new “liquidity coverage ratio” rule (“LCR Rule”) based upon
Basel III requirements that will for the first time regulate bank liquidity in detail. As proposed, however, the LCR
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Rule will not apply to depository institutions, including Signature Bank, with less than $50 billion in consolidated
assets. Accordingly, we do not anticipate that the LCR rule will impact our operations or financial condition.
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.
Federal law generally limits the equity investments of state-chartered banks insured by the FDIC to those that are
permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally
may not, directly or indirectly, acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from, among other things: (i) acquiring or
retaining a majority interest in a subsidiary that is engaged in permissible activities; (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation,
or new construction of a qualified housing project, provided that such limited partnership investments may not
exceed 2% of the bank’s total assets; (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures liability insurance for directors, trustees or officers, or blanket bond group insurance
coverage for insured depository institutions; and (iv) acquiring or retaining the voting shares of a depository
institution if certain requirements are met. The direct or indirect activities of a state bank are similarly generally
limited to those of a national bank. Exceptions include where approval is received for the activity from the FDIC.
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.
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 that 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.
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At December 31, 2013, our total risk-based capital ratio was 15.10%; our Tier 1 risk-based capital ratio was
14.07%; and our leverage capital ratio was 8.54%. 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
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.
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. 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 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.
The Dodd-Frank Act requires banks with total consolidated assets of more than $10 billion to conduct annual
stress tests. The Dodd-Frank Act also requires the FDIC, in coordination with federal financial regulatory
agencies, to issue regulations establishing methodologies for stress testing that provide for at least three different
sets of conditions, including baseline, adverse, and severely adverse. The regulations must also require banks to
publish a summary of the results of the stress tests. In October 2012, the FDIC issued a final rule regarding
annual stress tests requiring a bank subject to the rule to assess the quarterly impact of stress scenarios on the
bank’s capital over a horizon of nine quarters. For institutions, such as Signature Bank, with total consolidated
assets of more than $10 billion but less than $50 billion, the final rule delayed the implementation of stress testing
until September 2013, with initial results to be submitted by March 31, 2014. The final rule also delayed the initial
public disclosure requirement of stress test results until 2015 (disclosing the 2014 stress test results). The Bank
has developed a process to comply with the stress testing requirements, which involves Senior Management, Risk
Management and Finance, along with third-party consultants who assist in this process. The Risk Committee of
the Board of Directors receives quarterly updates as to the progress and challenges in complying with this new
regulatory requirement. We believe the stress testing results will affirm the adequacy of the Bank’s capital, even
under severe economic conditions. As the related methodologies and best practices for banks of Signature’s size
continue to evolve, the stress testing process requires significant investment and we continue to seek ways to
maximize shareholder value from the process while complying with regulatory requirements.
In addition, in December 2013 federal regulators adopted a final rule implementing the “Volcker Rule” enacted as
part of the Dodd-Frank Act. The Volcker Rule prohibits (subject to certain exceptions) banks and their affiliates
from engaging in short-term proprietary trading in securities and derivatives and from investing in and sponsoring
certain unregistered investment companies (including not only such things as hedge funds, commodity pools and
private equity funds, but also a range of asset securitization structures that do not meet exemptive criteria in the
final rules). The new rules also require banks to develop compliance and control programs, including board of
directors oversight, appropriate for the size of the bank and the types and complexity of its activities. The rules are
complex and it is not clear how they will be implemented over time. In January 2014, the federal regulators
adopted an exemptive rule on an emergency basis to address the unanticipated impact of the new rules on bank
ownership of certain trust preferred securities. It is possible that as the requirements of the Volcker Rule as
applied to other assets become more clear, there will be additional similar situations in which ownership by
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depository institutions of pooled, securitized or participated loans and credit products (or other assets) will be
determined to be prohibited by the Volcker Rule and, absent exemptive relief, required to be divested and
(pending divestment) accounted for as assets “held for sale” that are marked to market. Signature Bank, however,
does not currently anticipate that the Volcker Rule will have a material effect on the bank, because it does not
have material exposure to the prohibited activities.
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, 2013, $5.39 billion, or
31.6%, 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 is responsible for interpreting and enforcing a broad range of consumer protection laws (“Federal
Consumer Financial Laws”) that govern 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, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement
Procedures Act, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act. In 2012, the CFPB proposed
an integrated disclosure in connection with mortgage origination that incorporates disclosure requirements under
the Real Estate Settlement Procedures Act and the Truth-in-Lending Act. The CFPB issued a final rule regarding
the integrated disclosure in December 2013, and the disclosure requirement will become effective in August 2015.
In accordance with deadlines set by the Dodd-Frank Act, the CFPB issued final rules in January 2013 related to
new mortgage servicing standards, and mortgage lending requirements that establish a “qualified mortgage” which
will fulfill the Dodd-Frank Act requirement that mortgages be provided to borrowers with an ability to repay. These
mortgage servicing and lending rules became effective in January 2014. These and other CFPB regulations will
increase the Bank’s compliance expenses, and limit the terms under which the Bank can provide consumer
financial products.
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. As an insured depository institution with total assets of
more than $10 billion, the Bank is subject to CFPB supervision and examination of compliance with Federal
Consumer Financial Laws. 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 examinations, 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.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting,
executive compensation, and enhanced and timely disclosure of corporate information. As directed by the
Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to certify that our
quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC
under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are
responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over
financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of
Directors about our internal control over financial reporting; and they have included information in our quarterly
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and annual reports about their evaluation and whether there have been changes in our internal control over
financial reporting or in other factors that could materially affect internal control over financial reporting.
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. We are also subject to analogous state CRA
requirements in New York and other states in which we may establish branch offices. 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, 2010. 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
New York State Department of Financial Services assign a rating of “outstanding,” “satisfactory,” “needs to
improve,” or “substantial noncompliance.” Signature Bank received a “satisfactory” CRA Assessment Rating from
both regulatory agencies in its most recent examinations.
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 CFPB is 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. For further discussion on consumer protection and the role of the CFPB, see “- Dodd-Frank Act.”
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 Deposit 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.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on
bonds issued by the Financing Corporation (“FICO”), an agency of the federal government established to
recapitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment rates, which are
determined quarterly, averaged 0.64 basis points of insured deposits on an annualized basis in fiscal year 2013.
These assessments will continue until the FICO bonds mature in 2017.
We must maintain reserves on transaction accounts. The maintenance of reserves increases our cost of funds
because reserves must generally be maintained in cash balances maintained directly or indirectly with a Federal
Reserve Bank.
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The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by Section 613 of the
Dodd-Frank Act, regulates interstate banking activities by establishing a framework for nationwide interstate
banking and branching. As amended, this interstate banking and branching authority generally permits a bank in
one state to establish a de novo branch in another host state if state banks chartered in such host state would also
be permitted to establish a branch in that state. Under these amendments, Signature Bank is permitted to
establish branch offices in other states in addition to our existing New York branch offices.
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 FINRA 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.
Transactions with Related Parties
Transactions between banks and their related parties or affiliates are limited by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a bank is any company or entity that controls, is controlled by or is under
common control with the bank. In a holding company context, the parent bank holding company and any
companies which are controlled by such parent holding company are affiliates of the bank.
Generally, Sections 23A and 23B of the Federal Reserve Act and Regulation W (i) limit the extent to which the
bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0%
of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all
affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those
provided to non-affiliates. The term “covered transaction” includes the making of loans, purchase of assets,
issuance of a guarantee and other similar transactions. In addition, loans or other extensions of credit by the
financial institution to the affiliate are required to be collateralized in accordance with the requirements set forth in
Section 23A of the Federal Reserve Act.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by a company to its executive officers and directors.
However, the law contains a specific exception for loans by a depository institution to its executive officers and
directors in compliance with federal banking laws, assuming such loans are also permitted under the law of the
institution’s chartering state. Under such laws, Signature Bank’s authority to extend credit to executive officers,
directors and 10% shareholders (“insiders”), as well as entities under such person’s control, is limited. The law
limits both the individual and aggregate amount of loans Signature Bank may make to insiders based, in part, on
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Signature Bank’s capital position and requires certain Board approval procedures to be followed. Such loans are
required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve
more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or
compensation program that is widely available to all employees of the institution and does not give preference to
insiders over other employees. Loans to executive officers are further limited to specific categories.
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 operations.
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.
Economic conditions in Europe remain 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
corporate debt securities issued by 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 an
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 an adverse effect on our results of operations and financial
condition.
Difficult market conditions have adversely affected our industry.
Volatility in the housing market over the past several years, together with persistent 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. Fragile conditions could lead to a return of 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 several 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 and lease 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;
maintain credit quality;
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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.
We may be unable to successfully integrate new business lines into our existing operations.
During 2012, we established Signature Financial, a specialty finance company focused on equipment finance and
leasing, transportation financing and taxi medallion financing. Although we have expended substantial
managerial, operating and financial resources to integrate Signature Financial, we may be unable to successfully
continue the integration of Signature Financial, and we may be unable to realize the expected revenue
contributions. We will be required to employ and maintain qualified personnel, and as Signature Financial
expands into new and existing markets, we may be required to install additional operational and control systems.
Our failure to successfully manage the integration into our existing operations may adversely affect our future
financial condition and results of operations.
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 or if they remain low relative
to the rates 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
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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. Competition with respect to the rates we
pay on deposits relative to the rates we obtain on our loans and other investments may put pressure on our
profitability. Our clients are also 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
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, 2013,
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 are 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 that
we hold. 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.
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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) falling home prices, (iii) lack of a liquid market for such obligations, (iv) 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 (v) the
expiration of government stimulus initiatives. Home values have declined significantly over the last several 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.
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 several 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 several years, and rating
agencies may further downgrade these securities in the future if conditions do not continue to 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
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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
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 95% of our total loan portfolio as of December 31, 2013 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 substantially all 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.
A large portion of our business is located in the New York metropolitan area. In addition, as of December 31,
2013, 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, including policy changes enacted by local
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governments affecting multi-family borrowers, such as rent freezes on stabilized apartments and escalation of real
estate taxes. A prolonged period of economic recession or other adverse economic and political conditions in the
New York metropolitan area may result in an increase in nonpayment of loans, a decrease in collateral value, and
an increase in our ALLL.
In addition, our geographic concentration in the New York metropolitan area heightens our exposure to future
terrorist attacks or other disasters, which may adversely affect our business and that of our clients and result in a
material decrease in our revenues. Future terrorist attacks or other disasters 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, 2013, approximately 79% 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
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 and lease 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 the mortgage loans underlying our investment portfolio may increase the risk of
credit defaults in the future.
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.
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Our ALLL 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 may result in an
increase in nonpayment of loans, a decrease in collateral value, and an increase in our ALLL. Although we
believe that our ALLL 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 ALLL. These regulatory agencies may require us to increase our provision for loan and lease losses
or to recognize further loan charge-offs based upon their judgments, which may be different from ours. An
increase in the ALLL 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 $2.31 billion at December 31, 2013.
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, 2013, we held $130.8 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.
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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 teams. However, we believe that there are a limited number of potential group
directors and teams 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 teams that will contribute to our growth. Even if
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 teams, we cannot assure you that they will be
successful in bringing additional clients and business to us. Furthermore, the addition of new teams 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 teams 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 team that we may acquire or that any new team
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
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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.
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 near 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
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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.
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
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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.
Our business may be adversely impacted by severe weather as well as acts of war or terrorism and other
external events.
Our primary markets are located near coastal waters, which could generate naturally occurring severe weather
that could have a significant impact on our business. In addition, New York City remains a central target for
potential acts of war or terrorism against the United States and our operations and the operations of our vendors,
suppliers and clients may be subject to disruption from a variety of causes, including work stoppages, financial
difficulties, fire, earthquakes, flooding or other natural disasters. Such events could have a significant impact on
our ability to conduct our business and could affect the ability of our borrowers to repay their loans, 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 and adverse consequences may also result with regard to the disruption in the
operations of our vendors, suppliers and clients, which could have a material effect upon our business. 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 our effective tax rates. 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.
We depend upon the accuracy and completeness of information about clients.
In deciding whether to extend credit or enter into other transactions with clients, we may rely on information
provided to us by clients, including financial statements and other financial information. We may also rely on
representations of clients as to the accuracy and completeness of that information and, with respect to financial
statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business,
we may assume that the client’s audited financial statements conform with generally accepted accounting
principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of
the customer, and we may also rely on the audit report covering those financial statements. Our financial
condition and results of operations could be negatively impacted to the extent we rely on financial statements that
do not comply with generally accepted accounting principles or that are materially misleading.
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
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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, new risk-based capital and
leverage ratios will be phased in over time. See – Regulation and Supervision – Safety and Soundness
Regulation.
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.
We will become subject to more stringent capital requirements, which may adversely impact our return on
equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing
shares.
In July 2013, the FDIC approved a new rule that will substantially amend the regulatory risk-based capital rules
applicable to Signature Bank. The final rule implements the “Basel III” regulatory capital reforms and changes
required by the Dodd-Frank Act.
The final rule includes new minimum risk-based capital and leverage ratios, which will be effective for Signature
Bank on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these
ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a
Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from
current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer”
of 2.5%, and will result in the following minimum ratios; (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1
to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation
buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would
increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying
dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the
buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be
utilized for such actions.
The application of more stringent capital requirements for Signature Bank could, among other things, result in
lower returns on equity, require the raising of additional capital, and result in regulatory actions such as the
inability to pay dividends or repurchase shares if we were to be unable to comply with such requirements. The
impact of these requirements could also change the competitive landscape in which we seek deposits, lending
opportunities, clients, banking professionals and otherwise conduct our business.
FDIC insurance premiums fluctuate materially, which could negatively affect our profitability.
The FDIC insures deposits at FDIC insured financial institutions, including Signature Bank. The FDIC charges the
insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. During 2008 and
2009, there were higher levels of bank failures, which dramatically increased resolution costs of the FDIC and
depleted the deposit insurance fund. The FDIC collected a special assessment in 2009 to replenish the Deposit
Insurance Fund and also required a prepayment of an estimated amount of future deposit insurance premiums.
In accordance with the Dodd-Frank Act, the FDIC adopted new rules that redefined how deposit insurance
assessments are calculated. The new rate schedule and other revisions to the assessment rules became
effective April 1, 2011, and had the effect of reducing the assessment that we would otherwise pay. As the new
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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 changes. However,
the FDIC’s rules could be subject to future changes, especially if there are additional bank or financial institution
failures or the government or FDIC develop new regulatory goals with respect to the banking sector. Any increase
in assessment fees could have a materially adverse effect on our results of operations and financial condition.
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, the CFPB, and FINRA. As
we expand our operations, we will become subject to regulation by additional states. 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, the CFPB, 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.
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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 and prohibitions on proprietary trading and investing in and sponsoring certain
unregistered investment companies, (iii) provides for a new risk-based approach to financial services regulation
giving 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 the CFPB with broad
authority and permits states to adopt stricter consumer protection laws and enforce consumer protection rules
issued by the Consumer Financial Protection Bureau.
In December 2013, federal regulators adopted a final rule implementing the Volcker Rule enacted as part of the
Dodd-Frank Act. The Volcker Rule prohibits (subject to certain exceptions) banks and their affiliates from
engaging in short-term proprietary trading in securities and derivatives and from investing in and sponsoring
certain unregistered investment companies (including not only such things as hedge funds, commodity pools and
private equity funds, but also a range of asset securitization structures that do not meet exemptive criteria in the
final rules). We hold certain securities in our available-for-sale investment portfolio that do not meet these
exemptive criteria and, therefore, must be divested on or before July 21, 2015. These securities, which are
predominantly collateralized mortgage obligations, had a fair value totaling $254.7 million and an amortized cost of
$250.1 million as of December 31, 2013. Although these securities had an unrealized gain as of December 31,
2013, future market illiquidity or other adverse market conditions could negatively impact the fair value of these
securities. Accordingly, it is possible that we will be required to recognize additional other-than-temporary
impairments as a charge to current earnings if the fair value of these securities declines in the future.
It remains difficult to predict the full 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.
New regulations could restrict our ability to originate and sell mortgage loans.
The Consumer Financial Protection Bureau has issued a rule designed to clarify for lenders how they can avoid
monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s
ability to repay a mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have
complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a
“qualified mortgage” loan must not contain certain specified features, including:
excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount
points” for prime loans);
interest-only payments;
negative-amortization; and
Terms longer than 30 years.
Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%.
Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for
the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during
the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial
Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or
loans to certain borrowers, or could make it more expensive and time consuming to make these loans, which
could limit our growth or profitability.
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
38
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.
The repeal of federal prohibitions on the payment of interest on demand deposits could increase our
interest expense.
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 beginning on July 21, 2011. As a result, some financial institutions have
commenced offering interest on demand deposits to compete for clients. Currently, market interest rates are at
near-historic lows. We do not yet know what interest rates other institutions may offer as market interest rates
increase. Our interest expense will increase and our net interest margin will decrease if we begin offering interest
on demand deposits to attract new customers or maintain current customers, which could have a material adverse
effect on our business, financial condition and results of operations, particularly as interest rates return to higher
levels.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
39
ITEM 2. PROPERTIES
Our principal executive offices are located at 565 Fifth Avenue, New York, New York, 10017, in space leased by
the Bank. In addition, we conduct our business at the following locations in facilities that are leased for various
terms and rates. Many of the lease contracts include modest annual escalation agreements.
Location
Private Client Offices
Manhattan
Long Island
Queens
Brooklyn
Westchester
Bronx
Staten Island
Private Client Accomodation Offices
Manhattan
Brooklyn
Bank and Brokerage Operations and Support
Manhattan
Long Island
SBA & Institutional Trading
Houston, TX
Signature Financial Sales
Littleton, CO
Milton, GA
Norwell, MA
Prairie, MN
Redmond, WA
Total Locations
Number of
Offices
9
7
3
3
2
1
2
1
1
2
1
1
1
1
1
1
1
38
For additional information on our lease commitments, see Note 19 to our Consolidated Financial Statements.
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. MINE SAFETY DISCLOSURES
None.
40
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,
2013, 47,293,162 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:
2013
Fourth quarter
Third quarter
Second quarter
First quarter
2012
Fourth quarter
Third quarter
Second quarter
First quarter
Common Stock
High
Low
$
110.40
95.29
84.47
79.25
$
72.80
69.28
66.90
65.98
90.71
83.42
70.58
71.81
65.57
57.79
57.40
56.76
On December 31, 2013, the last reported sale price of our common stock was $107.42 and there were 16 holders
of record of our common stock, including record holders on behalf of an indeterminate number of beneficial
holders.
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:
400
350
300
250
200
150
100
50
December 31,
2008
December 31,
2009
December 31,
2010
December 31,
2011
December 31,
2012
December 31,
2013
Signature Bank
Standard & Poor's 500 Index
Nasdaq Bank Stocks Index
41
The performance period reflected below assumes that $100 was invested in our common stock and each of the
indexes listed below on December 31, 2008. 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
2008
2009
2010
2011
2012
2013
$
100.00
100.00
100.00
111.19
123.45
83.79
174.49
139.23
99.12
209.10
139.23
88.58
248.66
157.90
105.45
374.42
204.63
150.95
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 near 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.
42
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)
SELECTED OPERATING DATA
Interest income
Interest expense
Net interest income before provision for loan and lease losses
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income:
Non-interest income excluding net impairment losses on
securities recognized in earnings
Net impairment losses on securities recognized in earnings (1)
Total non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Dividends on preferred stock and related
discount accretion
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
2013
At or for the years ended December 31,
2010
2011
2012
$
755,150
106,807
648,343
41,643
606,700
38,160
(6,149)
32,011
247,177
391,534
162,790
228,744
660,556
110,750
549,806
41,427
508,379
39,312
(3,073)
36,239
218,243
326,375
140,892
185,483
580,516
120,729
459,787
51,876
407,911
44,127
(2,089)
42,038
182,724
267,225
117,699
149,526
466,530
121,672
344,858
46,372
56,824
(14,176)
42,648
164,896
176,238
74,187
102,051
298,486
219,680
2009
386,135
123,740
262,395
42,715
35,954
(1,322)
34,632
149,885
104,427
41,701
62,726
12,203
50,523
1.32
1.30
$
4.84
$
4.76
3.98
3.91
3.43
3.37
2.49
2.46
$
22,376,663
17,456,057
14,666,120
11,673,089
9,146,112
5,632,233
6,130,356
6,512,855
5,249,286
3,837,583
2,175,844
420,759
739,835
369,468
556,044
392,025
447,896
382,463
295,984
293,207
Net income available to common shareholders
$
228,744
185,483
149,526
102,051
-
-
-
-
Loans, net of allowance for loan and lease losses
13,384,400
9,664,337
6,764,564
5,177,268
4,320,978
Allowance for loan and lease losses
135,071
107,433
86,162
67,396
55,120
Deposits
Borrowings
Shareholders' equity
17,057,097
14,082,652
11,754,138
9,441,227
7,222,546
3,370,313
1,585,000
1,425,800
1,222,200
1,008,900
1,799,939
1,650,327
1,408,116
944,547
803,659
(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, 2013, 2012, 2011, 2010, and 2009 other-than-temporary impairment losses of $3.1
million, $8.5 million, $10.2 million, $24.4 million, and $22.4 million ($1.8 million, $4.9 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.
(Continued on the next page)
43
(dollars in thousands, except per share amounts)
2013
At or for the years ended December 31,
2010
2011
2012
2009
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 impairment losses on
securities recognized in earnings (1) (2) (3)
Efficiency ratio excluding net gains on sales of securities
and net impairment losses on securities recognized
in earnings (1) (2) (3)
Asset Quality Ratios:
Net charge-offs to average loans
ALLL to total loans
ALLL to non-accrual loans
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 (3)
Per common share data:
Number of weighted average common
shares outstanding
Book value per common share
$
2,240,723
$
1,741,054
$
1,674,206
$
1,856,653
$
1,911,811
$
19,324,652
$
15,556,626
$
12,889,784
$
10,000,270
$
7,692,249
945
27
844
26
720
25
660
24
614
23
1.16%
13.26%
13.26%
3.91%
0.60%
3.36%
1.17%
12.13%
12.13%
4.25%
0.78%
3.53%
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%
36.33%
37.24%
36.41%
42.55%
50.46%
36.01%
37.05%
36.26%
41.05%
50.24%
36.33%
37.48%
37.33%
43.82%
51.74%
0.12%
1.00%
0.25%
1.10%
0.55%
1.26%
0.73%
1.29%
0.64%
1.26%
430.96%
395.12%
204.09%
197.45%
118.27%
0.23%
0.16%
8.54%
14.07%
15.10%
8.76%
8.76%
0.28%
0.19%
9.51%
15.32%
16.35%
9.64%
9.64%
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%
47,267
46,633
43,622
40,923
38,306
$
38.06
$
34.94
$
30.49
$
22.84
$
19.79
(1)
(2)
The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income before provision for loan and lease 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, 2013, 2012, 2011, 2010, and 2009 other-than-temporary impairment losses of $3.1
million, $8.5 million, $10.2 million, $24.4 million, and $22.4 million ($1.8 million, $4.9 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.
(3)
These ratios are considered to be non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to,
financial measures determined in accordance with GAAP. We believe these non-GAAP ratios, when viewed together with the corresponding
ratios calculated in accordance with GAAP, provide meaningful supplemental information regarding our performance.
44
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 $22.38 billion in assets, $17.06 billion in deposits, $13.52 billion in loans, $1.80 billion in equity
capital and $2.24 billion in other assets under management as of December 31, 2013.
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 our low efficiency ratio of 36.3% for the
year ended December 31, 2013.
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 400 experienced private
client banking team 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 ALLL in future periods, and the inability to collect on outstanding loans could result in
increased loan losses. In addition, the valuation and management’s projected cash flows for certain securities in
our investment portfolio could be negatively impacted by deteriorating collateral performance and illiquidity or
dislocation in marketplaces resulting in significantly depressed market prices thus leading to further impairments.
Allowance for Loan and Lease Losses
We consider our policies related to the ALLL as critical to our financial statement presentation. The ALLL is
established through a provision for loan and lease losses charged to current earnings. The ALLL 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 portfolio. This estimation is inherently subjective as it requires measures that are
susceptible to significant revision as more information becomes available.
45
Our methodology to determine the ALLL 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 97.0% of our total loan portfolio, excluding loans held
for sale, as of December 31, 2013. 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 by 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 performs periodic credit
reviews that provide an independent evaluation of the assigned credit ratings. These reviews focus on those
loans with higher-risk attributes, such as lines of credit with higher utilization percentages and loan facilities with
delinquencies, and 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. The results of these credit
reviews are presented to both the Risk and the Credit Committees of the Board of Directors.
Our methodology to determine the ALLL for the non-rated segments of our loan portfolio is based on historical loss
experience and qualitative factors. Non-rated loans 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. Non-rated loans comprise 3.0% of our total loan portfolio,
excluding loans held for sale, as of December 31, 2013.
We consider all non-accrual loans to be impaired loans, and the related specific allowances for 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, that are collateral-dependent, we generally record a charge-
off when the carrying amount of the loan exceeds the fair value of collateral less estimated selling costs, if
appropriate. For non-collateral dependent 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. For smaller impaired loans, in the absence of other factors affecting the collectability of the loan, we
46
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.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related ALLL. These regulatory agencies may require us to increase our provision for loan and lease losses
or to recognize further loan charge-offs based upon their judgments, which may be different from ours. An
increase in the ALLL required by these regulatory agencies could materially adversely affect our financial condition
and results of operations.
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 a provision for
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 estimated 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.
Valuation and Impairment of Investment Securities
We consider our policies related to the valuation of investment securities to be critical to our financial statement
presentation. The Bank uses various inputs to determine the fair value of its investment portfolio, which are
classified within a three-level fair value hierarchy based on the transparency and reliability of inputs to valuation
methodologies. To the extent they are available, we use quoted market prices (Level 1) to determine fair value. If
quoted market prices are not available, we use valuation techniques such as matrix pricing to determine fair value
(Level 2). In cases where there is little, if any, related market activity, fair value estimates are based upon
internally-developed valuation techniques that use inputs such as discount rates, credit spreads, default and
delinquency rates, and prepayment speeds (Level 3). A significant degree of judgment is involved in valuing
investments using Level 3 inputs, and the use of different assumptions could have a positive or negative effect on
our financial condition or results of operations. See Note 3 to our Consolidated Financial Statements for more
details on our security valuation techniques.
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, 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.
47
Securities are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on
certain quantitative and qualitative factors. For securities other than securitized financial assets, the primary
factors considered in evaluating whether a decline in value 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.
New Accounting Standards
In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Early
adoption is prohibited. We adopted the applicable requirements for ASU 2011-03 on January 1, 2012 with no
material impact to 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 (“IFRS”) 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 adopted the applicable requirements for ASU 2011-04 on
January 1, 2012 and have provided the related disclosures as required.
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, with deferral of presenting the
reclassification adjustments based on ASU 2011-12, Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05. We adopted these requirements on January 1, 2012 and have provided the
related disclosures as required.
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities, which addresses implementation issues about the scope of ASU 2011-11, Balance Sheet: Disclosures
about Offsetting Assets and Liabilities (Topic 210). The ASU 2013-01 limits the scope of the new balance sheet
offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that
they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or
similar agreement. An entity is required to apply the ASU for annual reporting periods beginning on or after
January 1, 2013, and interim periods within those annual periods. We adopted the applicable requirements for
ASU 2013-01 on January 1, 2013 with no impact to our Consolidated Financial Statements.
48
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income, which amends Accounting Standards Codification Topic 220 (Comprehensive Income).
The new amendment requires entities to provide information about the amounts reclassified out of accumulated
other comprehensive income by component. In addition, an entity is required to present, either on the face of the
statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income, but only if the amount reclassified is required
under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts
that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to
cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.
This guidance is effective for interim and annual periods beginning after December 15, 2012. We adopted the
applicable requirements for ASU 2013-02 on January 1, 2013 and have provided the applicable disclosures in
Note 17 to our Consolidated Financial Statements.
In November 2013, the FASB’s Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 13-B,
Accounting for Investments in Qualified Affordable Housing Projects. The final consensus allows investors in Low
Income Housing Tax Credit (“LIHTC”) programs that meet specified conditions to present the net tax benefits (net
of the amortization of the cost of the investment) within income tax expense. The cost of the investments that
meet the specified conditions will be amortized in proportion to (and over the same period as) the total expected
tax benefits, including the tax credits and other tax benefits, as they are realized on the tax return. The
amortization of the cost of the investments will be presented in income tax expense along with the related tax
benefits. If the investors do not qualify for the proportional amortization method or do not elect it, they would
account for their investments under the equity or cost method based on current U.S. GAAP. This guidance will be
effective for interim and annual periods beginning after December 15, 2014. The final consensus will be applied
retrospectively if investors elect the proportional amortization method. Early adoption is permitted.
49
Results of Operations
The following is a discussion and analysis of our results of operations for the year ended December 31, 2013
compared to the year ended December 31, 2012 and for the year ended December 31, 2012 compared to the
year ended December 31, 2011.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net Income
Net income for the year ended December 31, 2013 was $228.7 million, or $4.76 diluted earnings per share,
compared to $185.5 million, or $3.91 diluted earnings per share, for year ended December 31, 2012.
The return on average shareholders’ equity for the year ended December 31, 2013 was 13.26% compared to
12.13% for the year ended December 31, 2012. The return on average assets was 1.16% for the year ended
December 31, 2013 compared to 1.17% for the year ended December 31, 2012.
(in thousands)
Interest income
Interest expense
Net interest income before provision for loan and lease losses
Provision for loan and lease losses
Non-interest income:
Non-interest income excluding net impairment losses on securities
recognized in earnings
Net impairment losses on securities recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Years ended December 31,
2013
2012
$
755,150
106,807
648,343
41,643
38,160
(6,149)
32,011
247,177
162,790
228,744
$
660,556
110,750
549,806
41,427
39,312
(3,073)
36,239
218,243
140,892
185,483
50
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, 2013 and 2012:
Years ended December 31,
2013
2012
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1) (2)
Residential mortgages and 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
446
235,430
500,712
14,224
4,338
755,150
$
126,995
7,549,126
10,907,825
374,938
365,768
19,324,652
362,127
19,686,779
$
819,164
8,959,324
1,065,139
4,782,428
15,626,055
2,192,788
17,818,843
3,081
64,095
13,033
-
80,209
26,598
106,807
and shareholders' equity
Total liabilities and shareholders' equity
1,867,936
19,686,779
$
OTHER DATA
Net interest income / interest rate spread
Net interest margin
Ratio of average interest-earning assets
to average interest-bearing liabilities
0.35%
3.12%
4.59%
3.79%
1.19%
3.91%
0.38%
0.72%
1.22%
-
0.51%
1.21%
0.60%
338
238,873
402,019
15,818
3,508
660,556
3,145
66,696
14,322
-
84,163
26,587
110,750
100,289
7,114,310
7,699,659
384,659
257,709
15,556,626
299,368
15,855,994
705,604
7,874,582
925,267
3,569,645
13,075,098
1,161,784
14,236,882
1,619,112
15,855,994
0.34%
3.36%
5.22%
4.11%
1.36%
4.25%
0.45%
0.85%
1.55%
-
0.64%
2.29%
0.78%
648,343
3.31%
3.36%
108.45%
549,806
3.47%
3.53%
109.27%
(1) Average loan balances include non-accrual loans along with deferred fees and costs.
(2) Loan interest income includes net accretion of deferred fees and costs of approximately $1.6 million and $4.2 million for the years ended
December 31, 2013 and 2012, respectively.
51
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, mortgages and leases
Residential mortgages and consumer loans
Loans held for sale
Total interest income
INTEREST EXPENSE
Interest-bearing deposits
NOW and interest-bearing demand
Money market
Time deposits
Total interest-bearing deposits
Borrowings
Total interest expense
Net interest income
Year ended December 31,
2013 vs. 2012
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
18
(18,043)
(68,814)
(1,194)
(641)
(88,674)
90
14,600
167,507
(400)
1,471
183,268
108
(3,443)
98,693
(1,594)
830
94,594
(570)
(11,789)
(3,454)
(15,813)
(23,583)
(39,396)
(49,278)
$
506
9,188
2,165
11,859
23,594
35,453
147,815
(64)
(2,601)
(1,289)
(3,954)
11
(3,943)
98,537
Net interest income for the year ended December 31, 2013 was $648.3 million, an increase of $98.5 million, or
17.9%, over the year ended December 31, 2012. The increase in net interest income for 2013 was largely driven
by increases in average interest-earning assets and average deposits, which increased $3.77 billion and $2.55
billion, respectively, compared to the previous year. Although net interest income for 2013 was positively
impacted by lower rates paid on deposits, the impact of lower deposit rates was more than offset by the negative
effects of the ongoing low interest rate environment on asset yields. Net interest margin for the year ended
December 31, 2013 decreased to 3.36%, compared to 3.53% for the previous year, primarily due to the continued
effect of the prolonged low interest rate environment.
Total investment securities averaged $7.55 billion for the year ended December 31, 2013, compared to $7.11
billion for the year ended December 31, 2012. The overall yield on the securities portfolio for the year ended
December 31, 2013 was 3.12%, down 24 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 the current 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, 2013, the baseline average duration of our investment securities portfolio was approximately 4.13
years, compared to 2.75 years at December 31, 2012.
52
Total commercial loans, mortgages and leases averaged $10.91 billion for the year ended December 31, 2013, an
increase of $3.21 billion or 41.7% over the year ended December 31, 2012. The average yield on this portfolio
decreased 63 basis points to 4.59% when compared to the year ended December 31, 2012. The decrease in
average yield reflects the impact of the low prevailing interest rate environment on recent loan origination and
refinancing activity. The average yield for 2013 reflects the benefit of a $6.5 million increase in prepayment
penalty income, compared to the previous year. Our commercial real estate loans (including multi-family loans)
normally have a term of ten years, with a fixed rate of interest for the first five years 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 one to five percentage points 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 one to five percentage points over years six through ten. The
current low prevailing interest rate environment, coupled with borrowers’ expectations of higher rates in future
periods, contributed to the increase in prepayment activity during 2013. 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 $365.8 million
and $257.7 million for the years ended December 31, 2013 and 2012, respectively.
Average total deposits and borrowings increased $3.58 billion, or 25.2%, to $17.82 billion during the year ended
December 31, 2013, compared to $14.24 billion for the previous year. Overall cost of funding was 0.60% during
2013, decreasing 18 basis points from 0.78% in 2012.
For the year ended December 31, 2013, average non-interest-bearing demand deposits were $4.78 billion,
compared to $3.57 billion for the year ended December 31, 2012, an increase of $1.21 billion, or 34.0%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
31.6% of all deposits at December 31, 2013. Additionally, average NOW and interest-bearing checking and
money market accounts totaled $9.78 billion for the year ended December 31, 2013, an increase of $1.20 billion,
or 14.0%, over the year ended December 31, 2012. Core deposits have provided us with a source of stable, low
cost funding, which has positively affected our net interest margin and income. Furthermore, short-term escrow
deposits have provided us with an additional low cost funding alternative. As a result of lower short-term interest
rates, our funding cost for money market accounts and NOW accounts decreased to 0.72% and 0.38%,
respectively, for the year ended December 31, 2013 compared to 0.85% and 0.45%, respectively, for the prior
year.
Average time deposits, which are relatively short-term in nature, totaled $1.07 billion for the year ended December
31, 2013 and carried an average cost of 1.22% in 2013, down 33 basis points from 1.55% in 2012. 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, 2013, average total borrowings were $2.19 billion, compared to $1.16 billion for
the previous year, an increase of $1.03 billion, or 88.7%. The increase in our average total borrowings for 2013,
when compared to the previous year, reflects funding needs for increased loan growth along with purchases of
investment securities as a result of advantageous interest rates. At December 31, 2013, total borrowings
represent approximately 16.5% of all funding liabilities, compared to 10.1% at December 31, 2012. The average
cost of total borrowings was 1.21% and 2.29% for the years ended December 31, 2013 and 2012, respectively.
The decrease in the average cost of borrowings reflects the replacement of matured borrowings with lower cost
short-term borrowing positions.
53
Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $41.6 million for the year ended December 31, 2013, compared to
$41.4 million for the prior year, an increase of 216,000, or 0.5%. The increase in our provision was driven by our
2013 loan growth, which was partially offset by a reduction in charge-off activity. Our ALLL increased $27.6 million
to $135.1 million at December 31, 2013 from $107.4 million at December 31, 2012, primarily as a result of our loan
growth during the year.
The following table allocates the ALLL based on our judgment of inherent losses in each respective lending area
according to our methodology for allocating reserves.
(dollars in thousands)
Mortgage loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Other loans:
Commercial and industrial
Consumer
Total
2013
2012
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
$
6,637,353
3,651,538
346,795
170,441
125,334
2,565,016
11,479
13,507,956
$
47,814
44,415
3,600
1,406
1,323
35,745
768
135,071
0.72%
1.22%
1.04%
0.82%
1.06%
1.39%
6.69%
1.00%
4,380,453
2,919,708
307,158
190,782
99,475
1,860,866
10,291
9,768,733
31,292
38,292
4,794
1,099
1,127
30,176
653
107,433
0.71%
1.31%
1.56%
0.58%
1.13%
1.62%
6.35%
1.26%
In determining the ALLL, 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 by real estate) constitute a significant portion of our loan activity and loan portfolio. As of December 31,
2013, 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 may result in an increase in
nonpayment of loans, a decrease in collateral value, and an increase in our ALLL.
For additional information about the provision and ALLL, see the related discussions of asset quality later in this
report.
Non-Interest Income
For the year ended December 31, 2013, non-interest income was $32.0 million, a decrease of $4.2 million, or
11.7%, when compared with 2012. The decrease in non-interest income was driven by an increase in net other-
than-temporary impairment losses on securities recognized through earnings and reductions in the amounts of net
gains on sales of loans, which were partially offset by an increase in commissions and fees and service charges.
We recognized through earnings net other-than-temporary impairment losses on securities totaling $6.1 million
during the year ended December 31, 2013, compared to $3.1 million for the prior year. The increase in other-
than-temporary impairment losses on securities for 2013 reflects $2.1 million of write-downs that were recorded
due to the effects of the final Volcker rule. For further discussion of our other-than-temporary impairment losses,
see Note 4 to our Consolidated Financial Statements.
54
During the year ended December 31, 2013, net gains on sales of loans totaled $6.3 million, compared to $9.3
million recorded during the prior year. The decrease in net gains on sales of loans was primarily due to reduced
client demand driven by the current interest rate environment.
Commissions increased $1.2 million, or 14.1%, to $9.4 million for the year ended December 31, 2013 from $8.2
million for 2012. Additionally, fees and service charges increased $1.8 million, or 11.6%, to $17.3 million for the
year ended December 31, 2013, compared to $15.5 million for 2012. The increases in both commissions and fees
and service charges were driven by increased client activity as a result of our growth.
Non-Interest Expense
Non-interest expense increased $28.9 million, or 13.3%, to $247.2 million for the year ended December 31, 2013
from $218.2 million for the year ended December 31, 2012. This increase was primarily driven by a $16.9 million
increase in salaries and benefits mostly attributable to the addition of ten private client banking teams, the addition
of an asset-based lending team, and our continued hiring for Signature Financial. The increase also reflects a
$2.4 million increase in occupancy and equipment expenses, resulting from the expansion of existing offices,
along with a $9.7 million increase in other general and administrative expenses, reflecting increased expenses
mostly resulting from additional client activity as a result of our growth.
Stock-Based Compensation
We recognize compensation expense in our Consolidated Statement of Income 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, 2013, our total unrecognized compensation cost related to unvested restricted shares was
$39.9 million, which is expected to be recognized over a weighted-average period of 2.91 years. During the years
ended December 31, 2013 and 2012, we recognized compensation expense of $15.6 million and $17.6 million,
respectively, for restricted shares. Included in compensation expense for the year ended December 31, 2012 was
$3.2 million from the December 10, 2012 accelerated vesting of 276,016 restricted shares originally scheduled to
vest on March 22, 2013. The total fair value of restricted shares that vested during the years ended December 31,
2013 and 2012 was $2,600 and $34.1 million, respectively.
Income Taxes
We recognized income tax expense for the years ended December 31, 2013 and 2012 of $162.8 million and
$140.9 million, respectively. The components of our income tax expense are reflected in the following table:
(in thousands)
Current expense
Deferred income tax expense (benefit)
Total income tax expense
Years ended December 31,
2013
2012
$
$
155,273
7,517
162,790
149,949
(9,057)
140,892
The increase in current income tax expense for the year ended December 31, 2013, when compared to the
previous year, was primarily driven by an increase in our pre-tax income, which was partially offset by the benefits
of increased low income housing tax credits recognized during 2013. Our effective tax rate for the year ended
December 31, 2013 decreased to 41.6%, compared to 43.2% for the prior year as a result of low income housing
tax credits recognized.
55
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Net Income
Net income for the year ended December 31, 2012 was $185.5 million, or $3.91 diluted earnings per share,
compared to $149.5 million, or $3.37 diluted earnings per share, for year ended December 31, 2011.
The return on average shareholders’ equity for the year ended December 31, 2012 was 12.1% compared to
12.7% for the year ended December 31, 2011. The return on average assets was 1.17% for the year ended
December 31, 2012 compared to 1.14% for the year ended December 31, 2011.
(in thousands)
Interest income
Interest expense
Net interest income before provision for loan and lease losses
Provision for loan and lease losses
Non-interest income:
Non-interest income excluding net impairment losses on securities
recognized in earnings
Net impairment losses on securities recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Years ended December 31,
2012
2011
$
660,556
110,750
549,806
41,427
39,312
(3,073)
36,239
218,243
140,892
185,483
$
580,516
120,729
459,787
51,876
44,127
(2,089)
42,038
182,724
117,699
149,526
56
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, 2012 and 2011:
Years ended December 31,
2012
2011
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1) (2)
Residential mortgages and 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
338
238,873
402,019
15,818
3,508
660,556
$
100,289
7,114,310
7,699,659
384,659
257,709
15,556,626
299,368
15,855,994
$
705,604
7,874,582
925,267
3,569,645
13,075,098
1,161,784
14,236,882
3,145
66,696
14,322
-
84,163
26,587
110,750
and shareholders' equity
Total liabilities and shareholders' equity
1,619,112
15,855,994
$
OTHER DATA
Net interest income / interest rate spread
Net interest margin
Ratio of average interest-earning assets
to average interest-bearing liabilities
0.34%
3.36%
5.22%
4.11%
1.36%
4.25%
0.45%
0.85%
1.55%
-
0.64%
2.29%
0.78%
355
242,994
316,856
16,539
3,772
580,516
3,269
71,557
16,274
-
91,100
29,629
120,729
119,393
6,455,877
5,664,412
388,455
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
1,225,436
13,162,890
0.30%
3.76%
5.59%
4.26%
1.44%
4.50%
0.52%
1.08%
1.77%
-
0.84%
2.76%
1.01%
549,806
3.47%
3.53%
109.27%
459,787
3.49%
3.57%
107.98%
(1) Average loan balances include non-accrual loans along with deferred fees and costs.
(2) Loan interest income includes net accretion of deferred fees and costs of approximately $4.2 million and $4.7 million for the years ended
December 31, 2012 and 2011, respectively.
57
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, mortgages and leases
Residential mortgages and consumer loans
Loans held for sale
Total interest income
INTEREST EXPENSE
Interest-bearing deposits
NOW and interest-bearing demand
Money market
Time deposits
Total interest-bearing deposits
Borrowings
Total interest expense
Net interest income
Year ended December 31,
2012 vs. 2011
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
40
(28,904)
(28,685)
(559)
(207)
(58,315)
(57)
24,783
113,848
(162)
(57)
138,355
(17)
(4,121)
85,163
(721)
(264)
80,040
(500)
(18,525)
(2,099)
(21,124)
(5,481)
(26,605)
(31,710)
$
376
13,664
147
14,187
2,439
16,626
121,729
(124)
(4,861)
(1,952)
(6,937)
(3,042)
(9,979)
90,019
Net interest income for the year ended December 31, 2012 was $549.8 million, an increase of $90.0 million, or
19.6%, over the year ended December 31, 2011. The increase in net interest income over the twelve month
period was largely driven by increases in average earning assets and average deposits of $2.67 billion and $2.21
billion, respectively. Net interest margin for the year ended December 31, 2012 decreased to 3.53%, compared to
3.57% for the previous year, primarily due to the continued effect of the prolonged low interest rate environment.
Total investment securities averaged $7.11 billion for the year ended December 31, 2012, compared to $6.46
billion for the year ended December 31, 2011. The overall yield on the securities portfolio for the year ended
December 31, 2012 was 3.36%, down 40 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 the current 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, 2012, the baseline average duration of our investment securities portfolio was approximately 2.75
years, compared to 3.13 years at December 31, 2011.
Total commercial loans, mortgages and leases averaged $7.70 billion for the year ended December 31, 2012, an
increase of $2.04 billion or 35.9% over the year ended December 31, 2011. The average yield on this portfolio
decreased 37 basis points to 5.22% when compared to the year ended December 31, 2011. The decrease in
average yield reflects the impact of the low prevailing interest rate environment on recent loan originations. This
decrease, however, was partially offset by a $10.8 million increase in prepayment penalty income, which added 27
58
basis points to the yield of our commercial loans, mortgages and leases 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 one to five percentage points 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 one to five percentage
points over years six through ten. During 2012, the low prevailing interest rate environment, coupled with
borrowers’ expectations 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 $257.7
million and $261.6 million for the years ended December 31, 2012 and 2011, respectively.
Average total deposits and borrowings grew $2.30 billion, or 19.3%, to $14.24 billion during the year ended
December 31, 2012 from $11.94 billion for the year ended December 31, 2011. Overall cost of funding was 0.78%
during 2012, decreasing 23 basis points from 1.01% in 2011.
For the year ended December 31, 2012, average non-interest-bearing demand deposits were $3.57 billion as
compared to $2.70 billion for the year ended December 31, 2011, an increase of $867.4 million, or 32.1%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
31.6% of all deposits at December 31, 2012. Additionally, average NOW and interest-bearing checking and
money market accounts totaled $8.58 billion for the year ended December 31, 2012, an increase of $1.36 billion,
or 18.4%, over the year ended December 31, 2011. 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. As a result of lower short-term interest rates as well as a
continued decrease due to easing of competitors, our funding cost for money market accounts and NOW accounts
decreased to 0.85% and 0.45%, respectively, for the year ended December 31, 2012 compared to 1.08% and
0.52%, respectively, for the prior year.
Average time deposits, which are relatively short-term in nature, totaled $925.3 million for the year ended
December 31, 2012 and carried an average cost of 1.55% in 2012, down 23 basis points from 1.77% in 2011.
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, 2012, average total borrowings were $1.16 billion compared to $1.07 billion for
the previous year, an increase of $88.4 million, or 8.2%. The average cost of total borrowings was 2.29% and
2.76% for the years ended December 31, 2012 and 2011, respectively. At December 31, 2012, total borrowings
represent approximately 10.1% of all funding compared to 10.8% at December 31, 2011. 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 and Lease Losses
Our ALLL increased $21.2 million to $107.4 million at December 31, 2012 from $86.2 million at December 31,
2011, primarily as a result of our loan growth during 2012. The provision for loan and lease losses was $41.4
million for the year ended December 31, 2012 compared to $51.9 million for the prior year, a decrease of $10.4
million, or 20.1%. The decrease in the provision was primarily driven by a reduction in the level of charge-offs and
stabilized levels of non-accrual loans, partially offset by growth in the loan portfolio.
59
The following table allocates the ALLL based on our judgment of inherent losses in each respective lending area
according to our methodology for allocating reserves.
(dollars in thousands)
Mortgage loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Other loans:
Commercial and industrial
Consumer
Total
2012
2011
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
$
4,380,453
2,919,708
307,158
190,782
99,475
1,860,866
10,291
9,768,733
$
31,292
38,292
4,794
1,099
1,127
30,176
653
107,433
0.71%
1.31%
1.56%
0.58%
1.13%
1.62%
6.35%
1.10%
3,003,428
2,218,053
259,418
198,375
63,775
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%
1.29%
In determining the ALLL, 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 by real estate) constitute a significant 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 may result in an increase in nonpayment of loans, a decrease in
collateral value, and an increase in our ALLL.
For additional information about the provision and ALLL, see the related discussions of asset quality later in this
report.
Non-Interest Income
For the year ended December 31, 2012, non-interest income was $36.2 million, a decrease of $5.8 million, or
13.8%, when compared with 2011. The decrease in non-interest income was driven by an increase in net other-
than-temporary impairment losses on securities recognized through earnings and reductions in the amounts of net
gains on sales of securities and other income, which were partially offset by an increase in net gains on sales of
loans.
During 2012, we recognized through earnings net other-than-temporary impairment losses on securities totaling
$3.1 million, compared to $2.1 million during the prior year. During 2012, 11 securities were determined to be
other-than-temporarily impaired, including ten private collateralized mortgage obligations and one collateralized
debt obligation. 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. For further discussion of our other-than-temporary impairment losses, see Note 4 to our Consolidated
Financial Statements.
Net gains on sales of securities totaled $6.9 million for the year ended December 31, 2012, a decrease of $7.5
million when compared to the prior year. The decrease in net gains on sales of securities was driven by a $5.3
million gain on sale of SBA interest-only securities reported in the first quarter of 2011.
Other income totaled $(1.3 million) for the year ended December 31, 2012, a decrease of $2.6 million when
compared to the prior year. The decrease was due to a scheduled amortization of low income housing tax credit
60
investments totaling $3.1 million recorded during 2012, the offset to which was related to low income housing tax
credits that helped to reduce our effective tax rate.
During the year ended December 31, 2012, net gains on sales of loans totaled $9.3 million, compared to $4.1
million recorded during the prior year. The increase in net gains on sales of loans was primarily due to an
increase in client demand for SBA loan and pool products.
Non-Interest Expense
Non-interest expense increased $35.5 million, or 19.4%, to $218.2 million for the year ended December 31, 2012
from $182.7 million for the year ended December 31, 2011. This increase was primarily driven by a $32.2 million
increase in salaries and benefits mostly attributable to the addition of four private client banking teams and the
hiring of employees for our newly-formed subsidiary, Signature Financial. The increase also reflects a $991,000
increase in occupancy and equipment expenses, resulting from the expansion of existing offices, along with a $2.4
million increase in other general and administrative expenses, reflecting increased expenses due to additional
client activity.
Stock-Based Compensation
We recognize compensation expense in our Consolidated Statement of Income 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, 2012, there was $28.3 million of total unrecognized compensation cost related to unvested
restricted shares that is expected to be recognized over a weighted-average period of 3.99 years. During the
years ended December 31, 2012 and 2011, we recognized compensation expense of $17.6 million and $8.5
million, respectively, for restricted shares. Included in compensation expense for the year ended December 31,
2012 was $3.2 million from the December 10, 2012 accelerated vesting of 276,016 restricted shares originally
scheduled to vest on March 22, 2013. The total fair value of restricted shares that vested during the year ended
December 31, 2012 was $34.1 million. No restricted shares vested during the year ended December 31, 2011.
Income Taxes
We recognized income tax expense for the years ended December 31, 2012 and 2011 of $140.9 million and
$117.7 million, respectively. The components of income tax expense for the years ended December 31, 2012 and
2011 are reflected in the following table:
(in thousands)
Current expense
Deferred income tax benefit
Total income tax expense
Years ended December 31,
2012
2011
$
$
149,949
(9,057)
140,892
128,831
(11,132)
117,699
The increase in current income tax expense was primarily driven by an increase in our pre-tax income, which was
partially offset by benefits from low income housing tax credits recognized during the twelve months ended
December 31, 2012, totaling $4.8 million. Accordingly, our effective tax rate for the year ended December 31,
2012 decreased to 43.2%, compared to 44.0% for the prior year as a result of the low income housing tax credits
recognized.
61
Financial Condition
Securities Portfolio
Securities in our investment portfolio are designated as either available-for-sale (“AFS”) or held-to-maturity
(“HTM”) based upon various factors, including asset/liability management strategies, liquidity and profitability
objectives and regulatory requirements. 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, net of tax, in shareholders’ equity. HTM securities are carried at cost
and adjusted for amortization of premiums or accretion of discounts. 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, 2013, our total securities portfolio was $7.80 billion, compared to $6.87 billion at December 31,
2012. Our portfolio primarily consists of mortgage-backed securities (“MBSs”) and collateralized mortgage
obligations (“CMOs”) issued by U.S. Government agencies ($916.5 million), government-sponsored enterprises
($5.24 billion) and private issuers ($497.8 million). As of December 31, 2013, 86.7% of our securities portfolio had
a AAA credit rating, 94.1% had a credit rating of A or better, and 97.2% was rated investment grade or better.
Also, we did not hold sovereign debt of Euro-zone countries currently experiencing financial difficulty. Overall, our
securities portfolio had a weighted average duration of 4.13 years and a weighted average life of 5.16 years as of
December 30, 2013. For further discussion of our investment securities and the related determination of fair
value, see Notes 3 and 4 to our Consolidated Financial Statements.
During the second quarter of 2013, we transferred $806.3 million of AFS securities to HTM due to expected
market volatility. The securities transferred consisted primarily of CMOs, MBSs, and corporate bonds. The
securities were transferred at fair value, which became the cost basis for the HTM securities. The net unrealized
loss, net of tax, on these securities at the date of transfer was $19.2 million, and continues to be reported, net of
tax, as a component of accumulated other comprehensive income. This net unrealized loss will be accreted to
interest income over the remaining life of the securities, and will be offset by the amortization of the net discount
created by the transfer, resulting in no current or future impact to our net interest income as a result of this
transfer. Also, there were no gains or losses recognized as a result of this transfer.
During the fourth quarter of 2013, federal regulators adopted a final rule implementing the “Volcker Rule” enacted
as part of the Dodd-Frank Act. Per the rule, banking organizations and their affiliates are restricted from investing
in and sponsoring covered funds. Such investments must be divested by the end of a conformance period (July
21, 2015). In order to comply with the Volcker Rule, we transferred one collateralized debt obligation (“CDO”) that
may be deemed as a covered fund from HTM to AFS, resulting in $2.1 million of other-than-temporary impairment
losses charged to earnings.
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 100 months with a
weighted average loan to value ratio of approximately 58% of original appraised values. The weighted average
FICO score of the borrowers was approximately 728 at origination of the loan. The Private CMO sector is
diversified with an average holding of $1.8 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, 2013, the net unrealized loss on AFS securities, net of tax effect, was $51.7 million as reflected
in accumulated other comprehensive income, compared to a net unrealized gain of $43.8 million at December 31,
2012. The fair value of our AFS securities is affected by several factors, including (i) credit spreads, (ii) the
interest rate environment, (iii) unemployment rates, (iv) delinquencies and defaults on the mortgages underlying
such obligations, (v) changes in interest rates resulting from expiration of the fixed rate portion of adjustable rate
mortgages (“ARMs”), (vi) changing home prices, (vii) market liquidity for such obligations, and (viii) uncertainties
62
with respect to 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 the securities in our investment portfolio, and other than those securities for which
we have 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 or if we
change our intent to hold these securities, we would recognize additional other-than-temporary impairment losses
through earnings.
The following table summarizes the components of our AFS and HTM securities portfolios at the dates indicated:
(in thousands)
AVAILABLE-FOR-SALE
U.S. Treasury 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:
2013
December 31,
2012
2011
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
500
501
-
-
-
-
24,171
1,049,867
25,004
1,050,217
32,456
844,503
34,315
878,385
36,437
1,103,380
38,649
1,141,619
578,012
2,451,274
494,920
576,738
2,408,166
491,319
576,709
2,872,130
696,593
586,825
2,900,066
694,986
681,869
2,902,349
818,904
697,542
2,968,904
792,514
Commercial mortgage-backed securities
345,560
348,707
373,750
392,637
315,573
322,026
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:
399,214
26,735
4,926
300,420
16,724
5,692,323
$
401,733
13,093
4,926
296,060
15,769
5,632,233
418,918
27,863
5,282
186,478
16,290
6,050,972
426,855
8,601
2,952
188,539
16,195
6,130,356
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
$
2,358
493,979
2,452
478,462
3,010
67,904
3,156
68,648
3,286
20,013
3,431
20,859
312,405
1,288,749
6,525
310,599
1,241,417
5,473
142,358
485,918
8,852
148,130
498,277
7,192
122,560
358,859
11,419
128,185
375,661
7,972
Commercial mortgage-backed securities
18,260
19,119
-
-
358
359
Single issuer trust preferred & corporate
debt securities
Collateralized debt obligations
Other
Total held-to-maturity
43,650
-
9,918
2,175,844
$
42,911
-
9,857
2,110,290
-
4,739
27,054
739,835
-
2,739
27,327
755,469
-
5,309
34,240
556,044
-
2,710
32,803
571,980
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
63
The following table presents the credit rating distribution of our securities portfolio at December 31, 2013:
Credit Rating
AAA
AA
A
BBB
Below BBB
Total
Percentage of
Portfolio
86.65%
2.21%
5.21%
3.13%
2.80%
100.00%
The following table provides the estimated change in fair value of our debt securities for various interest rate
shocks at December 31, 2013:
Interest Rate Shock
+100 basis points
+200 basis points
+300 basis points
+400 basis points
Estimated Fair
Value Change
(4.33%)
(9.27%)
(14.06%)
(19.01%)
64
The following table presents the contractual maturity distribution and the weighted average yields of our combined
AFS and HTM securities portfolio as of December 31, 2013. Due to prepayments of collateral underlying the
securities, actual maturity may differ from contractual maturity.
(dollars in thousands)
Less than one year
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities (1)
Total
One year to less than five years
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
Five years to less than 10 years
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
10 years and longer
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
All maturities
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
Amortized Cost
Fair Value
Average Yield
$
-
6
-
4,096
4,102
$
$
500
5,132
8,766
109,229
123,627
$
-
$
1,066
58,650
290,340
350,056
$
$
-
1,564,171
5,064,469
745,018
7,373,658
$
$
500
1,570,375
5,131,885
1,148,683
7,851,443
$
-
6
-
4,025
4,031
501
5,456
8,969
114,458
129,384
-
1,143
59,570
291,580
352,293
-
1,549,530
4,965,173
726,343
7,241,046
501
1,556,135
5,033,712
1,136,406
7,726,754
0.00%
4.50%
0.00%
4.35%
4.35%
0.33%
5.01%
5.19%
3.81%
3.94%
0.00%
5.12%
3.53%
3.24%
3.29%
0.00%
3.16%
3.16%
4.69%
3.32%
0.33%
3.17%
3.17%
4.24%
3.33%
(1) Excludes equity securities, which do not have maturities.
65
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)
Mortgage loans:
2013
2012
December 31,
2011
2010
2009
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Multi-family residential property
$
6,637,353
47.81%
4,380,453
43.38%
3,003,428
41.68%
1,716,248
30.68%
1,153,610
24.78%
Commercial property
3,651,538
26.30%
2,919,708
28.90%
2,218,053
30.78%
1,799,162
32.16%
1,492,877
32.06%
1-4 family residential property
Home equity lines of credit
Construction and land
346,795
170,441
125,334
2.50%
1.23%
0.90%
307,158
190,782
99,475
3.04%
1.89%
0.98%
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%
Other loans:
Commercial and industrial
2,565,016
18.48%
1,860,866
18.42%
1,098,805
15.24%
1,146,110
20.49%
1,107,850
23.79%
Commercial - SBA
guaranteed portion
Consumer
Sub-total / Total
Premiums, deferred
fees and costs
Total
375,501
11,479
2.70%
0.08%
332,430
10,291
3.29%
0.10%
354,060
11,837
4.91%
0.16%
346,454
13,086
6.19%
0.23%
276,802
14,208
5.95%
0.31%
13,883,457
100.00%
10,101,163
100.00%
7,207,751
100.00%
5,594,293
100.00%
4,655,964
100.00%
56,773
$
13,940,230
40,075
10,141,238
35,000
7,242,751
32,834
5,627,127
13,341
4,669,305
Total loans increased by $3.80 billion to $13.94 billion at December 31, 2013 from $10.14 billion at December 31,
2012. Our total loan-to-deposit ratio, excluding loans held for sale, increased to 79.3% at December 31, 2013
from 69.4% at December 31, 2012.
As of December 31, 2013, 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 may result
in an increase in nonpayment of loans, a decrease in collateral value, and an increase in our ALLL.
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 any such loans.
At December 31, 2013, loans fully secured by cash and marketable securities represented 0.8% of outstanding
loan balances. The SBA portfolio, consisting only of the guaranteed portion of the SBA loans, represented 2.7%
of outstanding loan balances. Our fully unsecured loan portfolio represented 1.3% of our total outstanding loan
portfolio at December 31, 2013. 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 in managing credit quality, we view the Bank’s 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) the borrower’s history of payment performance.
66
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, 2013
pass
Rating 1-6
special
mention
Rating 7
substandard
Rating 8
doubtful
Rating 9
Non-rated
Total
Commercial loans secured by real estate:
Multi-family residential property
$
6,619,472
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2012
3,593,283
166,917
123,171
2,487,590
12,990,433
$
Commercial loans secured by real estate:
Multi-family residential property
$
4,359,957
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
2,861,078
109,144
96,746
1,769,505
9,196,430
$
5,159
27,375
3,706
-
3,661
39,901
9,154
20,661
767
-
9,114
39,696
11,161
30,791
5,623
2,163
19,282
69,020
9,476
37,969
12,010
2,729
27,599
89,783
-
89
-
-
-
-
65
-
6,635,792
3,651,538
176,311
125,334
8,343
8,432
46,140
46,205
2,565,016
13,153,991
-
-
400
-
7,723
8,123
-
-
34
-
46,925
46,959
4,378,587
2,919,708
122,355
99,475
1,860,866
9,380,991
For consumer loans, including residential mortgages and home equity lines of credit, we consider the borrower’s
payment history and current payment performance as leading 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, 2013
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2012
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
168,557
167,701
11,337
347,595
182,862
189,990
9,951
382,803
3,488
2,740
142
6,370
3,807
792
340
4,939
172,045
170,441
11,479
353,965
186,669
190,782
10,291
387,742
67
The following table presents commercial and industrial loans and construction and land loans at fixed and variable
rates, by maturity for the period indicated:
As of December 31, 2013
Within One
Year
One to Five
Years
After Five
Years
$
959,040
92,917
1,051,957
$
1,381,363
32,417
1,413,780
1,291,129
122,651
1,413,780
224,613
-
224,613
222,108
2,505
224,613
Total
2,565,016
125,334
2,690,350
(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 as well as other real estate owned and
other repossessed assets. Loans are generally placed on non-accrual status upon becoming 90 days past due, or
three months delinquent for single family property loans, based on contractual terms. In the case of commercial
loans and loans secured by real estate, exceptions may be made if the loan has sufficient collateral value, based
on a current appraisal, and 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, troubled debt restructured loans, 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
Other repossessed assets
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:
Total non-accrual loans to total loans
Total non-performing assets to total assets
ALLL to non-accrual loans
ALLL to total loans
Net charge-offs to average loans
2013
2012
December 31,
2011
2010
2009
$
21,414
9,928
4,778
-
800
36,920
$
$
33,098
$
1,288
$
1,151
24,001
3,189
5,927
-
-
33,117
52,554
27,176
1,579
0.23%
0.16%
0.28%
0.19%
40,432
31,155
46,606
1,786
5,772
566
-
48,556
44,685
9,000
1,307
0.62%
0.33%
2,979
4,445
1,667
-
40,246
8,530
15,740
1,778
-
8,216
700
-
55,522
-
12,494
3,883
0.65%
0.34%
1.07%
0.61%
430.96%
395.12%
204.09%
197.45%
118.27%
1.00%
0.12%
1.10%
0.25%
1.26%
0.55%
1.29%
0.73%
1.26%
0.64%
68
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
Past Due
30-89 Days
Past Due
90+ Days
Total
Past Due
Current
Total
Loans
Accruing
Loans Past
Due 90+ Days
Non-accruing
Loans
(in thousands)
December 31, 2013
Commercial loans
Loans secured by real estate:
Multi-family residential property
$
15,105
Commercial property
1-4 family residential property
Construction and land
16,462
-
-
-
7,308
4,973
2,162
15,105
23,770
4,973
2,162
6,620,687
6,635,792
3,627,768
3,651,538
171,338
123,172
176,311
125,334
Commercial and industrial loans
18,229
10,529
28,758
2,536,258
2,565,016
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
December 31, 2012
Commercial loans
2,441
2,558
76
54,871
$
Loans secured by real estate:
Multi-family residential property
$
8,504
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
15,740
2,769
-
18,260
2,704
676
61
48,714
$
4,276
3,240
142
32,630
-
11,596
13,787
2,729
14,254
7,940
3,720
340
54,366
6,717
5,798
218
87,501
165,328
164,643
172,045
170,441
11,261
13,420,455
11,479
13,507,956
8,504
4,370,083
4,378,587
27,336
16,556
2,729
2,892,372
2,919,708
105,799
96,746
122,355
99,475
32,514
1,828,352
1,860,866
10,644
4,396
401
103,080
176,025
186,386
9,890
9,665,653
186,669
190,782
10,291
9,768,733
-
-
-
-
-
788
500
-
1,288
-
8,767
8,049
-
3,299
4,133
2,928
-
27,176
-
7,308
4,973
2,162
10,529
3,488
2,740
142
31,342
-
2,829
5,738
2,729
10,955
3,807
792
340
27,190
Non-accrual loans at December 31, 2013 included four commercial and industrial loans totaling $8.0 million, three
commercial real estate loans totaling $6.9 million, one construction and land loan for $2.2 million, two residential
mortgages totaling $6.4 million, and three home equity lines of credit totaling $1.7 million. Each of these non-
accrual loans is being actively managed by the Bank, and the ALLL includes a specific allocation for each of these
loans.
If all non-accrual loans outstanding at December 31, 2013, 2012, and 2011 had been performing in accordance
with their original terms, we would have recorded interest income with respect to such loans of approximately $2.2
million, $2.2 million, and $4.2 million for the years then ended, respectively. This compares to actual payments
recorded as interest income with respect to such loans of $282,000 and $363,000 for the years ended December
31, 2012, and 2011, respectively. There was no interest income recorded on non-accrual loans during the year
ended December 31, 2013.
Non-accrual investment securities at December 31, 2013, 2012, and 2011 consisted of bank-collateralized pooled
trust preferred securities and one collateralized debt obligation. These securities were classified as non-
performing because of a deferral of their interest payments. At December 31, 2013, 2012, and 2011, the fair value
of our non-accrual pooled trust preferred securities totaled $4.1 million, $4.6 million, and $4.5 million, respectively.
The fair value of our non-accrual collateralized debt obligation was $654,000 at December 31, 2013 and $1.3
million at both December 31, 2012 and 2011.
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, 2013, accruing loans past due 90 days or more include $1.3 million of
residential mortgages that are well secured and in process of collection. At December 31, 2012, accruing loans
past due 90 days or more include matured performing loans in the normal process of renewal ($878,000) and
loans that are well secured and in process of collection ($16.2 million of commercial loans secured by real estate,
69
$6.6 million of residential mortgages, and $2.6 million of commercial and industrial loans). Accruing loans held for
sale past due 90 days or more at December 31, 2013 and December 31, 2012 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 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 the
loan’s contractual term. For a summary of our accounting methodologies relating to TDRs, see the Allowance for
Loan and Lease Losses section of our Critical Accounting Policies. Additionally, for a discussion of our TDR loans
and the related financial effects, see Note 8 to our Consolidated Financial Statements.
Allowance for Loan and Lease Losses
The ALLL 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, 2013, 2012, and 2011, our ALLL totaled $135.1 million, $107.4 million, and $86.2 million, respectively, which
represents 1.00%, 1.10%, and 1.26% of total loans and leases (excluding loans held for sale) at December 31,
2013, 2012 and 2011, respectively. For a summary of our accounting methodologies relating to the ALLL, see the
Allowance for Loan and Lease Losses section of our Critical Accounting Policies.
The provision for loan and lease losses is a charge to earnings to maintain the ALLL 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, 2013, 2012, and 2011, we recorded provisions of $41.6 million, $41.4 million, and
$51.9 million, respectively. These provisions were made to reflect management’s assessment of the inherent and
specific risk of loan and lease losses relative to the growth of the portfolio.
The following table presents our ALLL and outstanding loan balances by segment of our loan portfolio, based on
the methodology followed in determining the ALLL:
(in thousands)
As of December 31, 2013
ALLL:
Credit-rated
Commercial Loans
Commercial
Loans
Non-rated
Residential
Mortgages
Consumer
Loans
Total
Individually evaluated for impairment
$
9,628
Collectively evaluated for impairment
118,564
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
As of December 31, 2012
ALLL:
56,676
13,051,110
Individually evaluated for impairment
$
6,803
Collectively evaluated for impairment
93,289
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
71,918
9,262,114
399
2,398
813
45,392
654
3,615
1,389
45,570
1,250
2,064
71
697
11,348
123,723
6,809
335,677
142
11,337
64,440
13,443,516
269
2,150
6,097
371,354
154
499
340
9,951
7,880
99,553
79,744
9,688,989
70
The following table allocates our ALLL to the respective portfolio categories as of the dates indicated:
(dollars in thousands)
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
2013
2012
2011
2010
2009
December 31,
Mortgage Loans:
Multi-family residential property
$
47,814
35.40%
31,292
29.13%
25,160
29.20%
7,401
10.98%
5,088
9.23%
Commercial property
44,415
32.88%
38,292
35.64%
23,844
27.67%
14,521
21.55%
10,778
19.55%
1-4 family residential property
Home equity lines of credit
Construction and land
Other loans:
3,600
1,406
1,323
2.67%
1.04%
0.98%
4,794
1,099
1,127
4.46%
1.02%
1.05%
3,096
818
4,836
3.59%
0.95%
5.61%
3,352
831
2,386
4.97%
1.23%
3.54%
1,576
631
4,027
2.86%
1.14%
7.31%
Commercial and industrial
35,745
26.46%
30,176
28.09%
27,622
32.06%
37,545
55.71%
32,279
58.57%
Consumer
Total
768
0.57%
653
0.61%
786
0.91%
1,360
2.02%
741
1.34%
$
135,071
100.00%
107,433
100.00%
86,162
100.00%
67,396
100.00%
55,120
100.00%
Summary of Loan Loss Experience
The following table presents the changes in the ALLL for the years indicated:
(in thousands)
Beginning balance - ALLL
Charge-offs and recoveries:
Loans charged-off
Recoveries of loans previously charged off
Net charge-offs
Provision for loan and lease losses
Ending balance - ALLL
2013
Years ended December 31,
2011
2012
2010
2009
$
107,433
86,162
67,396
55,120
36,987
16,681
2,676
14,005
41,643
135,071
$
22,156
2,000
20,156
41,427
107,433
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
The following table presents a summary by loan portfolio segment of our ALLL, loan loss experience, and
provision for loan and lease losses for the periods indicated:
(in thousands)
For the year ended December 31, 2013
Beginning balance - ALLL
Provision for loan and lease losses
Loans charged off
Recoveries of loans previously charged off
Ending balance - ALLL
For the year ended December 31, 2012
Beginning balance - ALLL
Provision for loan and lease losses
Loans charged off
Recoveries of loans previously charged off
Ending balance - ALLL
Credit-rated
Commercial Loans
Commercial
Loans
Non-rated
Residential
Mortgages
Consumer
Loans
Total
$
100,092
40,928
(14,137)
$
1,309
128,192
$
78,853
39,634
(18,657)
$
262
100,092
4,269
(1,254)
(1,384)
1,166
2,797
4,954
214
(2,439)
1,540
4,269
2,419
1,615
(753)
33
3,314
1,569
1,481
(635)
4
2,419
653
354
(407)
168
768
786
98
(425)
194
653
107,433
41,643
(16,681)
2,676
135,071
86,162
41,427
(22,156)
2,000
107,433
Our net charge-offs during 2013 decreased to $14.0 million compared to $20.2 million for the prior year.
Significant charge-offs during 2013 consisted of seven commercial and industrial loans totaling $11.0 million, three
commercial loans secured by 1-4 family residential property totaling $1.5 million, and one construction loan for
$382,000. The remainder of the 2013 charge-offs were primarily comprised of small business and overdraft line of
credit relationships, for which the individual charge-off did not exceed $300,000.
71
Deferred Tax Asset/Liability
At December 31, 2013, 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. While we will continue to monitor the need for a valuation allowance going forward,
we do not expect a valuation allowance will be required 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.
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
Net unrealized losses on securities transferred to held-to-maturity
Total deferred tax assets
DEFERRED TAX LIABILITIES
Depreciation
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,
2013
2012
$
59,078
1,220
8,900
1,834
18,273
2,128
91,433
26,236
13,815
131,484
-
674
22,690
23,364
-
23,364
108,120
$
47,154
-
2,103
1,455
18,643
8,782
78,137
-
-
78,137
138
660
1,753
2,551
34,284
36,835
41,302
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
Excluding brokered deposits, total deposits at December 31, 2013 and 2012 were $16.65 billion and $13.97 billion,
respectively. Included in deposits at December 31, 2013 and 2012 were approximately $1.26 billion and $886.3
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, 2013, due to
their nature, are expected to be released during the first quarter of 2014. Excluding the short-term escrow
deposits and brokered CDs, our total core deposits increased approximately $2.31 billion during 2013 as a result
72
of the addition of new private client banking teams, as well as additional deposits raised by our existing private
client banking teams.
The following table presents the composition of our deposit accounts as of the dates indicated:
(dollars in thousands)
Personal demand deposit accounts (1)
Business demand deposit accounts (1)
Rent security
Personal NOW
Business NOW
Personal money market accounts
Business money market accounts
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand deposit accounts (1)
NOW
Money market accounts
Time deposits
Brokered time deposits
Total
Personal
Business
Brokered time deposits
Total
(1) Non-interest bearing.
December 31,
2013
2012
Amount
Percentage
Amount
Percentage
$
511,911
4,879,572
98,987
38,797
812,100
3,172,224
6,318,277
415,040
405,959
404,230
17,057,097
5,391,483
850,897
9,589,488
820,999
404,230
17,057,097
4,137,972
12,514,895
404,230
17,057,097
$
$
$
$
$
3.00%
28.61%
0.58%
0.23%
4.76%
18.60%
37.04%
2.43%
2.38%
2.37%
100.00%
31.61%
4.99%
56.22%
4.81%
2.37%
100.00%
24.26%
73.37%
2.37%
100.00%
501,577
3,943,387
90,766
38,478
752,843
2,747,746
5,061,632
473,442
364,276
108,505
14,082,652
4,444,964
791,321
7,900,144
837,718
108,505
14,082,652
3,761,243
10,212,904
108,505
14,082,652
3.56%
28.00%
0.64%
0.27%
5.35%
19.52%
35.94%
3.36%
2.59%
0.77%
100.00%
31.56%
5.62%
56.10%
5.95%
0.77%
100.00%
26.71%
72.52%
0.77%
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,
2013
Average
Balance
Average
Rate
2012
Average
Balance
Average
Rate
$
819,164
8,959,324
827,389
237,750
4,782,428
15,626,055
$
0.38%
0.72%
0.15%
0.45%
-
0.51%
705,604
7,874,582
849,121
76,146
3,569,645
13,075,098
0.45%
0.85%
1.64%
0.55%
-
0.64%
73
The following table presents time deposits of $100,000 or more by their maturity as of December 31, 2013:
(dollars in thousands)
Three months or less
Over three months through six months
Over six months through one year
Over one year
Total
December 31, 2013
$
221,525
150,578
154,710
169,202
696,015
$
Borrowings
The following table presents information regarding our borrowings:
At or for the year ended December 31,
2013
2012
2011
(dollars in thousands)
Amount
Federal Home Loan Bank advances
$
2,305,313
Repurchase agreements
Federal funds purchased
Other short-term borrowings
695,000
370,000
-
Total borrowings
$
3,370,313
Maximum total outstanding at any
month-end
Average balance
Average rate
$
3,370,313
$
2,192,788
Weighted
Average
Rate
0.60%
2.43%
0.28%
0.00%
0.95%
Weighted
Average
Rate
0.88%
2.86%
0.33%
0.00%
1.57%
Amount
590,000
645,000
350,000
-
1,585,000
1,585,000
1,161,784
Weighted
Average
Rate
0.92%
3.23%
0.17%
0.00%
2.02%
Amount
675,000
695,000
55,800
-
1,425,800
1,425,800
1,073,430
1.21%
2.29%
2.76%
At December, 2013, our borrowings were $3.37 billion, or 16.5% of our funding liabilities, compared to $1.59
billion, or 10.1% of our funding liabilities, at December 31, 2012. The increase in our borrowings, when compared
to December 31, 2012, reflects funding needs for increased loan growth along with purchases of investment
securities as a result of advantageous interest rates. These borrowings are collateralized by our mortgage-backed
and collateralized mortgage obligation securities. We also hold $103.7 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 our FHLB
line, and the amount of securities available for pledging, we estimate our available consolidated capacity for
additional borrowings to be approximately $2.12 billion at December 31, 2013.
The following table shows the maturity or re-pricing of our borrowings at December 31, 2013.
Maturity or repricing period (in thousands)
3 months or less
3 - 12 months
1 - 3 years
Over 3 years
Total
$
1,410,000
670,150
959,263
330,900
3,370,313
Fair Value of Financial Instruments
Our AFS securities, which represent $5.63 billion of our total assets at December 31, 2013, are carried at fair
value. Held-for-sale loans totaling $420.8 million at December 31, 2013, are carried at the lower of cost or fair
value.
74
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, the 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
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. SBA interest-only strip securities, pooled trust preferred securities,
and private CMOs are all included in the Level 3 fair value hierarchy.
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, 2013:
Less than
1 year
$
3,271
2,080,150
15,005
2,098,426
$
Payments due by period
1 - 3
years
5,879
959,263
26,922
992,064
3 - 5
years
-
330,900
21,147
352,047
More than
5 years
-
-
47,379
47,379
Total
9,150
3,370,313
110,453
3,489,916
(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.
75
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.
The following table presents a summary of our commitments and contingent liabilities:
(in thousands)
Unused commitments to extend credit
Financial standby letters of credit
Commercial and similar letters of credit
Other
Total
December 31,
2013
2012
$
$
578,771
209,136
20,516
1,135
809,558
445,444
184,181
24,094
1,021
654,740
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, 2013 and 2012, our reserves for losses on unused
commitments to extend credit totaled $825,000 and $575,000, respectively, and are 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, 2013 and
December 31, 2012, we had deferred revenue for commitment fees paid for the issuance of standby letters of
credit in the amounts of $809,000 and $676,000, 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 $130,000 and $106,000 at December 31, 2013 and 2012, respectively.
At December 31, 2013 and 2012, we had commitments to sell residential mortgage loans and the U.S.
government-guaranteed portion of SBA loans totaling $920,000 and $8.7 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 minimum 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
76
consolidated subsidiaries. Supplementary capital, which qualifies as Tier 2 capital and counts towards total capital
subject to certain limits, includes allowances for loan and lease 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%.
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, 2013:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
As of December 31, 2012:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Basel III
Actual
Amount
Ratio
Required for Capital
Adequacy Purposes
Ratio
Amount
Required to be
Well Capitalized
Amount
Ratio
$
1,986,694
1,850,668
1,850,668
15.10%
14.07%
8.54%
1,052,562
526,281
866,469
$
1,714,519
1,606,405
1,606,405
16.35%
15.32%
9.51%
838,788
419,394
675,639
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
1,315,702
789,421
1,083,087
10.00%
6.00%
5.00%
1,048,484
629,091
844,549
10.00%
6.00%
5.00%
On July 9, 2013, the Federal Deposit Insurance Corporation approved final rules that substantially amend the
regulatory risk-based capital rules applicable to Signature Bank. The final rules were adopted following the
issuance of proposed rules by the federal banking regulators in June 2012, and implement the “Basel III”
regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative
documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in
December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank
capital, leverage and liquidity requirements.
The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and
would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum
capital level requirements applicable to Signature Bank under the final rules would be: (i) a new common equity
Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also
establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must
consist entirely of common equity Tier 1 capital. Common equity Tier 1 capital consists of common stock
instruments that meet the eligibility criteria in the final rules, retained earnings, accumulated other comprehensive
income and common equity Tier 1 minority interest. The capital conservation buffer will be phased-in over four
years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for
2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter, resulting in the following minimum
ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii)
a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends,
engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer
amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for
such actions.
Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5%
of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive
77
credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach
banks” ( i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which
currently excludes Signature Bank. The final rules also implement revisions and clarifications consistent with
Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and
losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out
over time.
The final rules also contain revisions to the prompt corrective action framework, which is designed to place
restrictions on insured depository institutions, including Signature Bank, if their capital levels begin to show signs
of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements,
which are designed to complement the capital conservation buffer, insured depository institutions will be required
to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new
common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital
ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).
The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to
utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk
exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness
consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules
for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-
style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in
total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion
in consolidated assets. Based on our current capital composition and levels, we believe that we would be in
compliance with the requirements as set forth in the final rules if they were presently in effect.
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,
2013, 2012 and 2011, our primary source of liquidity has been core deposit growth.
Additionally, we have borrowing sources available to supplement deposit flows, including the FHLB and
repurchase agreement lines with other financial institutions. 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, 2013, our FHLB borrowings consisted of $2.31 billion in advances with an
average rate of 0.60% that mature by December 2017.
We also have repurchase agreement lines with several leading financial institutions totaling $2.23 billion. At
December 31, 2013, 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
our FHLB line, and the amount of securities available for pledging, we estimate our available consolidated capacity
for additional borrowings to be approximately $2.12 billion as of December 31, 2013.
The federal banking agencies in 2013 also proposed a new “liquidity coverage ratio” rule (“LCR Rule”) based upon
Basel III requirements that will for the first time regulate bank liquidity in detail. As proposed, however, the LCR
Rule will not apply to depository institutions, including Signature Bank, with less than $50 billion in consolidated
assets. Accordingly, we do not anticipate that the LCR rule will impact our operations or financial condition.
78
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. Day-to-day
oversight of this function is performed by 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 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 hypothetical interest rate scenarios. Based on these simulations, we quantify
interest rate risk and develop and implement appropriate strategies. At December 31, 2013, we used a simulation
model to analyze net interest income sensitivity to both (i) a parallel shift in interest rates, in which the base market
interest rate forecast was increased in quarterly increments over the first twelve months, followed by rates holding
constant thereafter (“ramp scenario”) and (ii) a parallel and sustained shift in interest rates, in which the base
market interest rate forecast was immediately increased by 100, 200, 300 and 400 basis points (“shock scenario”).
Given the exceptionally 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.
79
The following table indicates the sensitivity of projected annualized net interest income to the interest rate
movements described above at December 31, 2013:
(dollars in thousands)
Ramp scenario:
Base
Up 100 basis points
Up 200 basis points
Up 300 basis points
Up 400 basis points
Shock scenario:
Base
Up 100 basis points
Up 200 basis points
Up 300 basis points
Up 400 basis points
Adjusted Net
Interest Income
Change
from Base
$
718,488
726,309
724,097
716,851
710,560
$
718,488
721,510
708,868
687,528
664,799
-
1.1%
0.8%
(0.2)%
(1.1)%
-
0.4%
(1.3)%
(4.3)%
(7.5)%
We also use a simulation model to measure the impact that hypothetical 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, 2013,
we used a simulation model to analyze the market value of equity sensitivity to a parallel and sustained shift in
interest rates, in which the base market interest rate forecast was immediately increased by 100, 200, 300 and
400 basis points. Given the current low interest rate 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, 2013 to the interest rate
movements described above (base case market value of equity is $3.11 billion):
(dollars in thousands)
Up 100 basis points
Up 200 basis points
Up 300 basis points
Up 400 basis points
Sensitivity
$
(247,833)
(461,117)
(656,859)
(1,045,247)
Change
from Base
(8.0)%
(14.9)%
(21.2)%
(33.7)%
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.
80
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.
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, 2013, management evaluated the effectiveness of internal control over financial reporting
based on the framework in Internal Control—Integrated Framework (1992) 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, 2013 is effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2013 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, 2013. The report of KPMG LLP on the effectiveness of the
Company’s internal control over financial reporting is included below.
81
b) Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Signature Bank:
We have audited Signature Bank and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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 Company’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, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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 the Company as of December 31, 2013 and
2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and our report
dated February 28, 2014 expressed an unqualified opinion on those consolidated financial statements.
New York, New York
February 28, 2014
82
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 24, 2014.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 24, 2014.
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 24, 2014.
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 24 2014.
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 24, 2014.
83
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-47. 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 2013 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on March 18, 2013.)
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.)
10.4 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.)
10.7
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.)
10.13 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.)
84
Exhibit No.
Exhibit
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.
85
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 28, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 28, 2014 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/ VITO SUSCA
(Vito Susca)
Senior 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/ JUDITH HUNTINGTON
(Judith Huntington)
/s/ JEFFREY W. MESHEL
(Jeffrey W. Meshel)
/s/ MICHAEL PAPPAGALLO
(Michael Pappagallo)
Director
Director
Director
Director
Director
Director
86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Financial Condition as of December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2013, 2012, and 2011 . . . . . . . . . .
F-2
F-3
F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012, and
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2013,
2012, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011 . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
F-7
F-8
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 (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2013. These consolidated financial statements are the responsibility of the
Company’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 the Company as of December 31, 2013 and 2012, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 28, 2014 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
New York, New York
February 28, 2014
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 $3,227,828 and $2,467,409 at
December 31,
2013
2012
$
119,479
24,498
143,977
86,186
7,779
93,965
December 31, 2013 and 2012)
5,632,233
6,130,356
Securities held-to-maturity (fair value $2,110,290 and $755,469 at
December 31, 2013 and 2012; pledged $1,886,753 and $543,351 at
December 31, 2013 and 2012)
Federal Home Loan Bank stock
Loans held for sale
Loans and leases, 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
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Preferred stock, par value $.01 per share; 61,000,000 shares authorized;
2,175,844
130,785
420,759
13,384,400
36,331
71,668
380,666
22,376,663
$
739,835
50,012
369,468
9,664,337
32,192
64,367
311,525
17,456,057
5,391,483
11,665,614
17,057,097
4,444,964
9,637,688
14,082,652
1,065,000
2,305,313
149,314
20,576,724
995,000
590,000
138,078
15,805,730
none issued at December 31, 2013 and 2012
-
-
Common stock, par value $.01 per share; 64,000,000 shares authorized;
47,293,162 and 47,230,266 shares issued and outstanding
at December 31, 2013 and 2012
Additional paid-in capital
Retained earnings
Net unrealized (losses) gains on securities available-for-sale, net of tax
Total shareholders' equity
Total liabilities and shareholders' equity
473
1,013,900
837,250
(51,684)
1,799,939
22,376,663
$
472
997,517
608,511
43,827
1,650,327
17,456,057
See accompanying notes to Consolidated Financial Statements.
F-3
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
INTEREST AND DIVIDEND INCOME
Loans held for sale
Loans and leases, 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
Total interest expense
Net interest income before provision for loan and lease losses
Provision for loan and lease losses
Net interest income after provision for loan and lease 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:
Total impairment losses on securities
Portion recognized in other comprehensive income (before taxes)
Net impairment losses on securities recognized in earnings
Net trading income
Other (loss) 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
PER COMMON SHARE DATA
Earnings per share – basic
Earnings per share – diluted
Years ended December 31,
2012
2013
2011
$
4,338
514,936
186,170
46,198
3,508
755,150
3,508
417,837
216,974
20,158
2,079
660,556
3,772
333,395
223,129
18,403
1,817
580,516
80,209
84,163
91,100
19,217
7,381
106,807
648,343
41,643
606,700
9,367
17,299
6,228
6,287
(9,208)
3,059
(6,149)
1,638
(2,659)
32,011
163,554
19,681
63,942
247,177
391,534
162,790
228,744
$
22,132
4,455
110,750
549,806
41,427
508,379
8,210
15,503
6,887
9,273
(11,593)
8,520
(3,073)
759
(1,320)
36,239
146,696
17,294
54,253
218,243
326,375
140,892
185,483
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
$
$
4.84
4.76
3.98
3.91
3.43
3.37
See accompanying notes to Consolidated Financial Statements.
F-4
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income, net of tax:
Net change in unrealized (losses) gains 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
Amortization of net unrealized loss on securities transferred to held-to-maturity
Tax effect
Net of tax
Other-than-temporary impairment on securities related to noncredit factors
Tax effect
Net of tax
Reclassification adjustment for other-than-temporary impairment on securities
related to credit factors included in net income
Tax effect
Net of tax
Total other comprehensive income, net of tax
Comprehensive income, net of tax
At or for the years ended December 31,
2012
2011
2013
$
228,744
185,483
149,526
(162,973)
67,765
(95,208)
(6,228)
2,585
(3,643)
2,599
(1,063)
1,536
(3,059)
1,261
(1,798)
6,149
(2,547)
3,602
(95,511)
133,233
$
36,980
(15,905)
21,075
(6,887)
2,953
(3,934)
-
-
-
(8,520)
3,666
(4,854)
3,073
(1,322)
1,751
14,038
199,521
108,770
(48,013)
60,757
(14,387)
6,351
(8,036)
-
-
-
(10,183)
4,496
(5,687)
2,089
(922)
1,167
48,201
197,727
See accompanying notes to Consolidated Financial Statements.
F-5
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income
Total
shareholders'
equity
273,511
(18,412)
-
-
-
-
-
48,201
29,789
-
-
-
-
-
14,038
43,827
-
-
-
-
-
(95,511)
(51,684)
944,547
253,347
4,004
8,496
(5)
149,526
48,201
1,408,116
45
20,677
21,972
(4)
185,483
14,038
1,650,327
1,420
14,193
771
(5)
228,744
(95,511)
1,799,939
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common stock
Balance at December 31, 2010
$
413
Common stock issued
Stock options activity, net
Restricted stock activity, net
Other
Net income
Other comprehensive income, net of tax
47
2
-
-
-
-
689,035
253,300
4,002
8,496
-
-
-
-
-
-
(5)
149,526
-
Balance at December 31, 2011
$
462
954,833
423,032
Common stock issued
Stock options activity, net
Restricted stock activity, net
Other
Net income
Other comprehensive income, net of tax
5
5
-
-
-
-
Balance at December 31, 2012
$
472
Stock options activity, net
Restricted stock activity, net
Stock warrant activity, net
Other
Net income
1
-
-
-
-
Other comprehensive income, net of tax
Balance at December 31, 2013
-
$
473
45
20,672
21,967
-
-
-
997,517
1,419
14,193
771
-
-
-
1,013,900
-
-
-
(4)
185,483
-
608,511
-
-
-
(5)
228,744
-
837,250
See accompanying notes to Consolidated Financial Statements.
F-6
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for loan and lease 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
Years ended December 31,
2012
2013
2011
$
228,744
185,483
149,526
8,220
41,643
6,149
117,417
15,565
6,931
41,427
3,073
118,175
17,609
6,111
51,876
2,089
90,712
8,496
(12,515)
(16,160)
(18,441)
(1,416,265)
(1,035,761)
(1,023,633)
Proceeds from sales and principal repayments of loans held for sale
1,204,420
1,065,038
947,198
Net increase in accrued interest and dividends receivable
Deferred income tax expense (benefit)
Net increase in other assets
Net increase 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
(7,301)
7,517
(2,324)
11,236
202,506
(3,834)
(9,057)
(51,990)
60,012
380,946
(7,322)
(11,132)
(39,243)
12,951
169,188
(2,106,010)
(1,636,034)
(2,791,800)
308,346
391,301
480,399
Maturities, redemptions, calls and principal repayments on securities AFS
1,388,967
1,546,005
1,130,447
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 and leases
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
Proceeds from the issuance of Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances
Proceeds from the issuance of other borrowings
Repayment of other borrowings
Tax (expense) benefit from stock-based compensation
Issuance of common stock and exercise of options
Other
Net cash provided by financing activities
Net increase (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:
Transfer of securities from AFS to HTM, at fair value
Transfer of securities from HTM to AFS, at fair value
Transfer of loans to repossessed assets, at fair value
(829,303)
(305,866)
(166,843)
179,399
(80,773)
116,266
(1,860)
54,792
(9,713)
(3,761,333)
(2,941,193)
(1,639,172)
(12,359)
(8,549)
(7,300)
(4,913,066)
(2,839,930)
(2,949,190)
946,519
2,027,926
2,155,313
1,296,528
1,031,986
698,468
1,614,443
475,000
555,000
(440,000)
(560,000)
(438,000)
520,000
450,000
255,800
(450,000)
(205,800)
(169,200)
(175)
994
(5)
15,839
9,246
(4)
2,118
255,233
(5)
4,760,572
2,512,795
2,773,857
50,012
93,965
143,977
$
53,811
40,154
93,965
(6,145)
46,299
40,154
$
105,876
151,663
111,676
133,376
120,995
126,550
806,338
654
800
-
-
-
-
-
-
See accompanying notes to Consolidated Financial Statements.
F-7
SIGNATURE BANK
Notes to Consolidated Financial Statements
(1) Organization
Signature Bank (the “Bank” and together with its subsidiaries, the “Company,” “we,” or “us”) is a New York State
chartered bank. On April 5, 2001, the Bank received its charter from the New York State Banking Department
(now known as the New York State Department of Financial Services) and commenced business on May 1, 2001.
The Bank currently operates 27 private client offices located in the New York metropolitan area, from which private
client banking teams serve the needs of privately owned businesses, their owners and senior managers.
The Bank operates Signature Financial, a specialty finance subsidiary focused on equipment finance and leasing,
transportation financing and taxi medallion financing. The Bank also operates Signature Securities (“SSG”), a
licensed broker-dealer and investment advisor offering investment, brokerage, asset management and insurance
products and services.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements 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 condition 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 and lease losses (“ALLL” or the
“allowance”), 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, 2013 consisted of cash and due from banks of $119.5 million,
interest-bearing deposits with banks of $2.8 million and money market mutual funds of $21.7 million. Cash and
cash equivalents at December 31, 2012 consisted of cash and due from banks of $86.2 million, interest-bearing
deposits with banks of $2.1 million and money market mutual funds of $5.7 million.
F-8
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 $135.4 million and $131.1 million for the
periods that included December 31, 2013 and 2012, respectively.
(e) Securities Available-for-Sale and Securities Held-to-Maturity
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.
Securities classified as available-for-sale (“AFS”) include 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 Bank uses various inputs to determine the fair value of its investment portfolio, which are classified within a
three-level fair value hierarchy based on the transparency and reliability of inputs to valuation methodologies. To
the extent they are available, we use quoted market prices (Level 1) to determine fair value. If quoted market
prices are not available, we use valuation techniques such as matrix pricing to determine fair value (Level 2). In
cases where there is little, if any, related market activity, fair value estimates are based upon internally-developed
valuation techniques that use inputs such as discount rates, credit spreads, default and delinquency rates, and
prepayment speeds (Level 3). A significant degree of judgment is involved in valuing investments using Level 3
inputs, and the use of different assumptions could have a positive or negative effect on our financial condition or
results of operations. See Note 3 for more details on our security valuation techniques.
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, 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.
Securities are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on
certain quantitative and qualitative factors. For securities other than securitized financial assets, the primary
factors considered in evaluating whether a decline in value 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).
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(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.
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 Income.
(g) Loans and Leases, Net
Loans are carried at the principal amount outstanding, less unearned discounts, net of deferred loan origination
fees and costs and the ALLL. 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 and Lease Losses
The ALLL is established through a provision for loan and lease losses charged to current earnings. The ALLL 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 ALLL 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 97.0% of our total loan portfolio, excluding loans held
for sale, as of December 31, 2013. 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 by 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
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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 performs periodic credit
reviews that provide an independent evaluation of the assigned credit ratings. These reviews focus on those
loans with higher-risk attributes, such as lines of credit with higher utilization percentages and loan facilities with
delinquencies, and 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. The results of these credit
reviews are presented to both the Risk and the Credit Committees of the Board of Directors.
Our methodology to determine the ALLL for the non-rated segments of our loan portfolio is based on historical loss
experience and qualitative factors. Non-rated loans 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. Non-rated loans comprise 3.0% of our total loan portfolio,
excluding loans held for sale, as of December 31, 2013.
We consider all non-accrual loans to be impaired loans, and the related specific allowances for 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, that are collateral-dependent, we generally record a charge-
off when the carrying amount of the loan exceeds the fair value of the collateral less estimated selling costs, if
appropriate. For non-collateral dependent 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. 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.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related ALLL. These regulatory agencies may require us to increase our provision for loan and lease losses
or to recognize further loan charge-offs based upon their judgments, which may be different from ours. An
increase in the ALLL required by these regulatory agencies could materially adversely affect our financial condition
and results of operations.
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
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otherwise consider, commonly referred to as troubled debt restructurings (“TDRs”). We record a provision for
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 estimated 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.
(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 generally recorded when the collateral value is less than
the carrying value and in all cases no later than when we take possession of collateral. 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-12
(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 Income and insurance proceeds received are generally
recorded as a reduction of the carrying value. The carrying value consists of cash surrender value of $63.0 million
at December 31, 2013, and $61.9 million at December 31, 2012, and deferred acquisition costs of $187,000 at
December 31, 2013, and $311,000 at December 31, 2012. Our investment in BOLI generated income of $1.6
million, $2.4 million, and $1.9 million for the years ended December 31, 2013, 2012, and 2011, respectively.
(n) Repossessed Assets
Repossessed assets are comprised of any property (“other real estate” or “ORE”) or other asset acquired through
loan restructurings, foreclosure proceedings, or acceptance of a deed-in-lieu of foreclosure. Repossessed assets
are carried at the lower of cost or fair value, less estimated selling costs, and are included in other assets. Any
write-downs at the date of acquisition are charged to the ALLL. Expenses incurred to maintain repossessed
assets, unrealized losses resulting from write-downs after the date of acquisition, and realized gains and losses
upon sale of the assets are included in other non-interest expense and other non-interest income, as appropriate.
As of December 31, 2013, our repossessed assets totaled $800,000. We did not hold any repossessed assets as
of December 31, 2012.
(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, 2013. 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, Signature Financial and 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 Income 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).
F-13
(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) New Accounting Standards
In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Early
adoption is prohibited. We adopted the applicable requirements for ASU 2011-03 on January 1, 2012 with no
material impact to 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 (“IFRS”) 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 adopted the applicable requirements for ASU 2011-04 on
January 1, 2012 and have provided the related disclosures as required.
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, with deferral of presenting the
reclassification adjustments based on ASU 2011-12, Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05. We adopted these requirements on January 1, 2012 and have provided the
related disclosures as required.
In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities, which addresses implementation issues about the scope of ASU 2011-11, Balance Sheet: Disclosures
about Offsetting Assets and Liabilities (Topic 210). The ASU 2013-01 limits the scope of the new balance sheet
offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that
they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or
similar agreement. An entity is required to apply the ASU for annual reporting periods beginning on or after
January 1, 2013, and interim periods within those annual periods. We adopted the applicable requirements for
ASU 2013-01 on January 1, 2013 with no impact to our Consolidated Financial Statements.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income, which amends Accounting Standards Codification Topic 220 (Comprehensive Income).
The new amendment requires entities to provide information about the amounts reclassified out of accumulated
other comprehensive income by component. In addition, an entity is required to present, either on the face of the
statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income, but only if the amount reclassified is required
under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts
F-14
that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to
cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.
This guidance is effective for interim and annual periods beginning after December 15, 2012. We adopted the
applicable requirements for ASU 2013-02 on January 1, 2013 and have provided the applicable disclosures in
Note 17.
In November 2013, the FASB’s Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 13-B,
Accounting for Investments in Qualified Affordable Housing Projects. The final consensus allows investors in Low
Income Housing Tax Credit (“LIHTC”) programs that meet specified conditions to present the net tax benefits (net
of the amortization of the cost of the investment) within income tax expense. The cost of the investments that
meet the specified conditions will be amortized in proportion to (and over the same period as) the total expected
tax benefits, including the tax credits and other tax benefits, as they are realized on the tax return. The
amortization of the cost of the investments will be presented in income tax expense along with the related tax
benefits. If the investors do not qualify for the proportional amortization method or do not elect it, they would
account for their investments under the equity or cost method based on current U.S. GAAP. This guidance will be
effective for interim and annual periods beginning after December 15, 2014. The final consensus will be applied
retrospectively if investors elect the proportional amortization method. Early adoption is permitted.
(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. Government 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.
F-15
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
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. Small Business Administration (“SBA”) interest-only strip securities,
pooled trust preferred securities, and private collateralized mortgage obligations (“CMOs”) are all included in the
Level 3 fair value hierarchy.
Markets for 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
(“AFS”) and reported at fair value, with changes in fair value recognized in accumulated other comprehensive
income. The securities are valued using Level 3 inputs and had fair values of $89.4 million at December 31, 2013
and $72.3 million at December 31, 2012. 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
assumption built into the pricing model to generate the projected cash flows used to compute the fair values of the
SBA interest-only strip securities is the discount yield. If the discount yield were to change by 100 basis points,
the fair values of our SBA interest-only strip securities would increase or decrease accordingly by approximately
10%. The Bank determined the inputs to the discounted cash flow model based on historical performance and
information provided by brokers.
Our pooled trust preferred securities are classified as AFS and had fair values of $13.1 million at December 31,
2013 and $8.6 million at December 31, 2012. Due to a relatively inactive market for pooled trust preferred
securities with limited observable secondary market transactions, the fair values of these securities are determined
using a discounted cash flow analysis. Unobservable inputs are used in the discounted cash flow model, the most
significant of which is the market risk premium. If this assumption were to change by 300 basis points, the fair
values of our Level 3 pooled trust preferred securities would increase or decrease accordingly by approximately
40%.
Level 3 private CMOs classified as AFS had fair values of $8.3 million at December 31, 2013 and $6.7 million at
December 31, 2012. The fair values for these securities are determined based upon a discounted cash flow
model, with the market risk premium as the most significant unobservable input. If this assumption were to
change by 300 basis points, the fair values of our Level 3 private CMOs would increase or decrease accordingly
by approximately 25%.
F-16
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, 2013 and 2012,
classified according to the three-level valuation hierarchy:
(in thousands)
December 31, 2013
ASSETS
Securities available-for-sale:
U.S. Treasury 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:
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
Total assets
LIABILITIES
Derivatives
Total liabilities
December 31, 2012
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
Total assets
LIABILITIES
Derivatives
Total liabilities
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
$
501
-
-
-
-
-
-
-
-
-
-
-
-
501
-
25,004
1,050,217
576,738
2,408,166
482,970
348,707
401,733
-
-
206,625
14,549
5,514,709
57
$
501
5,514,766
$
-
$
-
59
59
$
-
-
-
-
-
-
-
-
-
-
-
-
$
-
$
-
$
-
34,315
878,385
586,825
2,900,066
688,257
392,637
426,855
-
-
116,274
14,941
6,038,555
6,038,555
-
-
-
-
-
-
-
8,349
-
-
13,093
4,926
89,435
1,220
117,023
-
117,023
50
50
-
-
-
-
6,729
-
-
8,601
2,952
72,265
1,254
91,801
91,801
-
-
501
25,004
1,050,217
576,738
2,408,166
491,319
348,707
401,733
13,093
4,926
296,060
15,769
5,632,233
57
5,632,290
109
109
34,315
878,385
586,825
2,900,066
694,986
392,637
426,855
8,601
2,952
188,539
16,195
6,130,356
6,130,356
-
-
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-17
Changes in Level 3 Fair Value Measurements
We recognize transfers between levels of the valuation hierarchy at the end of reporting periods. There were no
transfers of assets between Level 1 and Level 2 for the years ended December 31, 2013, 2012 and 2011.
Additionally, the following table presents information for AFS securities measured at fair value on a recurring basis
and classified by the Bank within Level 3 of the valuation hierarchy for the periods indicated:
(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
2013
Years ended December 31,
2012
2011
$
91,801
-
-
(3,065)
28,287
-
$
117,023
87,051
-
-
2,588
12,309
(10,147)
91,801
105,761
1,384
-
7,433
40,452
(67,979)
87,051
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
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 held-to-maturity (“HTM”) that are other-
than-temporarily impaired, loans held-for-sale, reposessed assets, and certain long-lived assets.
The following tables present the assets measured at fair value on a non-recurring basis as of December 31, 2013
and 2012, classified according to the three-level valuation hierarchy:
(in thousands)
December 31, 2013
Collateral-dependent impaired loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Commercial and industrial
Other repossessed assets
Total assets
December 31, 2012
Collateral-dependent impaired loans:
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Commercial and industrial
Total assets
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
-
-
-
-
-
-
-
$
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,589
8,357
6,975
1,058
2,101
7,884
800
37,764
5,225
6,426
607
2,760
9,401
24,419
10,589
8,357
6,975
1,058
2,101
7,884
800
37,764
5,225
6,426
607
2,760
9,401
24,419
HTM securities for which other-than-temporary impairment losses were recognized during the current period are
reflected 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 the
F-18
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. We did not recognize other-than-temporary losses on any HTM securities during the
years ended December 31, 2013 and 2012. 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.
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 ALLL. During the years ended December 31, 2013, 2012 and 2011, we recorded fair
value adjustments totaling $17.2 million, $16.2 million and $24.5 million, respectively, on collateral-dependent
impaired loans.
Repossessed assets are comprised of any property (“other real estate” or “ORE”) or other asset acquired through
loan restructurings, foreclosure proceedings, or acceptance of a deed-in-lieu of foreclosure. Repossessed assets
are 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. There were
no fair value adjustments on repossessed assets during the years ended December 31, 2013 and 2012. During
the year ended December 31, 2011, we recorded a fair value adjustment of $476,000 on ORE.
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. 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 and leases, 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
approximates 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, 71.4% of which mature within one year, had a carrying
value of $1.23 billion and an estimated fair value of $1.23 billion at December 31, 2013. 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.
F-19
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:
Carrying
Amount
Total
Estimated Fair Value Measurements
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
(in thousands)
December 31, 2013
FINANCIAL ASSETS
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Federal Home Loan Bank stock
Loans held for sale
Loans and leases, net (1)
Derivatives
Total financial assets
FINANCIAL LIABILITIES
Deposits (2)
Repurchase agreements
Federal funds purchased
Federal Home Loan Bank advances
Derivatives
Total financial liabilities
December 31, 2012
FINANCIAL ASSETS
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Federal Home Loan Bank stock
Loans held for sale
Loans and leases, net (1)
Derivatives
Total financial assets
FINANCIAL LIABILITIES
Deposits (2)
Repurchase agreements
Federal funds purchased
$
143,977
5,632,233
2,175,844
130,785
420,759
13,384,400
57
21,888,055
$
143,977
5,632,233
2,110,290
130,785
420,759
13,589,108
57
22,027,209
$
17,057,097
17,063,751
695,000
370,000
2,305,313
109
20,427,519
$
716,782
370,000
2,306,871
109
20,457,513
143,977
501
-
-
-
-
-
144,478
-
-
-
-
-
-
$
93,965
93,965
93,965
6,130,356
6,130,356
739,835
50,012
369,468
9,664,337
-
755,469
50,012
369,468
9,833,931
-
$
17,047,973
17,233,201
$
14,082,652
14,093,384
645,000
350,000
680,500
350,000
-
-
-
-
-
-
93,965
-
-
-
-
-
-
5,514,709
2,110,290
130,785
420,759
-
57
8,176,600
17,063,751
716,782
370,000
2,306,871
59
20,457,463
-
6,038,555
752,729
50,012
369,468
-
-
7,210,764
14,093,384
680,500
350,000
595,235
15,719,119
-
117,023
-
-
-
13,589,108
-
13,706,131
-
-
-
-
50
50
-
91,801
2,740
-
-
9,833,931
-
9,928,472
-
-
-
-
-
Federal Home Loan Bank advances
Total financial liabilities
590,000
15,667,652
$
595,235
15,719,119
(1)
The estimated fair value measurements for loans and leases include adjustments related to market interest rates. No adjustments are made to the related allowances for
loan and lease losses.
(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-20
The following table summarizes the components of our securities portfolios as of the dates indicated:
2013
Gross
Gross
2012
Gross
Gross
December 31,
(in thousands)
AVAILABLE-FOR-SALE
U.S. Treasury 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:
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
500
1
-
501
-
-
-
-
24,171
1,049,867
578,012
2,451,274
494,920
882
14,497
8,187
20,358
6,484
(49)
25,004
(14,147)
1,050,217
32,456
844,503
(9,461)
576,738
576,709
(63,466)
2,408,166
2,872,130
(10,085)
491,319
696,593
1,861
34,454
19,002
62,654
15,232
(2)
(572)
34,315
878,385
(8,886)
586,825
(34,718)
2,900,066
(16,839)
694,986
Commercial mortgage-backed securities
345,560
7,502
(4,355)
348,707
373,750
19,105
(218)
392,637
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:
399,214
26,735
4,926
300,420
16,724
5,692,323
$
$
2,358
493,979
312,405
1,288,749
6,525
-
-
2,258
-
70,188
94
459
5,438
5,902
-
10,019
(7,500)
401,733
418,918
14,604
(6,667)
426,855
(13,642)
-
13,093
4,926
(6,618)
296,060
(955)
(130,278)
15,769
5,632,233
27,863
5,282
186,478
16,290
6,050,972
-
-
14,005
216
181,133
(19,262)
(2,330)
8,601
2,952
(11,944)
188,539
(311)
(101,749)
16,195
6,130,356
-
2,452
(15,976)
478,462
(7,244)
310,599
(53,234)
1,241,417
(1,052)
5,473
3,010
67,904
142,358
485,918
8,852
-
-
4,739
27,054
739,835
146
1,004
5,876
14,623
1
-
-
-
417
22,067
-
(260)
3,156
68,648
(104)
(2,264)
(1,661)
148,130
498,277
7,192
-
-
-
-
(2,000)
(144)
(6,433)
2,739
27,327
755,469
Commercial mortgage-backed securities
18,260
859
-
19,119
Single issuer trust preferred & corporate
debt securities
Collateralized debt obligations
Other
Total held-to-maturity
43,650
-
-
-
(739)
42,911
-
-
9,918
2,175,844
$
84
12,836
(145)
(78,390)
9,857
2,110,290
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
During the second quarter of 2013, we transferred $806.3 million of AFS securities to HTM due to expected
market volatility. The securities transferred consisted primarily of CMOs, mortgage-backed securities (“MBSs”),
and corporate bonds. The securities were transferred at fair value, which became the cost basis for the HTM
securities. The net unrealized loss, net of tax, on these securities at the date of transfer was $19.2 million, and
continues to be reported, net of tax, as a component of accumulated other comprehensive income. This net
unrealized loss will be accreted to interest income over the remaining life of the securities, and will be offset by the
amortization of the net discount created by the transfer, resulting in no current or future impact to our net interest
income as a result of this transfer. Also, there were no gains or losses recognized as a result of this transfer.
During the fourth quarter of 2013, federal regulators adopted a final rule implementing the “Volcker Rule” enacted
as part of the Dodd-Frank Act. Per the rule, banking organizations and their affiliates are restricted from investing
in and sponsoring covered funds. Such investments must be divested by the end of a conformance period (July
21, 2015). In order to comply with the Volcker Rule, we transferred one collateralized debt obligation (“CDO”) that
may be deemed as a covered fund from HTM to AFS, resulting in $2.1 million of other-than-temporary impairment
losses charged to earnings.
Gross realized gains on sales of AFS securities for the years ended December 31, 2013, 2012 and 2011 were
$11.5 million, $9.3 million, and $14.6 million, respectively. Gross realized losses on sales of AFS securities for the
years ended December 31, 2013, 2012 and 2011 were $5.3 million, $2.4 million, and $185,000, respectively.
F-21
We use securities as collateral for debtor-in-possession deposit accounts in excess of FDIC insurance limits,
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, 2013 and 2012, the total amount of
collateral we were required to pledge was $4.84 billion and $2.87 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, 2013, our total pledged securities had a fair value of
$5.48 billion and a carrying value of $5.53 billion. At December 31, 2012, our total pledged securities had a fair
value of $4.00 billion and a carrying value of $3.98 billion.
During the year ended December 31, 2013, we recognized other-than-temporary impairment totaling $9.2 million
on 16 debt securities, which 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 ($6.1 million) and the noncredit component in other comprehensive income ($3.1 million).
During the years ended December 31, 2013, 2012, and 2011, we recorded other-than-temporary impairment on
debt securities as follows:
(in thousands)
December 31, 2013
Available-for-sale
Collateralized
Debt
Obligations
Pooled Trust
Preferred
Securities
Private
CMOs
Government-
sponsored
Enterprises CMOs
Other
Held-to-maturity
Collateralized
Debt
Obligations
-
-
-
-
-
-
-
-
-
-
-
-
Total
(9,208)
3,059
(6,149)
(11,593)
8,520
(3,073)
(1,226)
1,000
(226)
(1,718)
(12,272)
1,215
(503)
10,183
(2,089)
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
$
(3,348)
(1,571)
21
(3,327)
$
873
(698)
December 31, 2012
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
December 31, 2011
Total other-than-temporary impairment losses
Less: Portion of loss recognized in OCI (1)
Net impairment losses recognized in earnings (2)
$
(3,312)
2,567
(745)
$
$
-
-
$
-
-
-
-
-
-
-
(1,666)
542
(1,124)
(8,281)
5,953
(2,328)
(9,328)
7,968
(1,360)
(2,623)
1,623
(1,000)
-
-
-
-
-
-
(1)
(2)
Represents the noncredit component of the other-than-temporary impairment on debt securities.
Represents the credit component of the other-than-temporary impairment on debt securities.
F-22
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 held at period-end for which a portion of the
impairment was recognized in other comprehensive income at period-end:
(in thousands)
Year ended December 31, 2013
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
Reduction for realized losses on debt securities sold
Cumulative credit component of other-than-temporary impairment losses
at end of period
Year ended December 31, 2012
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, 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
$
42,475
1,217
4,932
(6,821)
$
41,803
$
39,402
519
2,554
$
42,475
$
37,313
1,286
803
$
39,402
For the periods ended December 31, 2013, 2012, and 2011, our securities for which other-than-temporary
impairment has been recorded, where a portion of the loss was specifically related to credit, consisted of CDOs,
CMOs and pooled trust preferred 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 are determined based
upon collateral vintage, borrower characteristics, 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 review of CDOs, CMOs, and other debt securities for other-than-temporary impairment, we evaluated the
collateral performance and structural credit enhancement assumptions, along with other market considerations, for
each security. In our review 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, participation in the U.S. Treasury’s Troubled Asset Relief Program, ratio of
non-performing assets to tangible common equity and loan loss reserves, capital levels, and FDIC quarterly
F-23
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.
The following table presents our securities for which other-than-temporary impairment has been recorded during
the periods ended December 31, 2013, 2012, and 2011:
Total other-than-
temporary
impairment loss
Impairment
recognized in OCI
Credit-related
impairment
recognized in
earnings
Number of
securities
(dollars in thousands)
December 31, 2013
AVAILABLE-FOR-SALE
Collateralized debt obligations
$
3,348
Single issuer trust preferred securities
Collateralized mortgage obligations
1,571
4,289
Total other-than-temporarily impaired securities
$
9,208
December 31, 2012
AVAILABLE-FOR-SALE
Collateralized debt obligations
$
3,312
Single issuer trust preferred securities
Collateralized mortgage obligations
-
8,281
Total other-than-temporarily impaired securities
$
11,593
December 31, 2011
AVAILABLE-FOR-SALE
Collateralized mortgage obligations
$
9,328
Other debt securities
HELD-TO-MATURITY
Collateralized debt obligations
1,226
1,718
Total other-than-temporarily impaired securities
$
12,272
21
873
2,165
3,059
2,567
-
5,953
8,520
7,968
1,000
1,215
10,183
3,327
698
2,124
6,149
745
-
2,328
3,073
1,360
226
503
2,089
3
1
12
13
1
-
10
11
7
2
1
10
F-24
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, 2013
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:
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
3,611
(49)
-
-
3,611
(49)
466,183
(13,400)
18,213
(747)
484,396
(14,147)
224,610
1,263,546
67,628
(4,854)
(39,385)
(2,110)
28,347
175,358
33,183
(4,607)
252,957
(22,745)
1,438,904
(2,325)
100,811
(9,461)
(62,130)
(4,435)
Commercial mortgage-backed securities
131,796
(4,121)
6,891
(234)
138,687
(4,355)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
86,154
(4,007)
-
10,313
-
-
(274)
-
Total temporarily-impaired securities
2,253,841
(68,200)
94,453
3,348
142,059
15,769
517,621
(3,493)
(3,256)
(2,910)
(955)
180,607
3,348
152,372
15,769
(7,500)
(3,256)
(3,184)
(955)
(41,272)
2,771,462
(109,472)
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Government-sponsored enterprises
Private
Other debt securities:
Pooled trust preferred securities
Collateralized debt obligations
Other
-
4,196
-
(108)
2,470
29,859
(1,336)
(5,542)
2,470
34,055
(1,336)
(5,650)
519
(863)
9,226
(9,523)
9,745
(10,386)
-
-
-
-
-
16,004
57,559
-
(3,434)
(19,835)
-
16,004
62,274
-
(3,434)
(20,806)
Total other-than-temporarily impaired securities
4,715
(971)
Total temporarily-impaired and other-than-
temporarily impaired securities
$
2,258,556
(69,171)
575,180
(61,107)
2,833,736
(130,278)
December 31, 2012
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:
$
3,827
38,027
(2)
(570)
-
113
-
(2)
80,744
794,133
24,573
(3,715)
(19,999)
(489)
35,345
187,425
97,651
(5,171)
(14,719)
(5,406)
3,827
38,140
116,089
981,558
122,224
(2)
(572)
(8,886)
(34,718)
(5,895)
Commercial mortgage-backed securities
24,351
(152)
4,988
(66)
29,339
(218)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
102,006
(3,115)
-
21,567
-
-
(291)
-
80,250
3,276
41,428
8,851
(3,552)
(3,358)
(4,269)
(311)
182,256
3,276
62,995
8,851
(6,667)
(3,358)
(4,560)
(311)
Total temporarily-impaired securities
1,089,228
(28,333)
459,327
(36,854)
1,548,555
(65,187)
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Private
Other debt securities:
Pooled trust preferred securities
Collateralized debt obligations
Other
5,683
(666)
36,138
(10,278)
41,821
(10,944)
-
-
-
-
-
-
5,325
2,951
13,802
58,216
(15,904)
(2,330)
(7,384)
(35,896)
5,325
2,951
13,802
63,899
(15,904)
(2,330)
(7,384)
(36,562)
Total other-than-temporarily impaired securities
5,683
(666)
Total temporarily-impaired and other-than-
temporarily impaired securities
$
1,094,911
(28,999)
517,543
(72,750)
1,612,454
(101,749)
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-25
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, 2013
Temporarily-impaired securities
Mortgage-backed securities:
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Government-sponsored enterprises
$
428,532
(14,515)
22,114
(1,461)
450,646
(15,976)
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Other debt securities:
Single issuer trust preferred & corporate
debt securities
Other
Total temporarily-impaired securities
Other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
December 31, 2012
Temporarily-impaired securities
Mortgage-backed securities:
168,994
902,463
-
(7,244)
(42,690)
-
-
-
168,994
100,823
(10,545)
1,003,286
5,473
(1,052)
5,473
(7,244)
(53,234)
(1,052)
42,911
5,077
1,547,977
-
(739)
(51)
(65,239)
-
-
2,788
131,198
-
-
(94)
(13,152)
-
42,911
7,865
1,679,175
-
(739)
(145)
(78,390)
-
$
1,547,977
(65,239)
131,198
(13,152)
1,679,175
(78,390)
Government-sponsored enterprises
$
25,401
(260)
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
8,004
106,984
(104)
(2,264)
-
-
140,389
(2,628)
-
-
-
-
-
-
-
-
-
7,321
7,321
6,631
2,740
9,371
-
-
-
(144)
(144)
(1,661)
(2,000)
(3,661)
25,401
(260)
8,004
106,984
7,321
147,710
6,631
2,740
9,371
(104)
(2,264)
(144)
(2,772)
(1,661)
(2,000)
(3,661)
$
140,389
(2,628)
16,692
(3,805)
157,081
(6,433)
The unrealized losses in our securities portfolio are primarily due to the prevailing interest rate environment and
reduced levels of liquidity in the mortgage and credit markets. The prolonged weakness in the residential housing
market, coupled with elevated unemployment levels, among other factors, led to decreased market liquidity for
certain assets and increased credit risk for certain securities in our portfolio.
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 before
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.
Our private CMOs and other debt securities, with total temporary unrealized losses of $5.5 million and $3.3 million,
respectively, at December 31, 2013, are the securities in our portfolio that are the most exposed to impairment
losses. In performing our other-than-temporary impairment analysis for private CMOs and other debt securities,
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
F-26
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, 2013. 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, 2013.
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.
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 in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total held-to-maturity debt securities
(5) Federal Home Loan Bank Stock
December 31, 2013
Amortized Cost
Fair Value
$
4,096
122,294
314,268
5,234,941
5,675,599
$
$
6
1,333
35,788
2,138,717
2,175,844
$
4,025
127,983
315,595
5,168,861
5,616,464
6
1,401
36,698
2,072,185
2,110,290
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, 2013 and 2012, Signature Bank was in compliance with the FHLB’s minimum investment
requirement with stock investments of $130.8 million and $50.0 million, respectively, carried at cost on the
Consolidated Statements of Financial Condition. Collateral pledged for outstanding FHLB borrowings at
December 31, 2013 and 2012 included $103.7 million and $26.6 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, 2013.
F-27
(6) Loans Held for Sale
Loans held for sale at December 31, 2013 and 2012 were $420.8 million and $369.5 million, respectively. Gains
on sales associated with the securitization of pooled loans and sale of mortgage loans for the years ended
December 31, 2013, 2012 and 2011 amounted to $6.3 million, $9.3 million and $4.1 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.
(7) Loans and Leases, 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
ALLL
Net loans
December 31,
2013
December 31,
2012
$
6,637,353
3,651,538
346,795
170,441
125,334
10,931,461
2,565,016
11,479
2,576,495
11,515
(135,071)
13,384,400
$
4,380,453
2,919,708
307,158
190,782
99,475
7,897,576
1,860,866
10,291
1,871,157
3,037
(107,433)
9,664,337
As of December 31, 2013 and 2012, commercial and industrial loans include overdrafts of commercial deposit
accounts totaling $32.4 million and $28.4 million, respectively, and other consumer loans include overdrafts of
personal deposit accounts totaling $4.4 million and $2.3 million, respectively.
In order to assist us in managing credit quality, we view the Bank’s 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 (“credit-rated commercial loans”). 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.
F-28
Non-rated loans include commercial loans with outstanding principal balances below $100,000, commercial
overdrafts, residential mortgages, and consumer loans.
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, 2013
pass
Rating 1-6
special
mention
Rating 7
substandard
Rating 8
doubtful
Rating 9
Non-rated
Total
Commercial loans secured by real estate:
Multi-family residential property
$
6,619,472
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2012
3,593,283
166,917
123,171
2,487,590
12,990,433
$
Commercial loans secured by real estate:
Multi-family residential property
$
4,359,957
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
2,861,078
109,144
96,746
1,769,505
9,196,430
$
5,159
27,375
3,706
-
3,661
39,901
9,154
20,661
767
-
9,114
39,696
11,161
30,791
5,623
2,163
19,282
69,020
9,476
37,969
12,010
2,729
27,599
89,783
-
89
-
-
-
-
65
-
6,635,792
3,651,538
176,311
125,334
8,343
8,432
46,140
46,205
2,565,016
13,153,991
-
-
400
-
7,723
8,123
-
-
34
-
46,925
46,959
4,378,587
2,919,708
122,355
99,475
1,860,866
9,380,991
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, 2013
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2012
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
168,557
167,701
11,337
347,595
182,862
189,990
9,951
382,803
3,488
2,740
142
6,370
3,807
792
340
4,939
172,045
170,441
11,479
353,965
186,669
190,782
10,291
387,742
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 totaled $1.6 million and $4.9 million at December 31,
2013 and 2012, respectively, and all related party loans are current as to payments.
F-29
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
Past Due
30-89 Days
Past Due
90+ Days
Total
Past Due
Current
Total
Loans
Accruing
Loans Past
Due 90+ Days
Non-accruing
Loans
(in thousands)
December 31, 2013
Commercial loans
Loans secured by real estate:
Multi-family residential property
$
15,105
Commercial property
1-4 family residential property
Construction and land
16,462
-
-
-
7,308
4,973
2,162
15,105
23,770
4,973
2,162
6,620,687
6,635,792
3,627,768
3,651,538
171,338
123,172
176,311
125,334
Commercial and industrial loans
18,229
10,529
28,758
2,536,258
2,565,016
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
December 31, 2012
Commercial loans
2,441
2,558
76
54,871
$
Loans secured by real estate:
Multi-family residential property
$
8,504
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
15,740
2,769
-
18,260
2,704
676
61
48,714
$
4,276
3,240
142
32,630
-
11,596
13,787
2,729
14,254
7,940
3,720
340
54,366
6,717
5,798
218
87,501
165,328
164,643
172,045
170,441
11,261
13,420,455
11,479
13,507,956
8,504
4,370,083
4,378,587
27,336
16,556
2,729
2,892,372
2,919,708
105,799
96,746
122,355
99,475
32,514
1,828,352
1,860,866
10,644
4,396
401
103,080
176,025
186,386
9,890
9,665,653
186,669
190,782
10,291
9,768,733
-
-
-
-
-
788
500
-
1,288
-
8,767
8,049
-
3,299
4,133
2,928
-
27,176
-
7,308
4,973
2,162
10,529
3,488
2,740
142
31,342
-
2,829
5,738
2,729
10,955
3,807
792
340
27,190
Non-accrual loans at December 31, 2013 and 2012 totaled $31.3 million and $27.2 million, respectively. If all non-
accrual loans outstanding at December 31, 2013, 2012, and 2011 had been performing in accordance with their
original terms, we would have recorded interest income with respect to such loans of approximately $2.2 million,
$2.2 million, and $4.2 million for the years then ended, respectively. This compares to actual payments recorded
as interest income with respect to such loans of $282,000 and $363,000 for the years ended December 31, 2012
and 2011, respectively. There was no interest income recorded on non-accrual loans during the year ended
December 31, 2013. As of December 31, 2013, there were no commitments to lend additional funds on non-
accrual loans.
Accruing loans past due 90 days or more at December 31, 2013 and December 31, 2012 totaled $1.3 million and
$27.2 million, respectively, excluding loans held for sale. At December 31, 2013, accruing loans past due 90 days
or more include $1.3 million of residential mortgages that are well secured and in process of collection. At
December 31, 2012, accruing loans past due 90 days or more include matured performing loans in the process of
renewal ($878,000) and loans that are well secured and in process of collection ($16.2 million of commercial loans
secured by real estate, $6.6 million of residential mortgages, and $2.6 million of commercial and industrial loans).
Commercial loans (including commercial and industrial loans and 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 may result in an increase in nonpayment of loans, a decrease in collateral value, and an
increase in our ALLL.
F-30
(8) Allowance for Loan and Lease Losses
Changes in the ALLL for the years ended December 31, 2013, 2012 and 2011 are as follows:
(in thousands)
Beginning balance - ALLL
Provision for loan and lease losses
Loans charged off
Recoveries of loans previously charged off
Ending balance - ALLL
December 31,
2012
86,162
41,427
(22,156)
2,000
107,433
2013
107,433
41,643
(16,681)
2,676
135,071
$
$
2011
67,396
51,876
(35,393)
2,283
86,162
The table below presents a summary by loan portfolio segment of our ALLL, loan loss experience, and provision
for loan and lease losses for the periods indicated:
(in thousands)
For the year ended December 31, 2013
Beginning balance - ALLL
Provision for loan and lease losses
Loans charged off
Recoveries of loans previously charged off
Ending balance - ALLL
For the year ended December 31, 2012
Beginning balance - ALLL
Provision for loan and lease losses
Loans charged off
Recoveries of loans previously charged off
Ending balance - ALLL
Credit-rated
Commercial Loans
Commercial
Loans
Non-rated
Residential
Mortgages
Consumer
Loans
Total
$
100,092
40,928
(14,137)
$
1,309
128,192
$
78,853
39,634
(18,657)
$
262
100,092
4,269
(1,254)
(1,384)
1,166
2,797
4,954
214
(2,439)
1,540
4,269
2,419
1,615
(753)
33
3,314
1,569
1,481
(635)
4
2,419
653
354
(407)
168
768
786
98
(425)
194
653
107,433
41,643
(16,681)
2,676
135,071
86,162
41,427
(22,156)
2,000
107,433
The following table presents our ALLL and outstanding loan balances by loan portfolio segment, based on the
methodology followed in determining the allowance:
(in thousands)
As of December 31, 2013
ALLL:
Credit-rated
Commercial Loans
Commercial
Loans
Non-rated
Residential
Mortgages
Consumer
Loans
Total
Individually evaluated for impairment
$
9,628
Collectively evaluated for impairment
118,564
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
As of December 31, 2012
ALLL:
56,676
13,051,110
Individually evaluated for impairment
$
6,803
Collectively evaluated for impairment
93,289
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
71,918
9,262,114
399
2,398
813
45,392
654
3,615
1,389
45,570
1,250
2,064
71
697
11,348
123,723
6,809
335,677
142
11,337
64,440
13,443,516
269
2,150
6,097
371,354
154
499
340
9,951
7,880
99,553
79,744
9,688,989
F-31
In determining whether a loan is impaired, we review the payment performance and 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 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.
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
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 impaired loans
December 31, 2013
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
December 31, 2012
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
$
9,600
9,600
-
-
5,623
2,638
2,235
2,074
-
11,829
2,162
11,161
-
14,476
1,834
666
142
40,375
17,114
4,069
2,740
142
-
-
5,623
2,800
2,235
2,074
-
11,829
2,545
11,161
-
18,023
2,345
894
142
40,758
20,823
4,580
2,968
142
-
-
-
-
-
-
-
-
3,428
62
572
-
5,965
917
333
71
4,062
5,965
917
333
71
5,903
5,903
-
-
5,304
9,237
4,425
607
-
14,093
2,729
14,293
434
21,315
880
184
340
42,756
30,552
5,305
791
340
-
-
6,800
12,913
4,661
838
-
14,177
2,729
14,293
434
22,986
880
304
340
44,336
35,899
5,541
1,142
340
-
-
-
-
-
-
-
-
1,232
148
933
109
5,035
177
92
154
2,422
5,035
177
92
154
$
64,440
69,271
11,348
79,744
87,258
7,880
F-32
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,
2013
2012
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
8,727
-
-
4,437
5,867
3,494
1,232
-
13,448
2,565
11,946
1,167
17,821
1,608
790
243
42,290
23,688
5,102
2,022
243
165
-
-
22
262
-
-
-
133
-
419
-
307
4
-
-
739
569
4
-
-
$
73,345
1,312
19,771
752
392
1,315
14,914
4,046
243
-
12,173
2,798
8,258
296
16,862
722
221
315
45,755
31,776
4,768
464
315
83,078
266
-
-
-
322
3
-
-
414
-
423
-
469
-
-
-
1,103
791
3
-
-
1,897
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-33
During the years ended December 31, 2013 and 2012, we recorded TDR loans as follows:
(dollars in thousands)
Commercial loans secured by real estate:
Commercial property
Multi-family residential property
1-4 family residential property
Commercial and industrial loans
Residential mortgages
Total
December 31, 2013
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
December 31, 2012
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
1
-
1
4
1
7
$
7,703
-
650
6,143
325
$
14,821
4,400
-
650
6,308
290
11,648
6
4
-
11
1
22
18,309
11,577
-
22,735
315
52,936
12,527
11,534
-
21,576
298
45,935
The following table summarizes how the TDR loans recorded for the years ended December 2013 and 2012 were
modified:
Rate Reduction
Deferred
Principal
Amortization
Deferred Principal
Amortization with other
concession (1)
Term
Extension
Term Extension
with Other
Concession (1)
Total
(in thousands)
December 31, 2013
Commercial loans secured by real estate:
Commercial property
1-4 family residential property
Commercial and industrial loans
Residential mortgages
Total
December 31, 2012
$
-
-
-
-
$
-
Commercial loans secured by real estate:
Commercial property
$
2,759
Multi-family residential property
Commercial and industrial loans
Residential mortgages
Total
-
-
-
$
2,759
-
-
-
-
-
-
-
5,101
-
5,101
-
-
-
290
290
3,865
4,156
2,329
298
10,648
4,400
650
3,653
-
8,703
5,903
7,378
14,146
-
27,427
-
2,655
-
2,655
-
-
-
-
-
4,400
650
6,308
290
11,648
12,527
11,534
21,576
298
45,935
(1) Other concessions may include a reduction of the loan's interest rate and/or extension of the loan's contractual maturity date.
Our impaired loans at December 31, 2013 and 2012 include TDR loans totaling $43.0 million and $55.7 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 TDRs 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 estimated costs to sell.
As of December 31, 2013, there were no loans that were modified as a TDR within the previous 12 months that
subsequently defaulted on payments. As of December 31, 2012, we had eight loans modified as TDRs within the
previous 12 months that subsequently defaulted on payments, including three commercial and industrial loans for
$8.1 million, four commercial property loans for $5.9 million, and one residential mortgage loan for $300,000.
For the years ended December 31, 2013, 2012 and 2011, we recorded interest income on impaired loans during
the period of impairment totaling $1.3 million, $1.9 million and $892,000 respectively. 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 $4.9 million, $5.2 million, and $5.1 million for the years ended December 31, 2013,
2012, and 2011, respectively. Average impaired loans for the years ended December 31, 2013, 2012 and 2011
totaled $73.3 million, $83.1 million, and $58.1 million, respectively.
F-34
(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,
2013
2012
$
50,618
32,804
83,422
(47,091)
36,331
$
45,407
25,656
71,063
(38,871)
32,192
Depreciation and amortization expense totaled $8.2 million, $6.9 million and $6.1 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
(10) Deposits
The types of deposits are summarized as follows as of the dates indicated:
(in thousands)
Non-interest-bearing demand
NOW and interest-bearing demand
Money market
Time deposits
Brokered time deposits
Total deposits
December 31,
2013
2012
$
5,391,483
850,897
9,589,488
820,999
404,230
17,057,097
$
4,444,964
791,321
7,900,144
837,718
108,505
14,082,652
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2013 and 2012
were $696.0 million and $701.8 million, respectively. The related interest expense on these types of deposits for
the years ended December 31, 2013 and 2012 amounted to $11.1 million and $12.0 million, respectively.
At December 31, 2013, the scheduled maturities of time deposits are as follows:
(in thousands)
2014
2015
2016
2017
2018
Total time deposits
December 31, 2013
$
875,261
243,523
87,646
13,316
5,483
1,225,229
$
At December 31, 2013 and 2012, we had approximately $28.9 million and $39.7 million, respectively, in deposits
held by our directors and their related interests.
F-35
(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 $3.7 million, $3.1 million and $3.8 million, respectively, for the years ended December 31, 2013,
2012 and 2011.
(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,
2013
2012
$
$
$
370,000
529,000
415,849
0.29%
0.28%
$
$
$
350,000
350,000
128,525
0.25%
0.33%
$
$
$
695,000
695,000
665,753
2.70%
2.43%
$
$
$
645,000
745,000
703,333
3.10%
2.86%
During the years ended December 31, 2013, 2012, and 2011, interest expense recorded on Federal funds
purchased and securities sold under agreements to repurchase totaled $19.2 million, $22.1 million, and $22.3
million, respectively.
At December 31, 2013, securities with a fair value of $891.7 million and a carrying value of $907.4 million were
pledged to meet our collateral requirement of $729.9 million on repurchase agreements. At December 31, 2012,
securities with a fair value of $819.4 million and a carrying value of $817.6 million were pledged to meet our
collateral requirement of $677.3 million on repurchase agreements.
The Federal funds purchased at December 31, 2013 were overnight transactions, while the securities sold under
repurchase agreements at December 31, 2013 have contractual maturities as follows:
(in thousands)
2014
2015
2016
2017
2018
Total
F-36
Amount
$
145,000
255,000
70,000
175,000
50,000
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, 2013, we were in compliance with this requirement.
The following table provides 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,
$
$
$
2013
2,305,313
2,305,313
1,111,144
0.66%
0.60%
2012
$
$
$
590,000
590,000
329,926
1.35%
0.88%
During the years ended December 31, 2013, 2012, and 2011, interest expense recorded on FHLB advances
totaled $7.4 million, $4.5 million, and $7.3 million, respectively.
At December 31, 2013, securities with a fair value of $2.56 billion and a carrying value of $2.57 billion were
available to meet our collateral requirement of $2.42 billion on FHLB advances. At December 31, 2012, securities
with a fair value of $1.34 billion and a carrying value of $1.33 billion were available to meet our collateral
requirement of $619.5 million on FHLB advances.
FHLB advances at December 31, 2013 have contractual maturities as follows:
(in thousands)
2014
2015
2016
2017
2018
Total advances
Amount
$
1,565,150
340,000
294,263
105,900
-
$
2,305,313
Certain of the long-term FHLB advances are callable by the FHLB for redemption prior to their scheduled maturity
date. The table above includes $35.0 million in advances that are callable in 2014, which have interest rates
ranging from 3.87% to 3.92% and a weighted average interest rate of 3.88%.
F-37
(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,
2013
2012
$
-
$
-
$
41
0.75%
0.00%
$
-
$
-
$
-
0.00%
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 expense (benefit)
Total federal
STATE AND LOCAL
Current expense
Deferred income tax expense (benefit)
Total state and local
TOTAL
Current expense
Deferred income tax expense (benefit)
Total
Years ended December 31,
2013
2012
2011
$
$
100,939
8,851
109,790
$
$
54,334
(1,334)
53,000
$
$
155,273
7,517
162,790
100,636
(6,020)
94,616
49,313
(3,037)
46,276
86,403
(5,969)
80,434
42,428
(5,163)
37,265
149,949
(9,057)
140,892
128,831
(11,132)
117,699
Management has concluded that a valuation allowance for deferred tax assets is not necessary at December 31,
2013 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-38
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
Net unrealized losses on securities transferred to held-to-maturity
Total deferred tax assets
DEFERRED TAX LIABILITIES
Depreciation
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,
2013
2012
$
59,078
1,220
8,900
1,834
18,273
2,128
91,433
26,236
13,815
131,484
-
674
22,690
23,364
-
23,364
108,120
$
47,154
-
2,103
1,455
18,643
8,782
78,137
-
-
78,137
138
660
1,753
2,551
34,284
36,835
41,302
The increases in current income tax expense were primarily driven by increases in our pre-tax income, which were
partially offset by the benefits of increased low income housing tax credits recognized. Our effective tax rate for
the year ended December 31, 2013 decreased to 41.6%, compared to 43.2% for the prior year as a result of low
income housing tax credits recognized.
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,
2013
2012
2011
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Statutory federal income tax expense
$
137,037
35%
114,231
35%
93,529
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%.
34,451
(351)
(8,347)
162,790
$
9%
*
(2)%
42%
30,080
(618)
(2,801)
140,892
9%
*
(1)%
43%
24,222
(443)
391
117,699
9%
*
*
44%
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.
F-39
We file U.S. federal and various state income tax returns. The following are the more significant tax filings that are
subject to examination:
Federal income tax returns for tax years 2011 through the present;
New York State income tax returns for tax years 2011 through the present; and,
New York City income tax returns for tax years 2010 through the present.
(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 incentives directly related to
increases in our shareholder value. Activity related to the equity incentive plan for the years ended December 31,
2013 and 2012 is summarized as follows:
Shares available for future awards at beginning of the year
Additional shares approved at the 2013 Annual Meeting of Shareholders
Options
Years ended December 31,
2013
1,417,517
1,082,483
2012
1,247,238
-
Granted
Forfeited or expired
Shares sold to cover minimum tax withholding and/or option price upon exercise
- -
- -
332,839
24,803
Restricted stock
Granted
Forfeited
Shares sold to cover minimum tax withholding upon vesting
Shares available for future awards at end of the year
(348,093) (366,786)
2,311
1,275
201,915
15
1,417,517
2,178,000
Stock Options
As of December 31, 2013, 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, 2013 and 2012, we
recognized no compensation expense with respect to 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, 2013 and 2012:
Years ended December 31,
2013
2012
Shares
Underlying
Options
Weighted
Average
Exercise Price
Shares
Underlying
Options
Weighted
Average
Exercise Price
Outstanding at beginning of the year
Granted
Exercised
Forfeited or expired
Outstanding at end of the year
$ 22.57
62,750
- -
21.61
(46,000)
- -
$ 25.20
16,750
604,400
$ 17.57
- -
16.99
(541,650)
- -
$ 22.57
62,750
F-40
The total intrinsic value of stock options exercised during the years ended December 31, 2013 and 2012 was $2.7
million and $26.1 million, respectively, and the cash received from those exercises during the respective periods
totaled $994,000 and $9.2 million. Available authorized common shares are issued for stock options that are
exercised.
The following table presents a summary of outstanding and exercisable stock options as of December 31, 2013:
Exercise Price
$ 15.50
24.98
26.11
26.87
At
December 31, 2013
Weighted Average
Remaining Contractual
Life in Years
1,750
1,750
6,250
7,000
16,750
0.22
1.80
1.22
1.55
As of December 31, 2013, the intrinsic value of outstanding and exercisable options was $1.4 million.
Restricted Stock
The following table summarizes information regarding outstanding grants of restricted stock for the years ended
December 31, 2013 and 2012:
Years ended December 31,
2013
2012
Weighted
Average
Grant Price
Shares
Weighted
Average
Grant Price
Shares
Outstanding at beginning of the year
Granted
Vested
Forfeited
Outstanding at end of the year
764,230
348,093
(35)
(1,275)
1,111,013
$ 43.25
78.12
63.55
67.42
$ 54.15
906,481
366,786
(506,726)
(2,311)
764,230
$ 37.55
63.34
47.59
41.97
$ 43.25
As of December 31, 2013, our total unrecognized compensation cost related to unvested restricted shares was
$39.9 million, which is expected to be recognized over a weighted-average period of 2.91 years. During the years
ended December 31, 2013, 2012, and 2011, we recognized compensation expense of $15.6 million, $17.6 million,
and $8.5 million, respectively, for restricted shares. Included in the compensation expense for the year ended
December 31, 2012 was $3.2 million from the December 10, 2012 accelerated vesting of 276,016 restricted
shares, originally scheduled to vest on March 22, 2013. The total fair value of restricted shares that vested during
the year ended December 31, 2013 and December 31, 2012 were $2,600 and $34.1 million. No restricted shares
vested during the year ended December 31, 2011.
F-41
(17) Accumulated Other Comprehensive Income
The following table presents information regarding items reclassified out of Accumulated Other Comprehensive
Income (“AOCI”) for the year ended December 31, 2013:
(in thousands)
Details About AOCI
Amount
Reclassified
Out of AOCI
Affected Line Item in the
Consolidated Statement of Income
Net unrealized gains on AFS securities
$ 6,228
Net gains on sales of securities
Total reclassifications, before tax
Total reclassifications, net of tax
(6,149)
79
(38)
$
41
Net other-than-temporary impairment losses
on securities recognized in earnings
Income tax expense
The following table presents changes in AOCI, net of tax, for the year ended December 31, 2013:
(in thousands)
Balance at December 31, 2012
Net change in unrealized gain (loss)
Net unrealized loss on securities transferred from AFS to HTM
Amortization of net unrealized loss on securities transferred to HTM
Amounts reclassified out of AOCI
Net current period other comprehensive income
Balance at December 31, 2013
(18) Earnings Per Share
AFS
Securities
HTM Securities
transferred
from AFS
$
43,827
(97,006)
19,213
-
(41)
(77,834)
(34,007)
$
-
-
(19,213)
1,536
-
(17,677)
(17,677)
Total
43,827
(97,006)
-
1,536
(41)
(95,511)
(51,684)
The following table shows the computation of basic and diluted earnings per common and common equivalent
share for the years ended December 31, 2013, 2012 and 2011:
(in thousands, except per share amounts)
Net income
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,
2012
2013
2011
$
228,744
185,483
149,526
47,267
762
48,029
4.84
4.76
$
$
46,633
753
47,386
3.98
3.91
43,622
796
44,418
3.43
3.37
There were no options or warrants excluded from the computation of diluted earnings per share for the years
ended December 31, 2013, 2012 and 2011.
F-42
(19) 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 2026. Our premises are used principally for private client offices and administrative
operations.
Rental expense for our premises for the years ended December 31, 2013, 2012, and 2011 totaled $16.3 million,
$14.1 million and $13.3 million, respectively.
The required minimum rental payments under the terms of the noncancelable leases at December 31, 2013 are
summarized as follows:
(in thousands)
2014
2015
2016
2017
2018
Thereafter
Total
December 31, 2013
15,005
$
14,355
12,567
11,143
10,004
47,379
110,453
$
(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 supplies us with enterprise banking services, core data processing services and
managed operations services. Fidelity also provides 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, 2013, 2012, and
2011, we incurred contractual costs of $3.3 million, $3.4 million, and $3.4 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, 2013 are as follows:
(in thousands)
2014
2015
2016
2017
2018
Thereafter
Total
F-43
December 31, 2013
$
3,271
3,463
2,416
-
-
-
9,150
$
(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.
The following table presents a summary of our commitments and contingent liabilities:
(in thousands)
Unused commitments to extend credit
Financial standby letters of credit
Commercial and similar letters of credit
Other
Total
December 31,
2013
2012
$
$
578,771
209,136
20,516
1,135
809,558
445,444
184,181
24,094
1,021
654,740
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, 2013 and 2012, our reserves for losses on unused
commitments to extend credit totaled $825,000 and $575,000, respectively, and are 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 term of the guarantee on a straight-line basis. At December 31, 2013 and
December 31, 2012, we had deferred revenue for commitment fees paid for the issuance of standby letters of
credit in the amounts of $809,000 and $676,000, 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 $130,000 and $106,000 at December 31, 2013 and 2012, respectively. We had provisions for
losses related to standby letters of credit totaling $24,000 and $(333,000) at December 31, 2013 and 2012,
respectively. During the years ended December 31, 2013 and 2012, there were no charge-offs recorded on
standby letters of credit.
At December 31, 2013 and 2012, we had commitments to sell residential mortgage loans and the U.S.
government-guaranteed portion of SBA loans totaling $920,000 and $8.7 million, respectively.
(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.
F-44
(20) Regulatory Capital
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 1 capital to risk-weighted assets (as defined), and of Tier 1 capital (as defined)
to average assets (as defined). As of December 31, 2013 and 2012, 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. 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, 2013:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
As of December 31, 2012:
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
$
1,986,694
1,850,668
1,850,668
15.10%
14.07%
8.54%
1,052,562
526,281
866,469
$
1,714,519
1,606,405
1,606,405
16.35%
15.32%
9.51%
838,788
419,394
675,639
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
1,315,702
789,421
1,083,087
10.00%
6.00%
5.00%
1,048,484
629,091
844,549
10.00%
6.00%
5.00%
On July 9, 2013, the Federal Deposit Insurance Corporation approved final rules that substantially amend the
regulatory risk-based capital rules applicable to Signature Bank. The final rules were adopted following the
issuance of proposed rules by the federal banking regulators in June 2012, and implement the “Basel III”
regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative
documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in
December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank
capital, leverage and liquidity requirements.
The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and
would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum
capital level requirements applicable to Signature Bank under the final rules would be: (i) a new common equity
Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also
establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must
consist entirely of common equity Tier 1 capital. Common equity Tier 1 capital consists of common stock
instruments that meet the eligibility criteria in the final rules, retained earnings, accumulated other comprehensive
F-45
income and common equity Tier 1 minority interest. The capital conservation buffer will be phased-in over four
years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for
2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter, resulting in the following minimum
ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii)
a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends,
engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer
amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for
such actions.
Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5%
of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive
credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach
banks” ( i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which
currently excludes Signature Bank. The final rules also implement revisions and clarifications consistent with
Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and
losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out
over time.
The final rules also contain revisions to the prompt corrective action framework, which is designed to place
restrictions on insured depository institutions, including Signature Bank, if their capital levels begin to show signs
of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements,
which are designed to complement the capital conservation buffer, insured depository institutions will be required
to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new
common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital
ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).
The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to
utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk
exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness
consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules
for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-
style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in
total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion
in consolidated assets. Based on our current capital composition and levels, we believe that we would be in
compliance with the requirements as set forth in the final rules if they were presently in effect.
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.
F-46
(21) Quarterly Data (unaudited)
(dollars in thousands, except per share amounts)
March 31
June 30
September 30 December 31
2013 QUARTER
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income
Other-than-temporary impairment losses on
securities, net
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
2012 QUARTER
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Non-interest income
Other-than-temporary impairment losses on
securities, net
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
$
173,631
25,523
148,108
9,926
138,182
8,836
180,286
25,755
154,531
9,669
144,862
9,287
194,639
27,244
167,395
11,005
156,390
7,854
206,594
28,285
178,309
11,043
167,266
6,034
(1,272)
(893)
(1,400)
(2,584)
10,108
58,930
88,088
37,454
$
50,634
$
$
1.07
1.06
$
155,699
28,897
126,802
10,664
116,138
9,114
10,180
61,446
92,703
39,101
53,602
1.13
1.12
162,272
28,082
134,190
10,303
123,887
9,886
9,254
62,339
101,905
41,737
60,168
1.27
1.25
169,102
27,431
141,671
10,072
131,599
8,340
8,618
64,462
108,838
44,498
64,340
1.36
1.34
173,483
26,340
147,143
10,388
136,755
8,899
(714)
(1,400)
(434)
(525)
9,828
50,350
74,902
32,533
$
42,369
$
$
0.92
0.90
11,286
54,850
78,923
33,641
45,282
0.97
0.96
8,774
54,939
85,000
37,302
47,698
1.02
1.00
9,424
58,104
87,550
37,416
50,134
1.07
1.05
F-47
(This page has been left blank intentionally.)
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 2013 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on March 18, 2013.)
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.)
10.4 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.)
10.7
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.)
10.13 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.
EXHIBIT 21.1
As of February 28, 2014, Signature Bank has the following significant subsidiary:
SUBSIDIARIES OF SIGNATURE BANK
Subsidiary
Signature Preferred Capital, Inc.
State or Jurisdiction
Under Which Organized
New York
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, 2013;
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 28, 2014
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
CERTIFICATION
EXHIBIT 31.2
I, Vito Susca, certify that:
1.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended
December 31, 2013;
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 28, 2014
/s/ VITO SUSCA
Vito Susca
Senior 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, 2013 (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 28, 2014
Dated: February 28, 2014
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
/s/ VITO SUSCA
Vito Susca
Senior 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.)
Signature Bank (NASDAQ:SBNY), member FDIC, is a full-service commercial bank with 27
private client offi ces located throughout the New York metropolitan area. Th e Bank primarily
serves privately owned businesses, their owners and senior managers. Signature Bank off ers 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.
In addition, Signature Bank’s wholly owned specialty fi nance subsidiary, Signature Financial LLC,
provides equipment fi nance and leasing along with taxi medallion and transportation fi nancing.
F I N A N C I A L H I G H L I G H T S
(in thousands)
Total assets
Total loans
Total deposits
2009
2010
2011
2012
2013
$ 9,146,112
11,673,089
14,666,120
17,456,057
22,376,663
4,376,098
5,244,664
6,850,726
9,771,770
13,519,471
7,222,546
9,441,227
11,754,138
14,082,652
17,057,097
Shareholders’ equity
803,659
944,547
1,408,116
1,650,327
1,799,939
Net interest income after provision
for loan losses
Non-interest income
Non-interest expense
Net income available to common
shareholders
219,680
298,486
34,632
42,648
407,911
42,038
508,379
36,239
149,885
164,896
182,724
218,243
606,700
32,011
247,177
391,534
$ 50,523
102,051
149,526
185,483
228,744
Income before income taxes
104,427
176,238
267,225
326,375
C O M PA N Y P R O F I L E
C O R P O R AT E I N F O R M AT I O N
BOARD OF DIRECTORS
LOCATIONS
STOCKHOLDER INFORMATION
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 Offi cer
Signature Bank
Judith A. Huntington
President
Th e College of New Rochelle
Jeff rey W. Meshel
Founder, President and
Chief Executive Offi cer
Paradigm Capital Corp.
Michael V. Pappagallo
President & Chief Financial Offi cer
Brixmor Property Group
John Tamberlane
Vice Chairman
Signature Bank
Manhattan
261 Madison Avenue
300 Park Avenue
71 Broadway
565 Fifth Avenue
950 Th ird Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
Brooklyn
26 Court Street
6321 New Utrecht Avenue
97 Broadway
84 Broadway
(Accommodation Offi ce)
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
1688 Victory Boulevard
SENIOR MANAGEMENT
Westchester
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
Long Island
1225 Franklin Avenue, Garden City
53 North Park Avenue, Rockville Centre
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
360 Motor Parkway, Hauppauge
Signature Securities Group
Institutional Trading
(Services limited to institutional clients)
9 Greenway Plaza, Houston, TX 77046
Scott A. Shay
Chairman of the Board of Directors
Joseph J. DePaolo
President & Chief Executive Offi cer
John Tamberlane
Vice Chairman
Mark T. Sigona
Executive Vice President &
Chief Operating Offi cer
Michael J. Merlo
Executive Vice President &
Chief Credit Offi cer
Eric R. Howell
Executive Vice President -
Corporate & Business Development
Peter S. Quinlan
Executive Vice President &
Treasurer
Michael Sharkey
Senior Vice President &
Chief Technology Offi cer
Vito Susca
Senior Vice President &
Chief Financial Offi cer
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
6201 15th Avenue
Brooklyn, NY 11219
718-921-8200
Stock Trading Information
Th e Bank’s common stock is traded on
the NASDAQ National Market under
the symbol SBNY.
Annual Meeting
Th e annual meeting of stockholders will
be held on April 24, 2014, 9:00 AM at:
Th e 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 fi led 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. Th e Bank’s actual results,
performance and achievements may diff er 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. Risk Factors,” appearing in the Bank’s
Annual Report on Form 10-K for the fi scal year ended
December 31, 2013, included herein.
565 Fifth Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com
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2013 ANNUAL REPORT