565 Fifth Avenue
866-SIG-LINE (866-744-5463)
New York, NY 10017
www.signatureny.com
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C O M P A 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 30 private client offi ces located throughout the New York metropolitan
area. The 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 nancing and leasing.
F I N A N C I A L H I G H L I G H T S
(in thousands)
2012
2013
2014
2015
2016
Total assets
Total loans
Total deposits
$ 17,456,057
22,376,663
27,318,640
33,450,545
39,047,611
9,771,770
13,519,471
17,857,708
23,792,564
29,043,165
14,082,652
17,057,097
22,620,275
26,773,923
31,861,260
Shareholders’ equity
1,650,327
1,799,939
2,496,238
2,891,834
3,612,264
Net interest income after provision
for loan and lease losses
508,379
606,700
770,041
932,187
991,468
Non-interest income
36,239
32,011
34,982
37,104
42,750
Non-interest expense
218,243
247,177
293,244
341,214
376,771
Income before income taxes
326,375
391,534
511,779
628,077
657,447
Net income
$ 185,483
228,744
296,704
373,065
396,324
BOARD OF DIRECTORS
LOCATIONS
STOCKHOLDER INFORMATION
Scott A. Shay
Signature Bank
Co-founder & Chairman of the Board
Kathryn A. Byrne, CPA
Partner
WeiserMazars LLP
Derrick D. Cephas
Partner
Weil, Gotshal & Manges LLP
Alfonse M. D’Amato
Managing Director
Park Strategies, LLC
Former U.S. Senator
Joseph J. DePaolo
Co-founder, President &
Chief Executive Offi cer
Signature Bank
Barney Frank
Former U.S. Congressman
Judith A. Huntington
Private Investor
Jeff rey W. Meshel
Founder, President &
Chief Executive Offi cer
Paradigm Capital Corp.
John Tamberlane
Co-founder & Vice Chairman
Signature Bank
SENIOR MANAGEMENT
Scott A. Shay
of Directors
Co-founder & Chairman of the Board
Joseph J. DePaolo
Co-founder, President &
Chief Executive Offi cer
John Tamberlane
Co-founder & 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
Manhattan
261 Madison Avenue
485 Madison Avenue
71 Broadway
565 Fifth Avenue
950 Third Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
Brooklyn
26 Court Street
6321 New Utrecht Avenue
97 Broadway
9003 3rd Avenue
84 Broadway
(Accommodation Offi ce)
Queens
36-36 33rd Street, Long Island City
78-27 37th Avenue, Jackson Heights
89-36 Sutphin Boulevard, Jamaica
118-35 Queens Boulevard, Forest Hills
Bronx
421 Hunts Point Avenue
Staten Island
2066 Hylan Boulevard
1688 Victory Boulevard
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
The Bank’s common stock is traded on the
NASDAQ Global Select Market under the
The annual meeting of stockholders will be
held on April 20, 2017, 9:00 AM local time, at:
symbol SBNY.
Annual Meeting
The Roosevelt Hotel
45 East 45th Street
New York, NY 10017
212-661-9600
Form 10-K
Westchester
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
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.sig-
natureny.com, or by written request to:
Long Island
1225 Franklin Avenue, Garden City
53 North Park Avenue, Rockville Centre
Signature Bank
Attention: Investor Relations
565 Fifth Avenue
New York, NY 10017
58 South Service Road, Melville
of 1995 (the “Reform Act”). Such forward-
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
360 Motor Parkway, Hauppauge
(Accommodation Offi ce)
Connecticut
75 Holly Hill Lane, Greenwich
Signature Securities Group
Institutional Trading
9 Greenway Plaza, Houston, TX 77046
(Services limited to institutional clients)
Signature Financial LLC
Melville, NY 11747
Signature Public Funding Corp.
600 Washington Avenue, Suite 305
Towson, MD 21204
Certain statements in this Annual Report, and
certain oral statements made from time to
time by representatives of the Bank, that are
not historical facts may constitute “forward-
looking statements” within the meaning of
the Private Securities Litigation Reform Act
looking statements are based on the Bank’s
current expectations, speak only as of the
date on which they are made and are suscep-
tible to a number of risks, uncertainties and
other factors. The Bank’s actual results, per-
formance and achievements may diff er mate-
rially from any future results, performance or
achievements expressed or implied by such
forward-looking statements. For those state-
ments, the Bank claims the protection of the
safe harbor for forward-looking statements
Securities 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 Decem-
ber 31, 2016, included herein.
225 Broadhollow Road, Suite 132W
contained in the Reform Act. See “Private
To Our Shareholders
Signature Bank Co-founders (pictured from left to right): Joseph J. DePaolo, President and
Chief Executive Offi cer; Scott A. Shay, Chairman of the Board;
and, John Tamberlane, Vice Chairman
There is a symbiotic relationship between Signature
Bank’s colleagues, clients and shareholders. Our
commitment to more than 1,200 dedicated
colleagues directly leads to strong, loyal client rela-
tionships, which is how we achieve valuable returns
for our shareholders. Our shareholders’ long-term
commitment to our Bank has allowed us to build
an institution which is truly diff erentiated in the
marketplace and focused on long-term goals rather
than the latest industry fad. Th is, in turn, promotes
a greater focus on client care.
Th e relationship-based model we have built – predi-
cated upon the high levels of service and fi nancial
care our private client banking teams deliver to
our clients – is at the core of our business. It is this
unrelenting commitment to client care that has been
the hallmark of our single-point-of-contact approach,
and our key diff erentiator in an over-crowded
commercial banking marketplace.
For nearly 16 years since our inception, our veteran
private client banking teams have been focused on
delivering unprecedented service, which has led to a
highly satisfi ed, fast-growing client roster of commer-
cial clients.
Signature Bank
established
Open for
Business
Th e eff orts of our expert banking teams and the
subsequent satisfaction of our clients can be
evidenced by Signature Bank’s ongoing, strong
growth. 2016 was again a year in which the Bank
delivered record earnings – in fact, our ninth consec-
utive one – and also another where we reported
strong performance across all key metrics, including
solid deposit and loan growth.
Th e partnership between our colleagues and clients
has ultimately reaped signifi cant returns for our
shareholders, who, time and again, have realized
benefi ts from growth that signifi cantly outpaces that
of our peers.
How It All Began
When we look back to our founding, it’s hard to
believe just how far we have come and all that has
been achieved in such a short period of time. We
recall the early days during which we conceptualized
the building of a bank that put depositors and their
safety fi rst. Th e rationale and philosophy upon
which Signature Bank was built remains the premise
of our business model today.
2000
2001
14
Teams
Joined
2002
6
Teams
Joined
SBA Group
established
in Houston
2003
2
Teams
Joined
Initial Public
Offering of
6.2 million shares;
net proceeds of
$88.3 million
2004
8
Teams
Joined
$3.4
billion
in Assets
1
Signature Bank becomes
independent from former parent
Bank Hapoalim; Public Offering
of 15.2 million shares
Commercial Real
Estate Banking
Team launched
Public Offering
of 5.4 million
shares; net
proceeds of
$148.1 million
Public Offering
of 5.2 million
shares; net
proceeds of
$127.3 million
Public Offering
of 4.7 million
shares; net
proceeds of
$253.3 million
Signature Financial LLC
wholly owned
(specialty finance)
subsidiary established
Asset-based
Lending
Group
established
Public Offering
of 2.4 million
shares; net
proceeds of
$295.8 million
First banking office
established outside
New York State opens
in Greenwich,
Connecticut
Public Offering
Signature Public
Funding Corp.
(municipal finance)
launched
of 2.4 million
Bank issues
shares; net
proceeds of
$318.7 million
$260 million in
Subordinated
Debt
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
8
Teams
Joined
$4.4
billion
in Assets
10
Teams
Joined
$5.4
billion
in Assets
7
Teams
Joined
$5.8
billion
in Assets
6
Teams
Joined
$7.2
billion
in Assets
14
Teams
Joined
$9.2
billion
in Assets
6
Teams
Joined
$11.7
billion
in Assets
7
Teams
Joined
$14.7
billion
in Assets
4
Teams
Joined
$17.5
billion
in Assets
10
$22.4
Teams
Joined
billion
in Assets
6
Teams
Joined
$27.3
billion
in Assets
5
Teams
Joined
$35.5
billion
in Assets
Crain’s
New York
Business ranks
Signature Bank
21st on Top 50
Best Places to
Work in New
York City list
Signature Bank
earns annual Cigna
Well-Being Award
in the New York City
metro area
3
Teams
Joined
$39
billion
in Assets
Signature
Bank named
Best Bank in
America by
Forbes
Signature Bank
receives investment
grade ratings
from Kroll Bond
Rating Agency
New York Law
Journal readers
vote Signature
Bank Best
Business Bank for
third consecutive
year (2014, 2015
and 2016)
In the early days, there were just 10 colleagues
working from a small conference room in Midtown
Manhattan as Signature Bank began to take shape.
Th e goal was to create a Bank that would address
a void management saw rapidly unfolding in the
commercial banking marketplace. Mega-banks,
also now known as too-big-to-fail institutions, were
fast-consolidating, and the client-banker relationship
was quickly dissolving as these large banks institu-
tionalized their client base. Th e end result: frustrated,
tionalized their client base. Th e end result: frustrated,
unhappy and underserved clients.
unhappy and underserved clients.
Our vision was to form an institution that would
Our vision was to form an institution that would
primarily cater to privately owned businesses, their
primarily cater to privately owned businesses, their
owners and senior managers – a niche overlooked
owners and senior managers – a niche overlooked
by the larger fi nancial institutions. Th e team-based,
by the larger fi nancial institutions. Th e team-based,
relationship-focused model was designed to directly
relationship-focused model was designed to directly
address what management saw as a viable and enor-
address what management saw as a viable and enor-
mous opportunity to cater to clients and ensure their
mous opportunity to cater to clients and ensure their
experience was stellar.
Signature Bank’s plan was to stay true to its team-
Signature Bank’s plan was to stay true to its team-
based concept by attracting experienced bankers
based concept by attracting experienced bankers
from these mega-institutions. Creating a network
from these mega-institutions. Creating a network
of colleagues that comprised private client banking
of colleagues that comprised private client banking
teams led by Group Directors would enable these
teams led by Group Directors would enable these
teams to serve as a single point of contact for meeting
teams to serve as a single point of contact for meeting
all clients’ needs. Clients simply contacted one team
all clients’ needs. Clients simply contacted one team
and whatever their needs were, the colleagues on that
and whatever their needs were, the colleagues on that
team could fulfi ll them.
Over time, we quickly grew, reaching several mile-
Over time, we quickly grew, reaching several mile-
stones along the way, such as:
stones along the way, such as:
• Named a top 10 Best Bank in America for six
Named a top 10 Best Bank in America for six
consecutive years (2011-2016), including Best
consecutive years (2011-2016), including Best
(Forbes)
Bank in America in 2015 (Forbes)
Bank in America in 2015
Bank in America in 2015
• Became 6th largest New York Commercial Bank
Became 6th largest New York Commercial Bank
Became 6th largest New York Commercial Bank
(Crain’s New York Business)
(Crain’s New York Business)
• Ranked 43rd Largest Bank Nationwide, of 6,000
Ranked 43rd Largest Bank Nationwide, of 6,000
banks, based on deposits (SNL Financial)
(SNL Financial)
(SNL Financial)
• Voted Best Business Bank for three consecutive
Voted Best Business Bank for three consecutive
Voted Best Business Bank for three consecutive
years in 2014, 2015 and 2016 (New York Law
(New York Law
(New York Law
Journal)
• Attracted 1,200 colleagues
• Grown to nearly 100 private banking teams, led by
approximately 150 Group Directors
• Raised $1.3 billion in total capital through
seven off erings
• Reported nine consecutive years of record earnings
Today, our network of Group Directors and
banking teams are gathering record levels of both
deposits and loans from clients who favor our
service-oriented model.
Colleagues at Our Core
Although we didn’t anticipate all the tumult that
would overwhelm the fi nancial markets, Signature
Bank has actually benefi ted from the rapidly chang-
ing fi nancial services landscape.
We have developed an expertise in attracting veteran
bankers from many competing institutions who
prefer to become partners in our Bank and be
objectively rewarded based on their team’s success.
Our profi t model incentivizes teams on annual
average balances of their clients. As such, the team
is mindful in ensuring their clients are serviced well,
as it is just as important to retain clients as it is to
onboard new ones. We work hard to both attract
and retain these seasoned banking professionals
because we know their satisfaction is refl ected in our
clients’ loyalty and longevity with our Bank.
To date, Signature Bank has attracted bankers
from more than 20 diff erent institutions. We have
a very high retention rate at the Bank amongst
our most seasoned bankers. We have become a
preferred institution at which to work for many of
these talented professionals.
We take great pride in ensuring our colleagues are
motivated. Hard-working, highly rewarded, happy
and healthy colleagues lead to satisfi ed, well-
cared-for clients. For example, our employee wellness
program was named winner of the Gold Stevie®
Award for HR Achievement in the Workplace Health
& Well-being category of the 2016 Stevie Awards for
Great Employers. Th is stems from our sheer commit-
ment to and investment in our colleagues’ health and
well-being.
well-being.
Signature Bank
established
Open for
Business
2000
2001
14
Teams
Joined
2002
6
Teams
Joined
SBA Group
established
in Houston
2003
2
Teams
Joined
2004
8
Teams
Joined
$3.4
billion
in Assets
Initial Public
Offering of
6.2 million shares;
net proceeds of
$88.3 million
Signature Bank becomes
independent from former parent
Bank Hapoalim; Public Offering
of 15.2 million shares
Commercial Real
Estate Banking
Team launched
Public Offering
of 5.4 million
shares; net
proceeds of
$148.1 million
Public Offering
of 5.2 million
shares; net
proceeds of
$127.3 million
Public Offering
of 4.7 million
shares; net
proceeds of
$253.3 million
Signature Financial LLC
wholly owned
(specialty finance)
subsidiary established
Asset-based
Lending
Group
established
Public Offering
of 2.4 million
shares; net
proceeds of
$295.8 million
First banking office
established outside
New York State opens
in Greenwich,
Connecticut
Public Offering
Signature Public
Funding Corp.
(municipal finance)
launched
of 2.4 million
Bank issues
shares; net
proceeds of
$318.7 million
$260 million in
Subordinated
Debt
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
8
Teams
Joined
$4.4
billion
in Assets
10
Teams
Joined
$5.4
billion
in Assets
7
Teams
Joined
$5.8
billion
in Assets
6
Teams
Joined
$7.2
billion
in Assets
14
Teams
Joined
$9.2
billion
in Assets
6
Teams
Joined
$11.7
billion
in Assets
7
Teams
Joined
$14.7
billion
in Assets
4
Teams
Joined
$17.5
billion
in Assets
10
$22.4
Teams
Joined
billion
in Assets
6
Teams
Joined
$27.3
billion
in Assets
5
Teams
Joined
$35.5
billion
in Assets
2
Crain’s
New York
Business ranks
Signature Bank
21st on Top 50
Best Places to
Work in New
York City list
Signature Bank
earns annual Cigna
Well-Being Award
in the New York City
metro area
3
Teams
Joined
$39
billion
in Assets
Signature
Bank named
Best Bank in
America by
Forbes
Signature Bank
receives investment
grade ratings
from Kroll Bond
Rating Agency
New York Law
Journal readers
vote Signature
Bank Best
Business Bank for
third consecutive
year (2014, 2015
and 2016)
Our private client banking teams are the Bank’s only
advertisement. We do not engage in any advertis-
ing campaigns given the strength and success of our
colleagues, and especially our clients, who serve as
primary referral sources.
percent with non-performing loans-to-
percent with non-performing loans-to-
percent with non-performing loans-to-
assets at 0.40 percent. Net charge-off s
assets at 0.40 percent. Net charge-off s
assets at 0.40 percent. Net charge-off s
to average loans were 52 basis points in
to average loans were 52 basis points in
to average loans were 52 basis points in
2016, compared with seven basis points at
2016, compared with seven basis points at
December 31, 2015.
Th e investment we make in our teams equates to
Th e investment we make in our teams equates to
the growth of our business. Th e performance of
the growth of our business. Th e performance of
our colleagues directly translates into our fi nancial
our colleagues directly translates into our fi nancial
successes and reaps rewards for our shareholders.
successes and reaps rewards for our shareholders.
Collaboration Translates
Collaboration Translates
Directly to Performance
Directly to Performance
Signature Bank reported its ninth consecutive year
Signature Bank reported its ninth consecutive year
of record earnings in 2016. For the year ended
of record earnings in 2016. For the year ended
December 31, 2016, net income reached a record
December 31, 2016, net income reached a record
$396.3 million, or $7.37 diluted earnings per share,
$396.3 million, or $7.37 diluted earnings per share,
versus $373.1 million, or $7.27 diluted earnings per
share in 2015, demonstrating a $23.2 million, or 6.2
percent increase. Th e record net income reported in
2016, when compared with 2015, is mainly the result
of an increase in net interest income, stimulated by
strong average deposit and loan growth. Th ese factors
were off set, to some extent, by an increase in the
provision for loan losses and non-interest expenses.
During 2016, the Bank also substantially grew
deposits. For the 2016 year, deposits increased $5.09
billion to $31.86 billion. Average total deposits for
2016 reached $29.75 billion, up $4.45 billion, or
17.6 percent, versus average total deposits of $25.29
billion for 2015. As we have frequently mentioned,
based on fl uctuations in escrow deposits, we
view average total deposits as the key benchmark
on which we are most focused with respect to our
deposit performance.
Loans continued to expand during 2016, as our port-
folio grew $5.25 billion, or 22.1 percent, to $29.04
billion, compared with loans of $23.79 billion at
the end of 2015. Th e increase in loans was primarily
driven by growth in multi-family loans, commercial
real estate and commercial and industrial loans.
Loans represented 74.4 percent of total assets versus
71.1 percent at the end of 2015.
Th e Bank’s disciplined lending approach resulted in a
low non-performing loans-to-loan ratio of only 0.54
Signature Financial LLC, our wholly
Signature Financial LLC, our wholly
Signature Financial LLC, our wholly
Signature Financial LLC, our wholly
owned specialty fi nance subsidiary,
owned specialty fi nance subsidiary,
continued to positively contribute to our
continued to positively contribute to our
loan portfolio, outside of our taxi medal-
loan portfolio, outside of our taxi medal-
lion loans. Now, with seven business lines
lion loans. Now, with seven business lines
operating nationwide from this subsidiary,
operating nationwide from this subsidiary,
Signature Financial’s portfolio totals in
Signature Financial’s portfolio totals in
excess of $3.3 billion.
excess of $3.3 billion.
During 2016, the Bank continued to
During 2016, the Bank continued to
strengthen its already strong capital posi-
tion with the completion of a public stock
off ering of nearly $320 million, as well
as our fi rst subordinated debt off ering of
$260 million. Both of these capital raises,
along with our ongoing, solid earnings
retention, well positions Signature Bank
for future growth and further team and
market expansion.
Again in 2016, the Bank’s capital ratios
were all in excess of regulatory require-
ments. Th e Bank’s Tier 1 leverage,
common equity Tier 1 risk-based, Tier 1
risk-based and Total risk-based capital
ratios were approximately 9.61 percent,
11.92 percent, 11.92 percent and 13.46
percent, respectively, as of December 31,
2016. Th ese strong capital ratios refl ect the
relatively low risk profi le of our balance
sheet. Additionally, the Bank’s tangible
common equity ratio remained strong at
9.21 percent.
We have always strived to emphasize
depositor safety – fi rst and foremost–
since creating this institution back in
2000. We have implemented many
measures to ensure this, as evidenced
by the high investment grade ratings we
earned in 2016 from Kroll Bond Rating
Agency (KBRA), a full-service rating
N ET I N CO M E
(in millions)
396.3
373.1
296.7
228.7
185.5
12
13
15
16
14
YEAR
LOANS
(in billions)
29.0
23.8
17.9
13.5
9.8
12
13
15
16
14
YEAR
D E POS ITS
(in billions)
31.9
26.8
22.6
17.1
14.1
12
13 14
15 16
YEAR
Signature Bank
Signature Bank
established
established
Open for
Business
Open for
Business
Initial Public
Initial Public
Offering of
Offering of
6.2 million shares;
6.2 million shares;
net proceeds of
net proceeds of
$88.3 million
$88.3 million
Signature Bank becomes
Signature Bank becomes
independent from former parent
independent from former parent
Bank Hapoalim; Public Offering
Bank Hapoalim; Public Offering
of 15.2 million shares
of 15.2 million shares
Commercial Real
Commercial Real
Estate Banking
Estate Banking
Team launched
Team launched
Public Offering
Public Offering
of 5.4 million
of 5.4 million
shares; net
shares; net
proceeds of
proceeds of
$148.1 million
$148.1 million
Public Offering
of 5.2 million
shares; net
proceeds of
$127.3 million
Public Offering
of 5.2 million
shares; net
proceeds of
$127.3 million
Public Offering
of 4.7 million
shares; net
proceeds of
$253.3 million
Public Offering
of 4.7 million
shares; net
proceeds of
$253.3 million
Signature Financial LLC
wholly owned
(specialty finance)
subsidiary established
Signature Financial LLC
wholly owned
(specialty finance)
subsidiary established
Public Offering
Public Offering
First banking office
First banking office
Public Offering
Public Offering
Asset-based
Asset-based
of 2.4 million
of 2.4 million
established outside
established outside
Signature Public
Signature Public
of 2.4 million
of 2.4 million
Bank issues
Bank issues
Lending
Group
Lending
Group
shares; net
shares; net
New York State opens
New York State opens
Funding Corp.
Funding Corp.
shares; net
shares; net
$260 million in
$260 million in
proceeds of
proceeds of
in Greenwich,
in Greenwich,
(municipal finance)
(municipal finance)
proceeds of
proceeds of
Subordinated
Subordinated
established
established
$295.8 million
$295.8 million
Connecticut
Connecticut
launched
launched
$318.7 million
$318.7 million
Debt
Debt
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
14
Teams
Joined
14
Teams
Joined
SBA Group
SBA Group
established
in Houston
established
Teams
in Houston
Joined
6
6
Teams
Joined
2
Teams
Joined
2
Teams
Joined
8
Teams
Joined
$3.4
8
billion
Teams
in Assets
Joined
$3.4
billion
in Assets
8
Teams
Joined
$4.4
8
billion
Teams
in Assets
Joined
$4.4
billion
in Assets
10
Teams
Joined
$5.4
10
billion
Teams
in Assets
Joined
$5.4
billion
in Assets
7
Teams
Joined
$5.8
7
billion
Teams
in Assets
Joined
$5.8
billion
in Assets
6
Teams
Joined
$7.2
6
billion
Teams
in Assets
Joined
$7.2
billion
in Assets
14
Teams
Joined
$9.2
14
billion
in Assets
Teams
Joined
$9.2
billion
in Assets
6
Teams
Joined
$11.7
6
billion
in Assets
Teams
Joined
$11.7
billion
in Assets
7
Teams
Joined
$14.7
7
billion
in Assets
Teams
Joined
$14.7
4
$17.5
4
billion
in Assets
Teams
Joined
Crain’s
billion
New York
in Assets
Business ranks
Signature Bank
21st on Top 50
Best Places to
Work in New
York City list
Crain’s
Teams
New York
Joined
Business ranks
Signature Bank
21st on Top 50
Best Places to
Work in New
York City list
$17.5
billion
in Assets
3
10
Teams
Joined
$22.4
10
billion
Teams
$22.4
billion
in Assets
Joined
in Assets
6
Teams
Joined
$27.3
6
billion
Teams
in Assets
Joined
$27.3
5
$35.5
5
billion
Teams
billion
Teams
$35.5
in Assets
Joined
in Assets
Joined
in Assets
earns annual Cigna
earns annual Cigna
billion
Well-Being Award
Well-Being Award
Teams
in the New York City
in the New York City
Joined
3
Signature Bank
Signature Bank
$39
3
billion
Teams
in Assets
Joined
New York Law
New York Law
$39
Journal readers
Journal readers
vote Signature
billion
vote Signature
in Assets
Bank Best
Bank Best
Signature
metro area
Signature
metro area
Signature Bank
Signature Bank
Bank named
Bank named
Best Bank in
Best Bank in
America by
America by
Forbes
Forbes
receives investment
receives investment
grade ratings
grade ratings
from Kroll Bond
from Kroll Bond
Rating Agency
Rating Agency
Business Bank for
Business Bank for
third consecutive
third consecutive
year (2014, 2015
year (2014, 2015
and 2016)
and 2016)
agency. For the second consecutive year, according
to KBRA, Signature Bank’s ratings were supported
by our solid fundamentals, including strong earn-
ings, a healthy liquidity position and sound capital
ratios. Furthermore, the ratings were reinforced by
the Bank’s veteran management team, its disciplined
underwriting practices and fi nancial results that
consistently outperformed that of our peer group,
particularly during recent economic downturns. Th is
certainly validates our strength and commitment to
depositor safety fi rst.
Coming Full Circle
Th e virtuous Signature Bank cycle begins with our
colleagues, extends to our clients and culminates
with our shareholders.
In line with our founding strategy, we continue to
identify bankers and colleagues interested in joining
our network. We only open private client banking
offi ces in markets where they have made their mark.
As such, at the end of 2016, Signature Bank oper-
ated 30 private client banking offi ces throughout
the New York metropolitan area. Th e marketplace
continues to present vast opportunity for us to attract
new colleagues while bankers also eagerly seek out
Signature Bank as a preferred place to work.
Many banks measure their size by assets. While
Signature Bank’s assets approached $40 billion
in 2016, we haven’t lost sight of the fact that we
consider our colleagues to be our greatest assets.
We appreciate them and value the contributions
they put forth each and every day to keep our
clients well cared for and satisfi ed. We also are
grateful to all our loyal clients and their dedication
to Signature Bank.
Th is approach has led to high shareholder returns.
Since we began operating as a public entity, we have
built long-term value for our shareholders. From the
time of our initial public off ering in 2004, Signature
Bank has outperformed the top 100 U.S. depositories
(excluding processing banks) and delivered an 800
percent return on investment. It also has presented
superior fi nancial results as demonstrated by our high
return on average assets and return on average equity.
We thank our shareholders for their ongoing commit-
ment to Signature Bank.
Th ere is one important area from which we would
welcome some collaboration, albeit a diff erent type.
Lawmakers on both sides of the aisle recognize that
setting the level at which a bank is defi ned as a
Systemically Important Financial Institution (SIFI)
at $50 billion does not make any sense. Th e level
should be raised substantially as regulations relat-
ing to becoming a SIFI impede growing institutions
from competing with the mega-banks. Our fi nancial
markets work best when there is competition, and
the $50 billion level for SIFI designation is actually
anti-competitive.
All of the Bank’s remarkable growth has been
achieved organically, steadily and securely, which
is consistent with our founding strategy. Th is is a
direct result of our depositor-fi rst, team-focused,
relationship-based, single-point-of-contact model.
Our diverse Board of Directors has been instrumen-
tal in helping us secure our leadership role in the
commercial banking arena, and we thank them for
their guidance and service.
We continue to work hard to maintain a happy work-
force, delighted clients and contented shareholders
as we further position the Bank for ongoing future
success.
Respectfully,
Scott A. Shay
Chairman of the Board
Joseph J. DePaolo
President and Chief Executive Offi cer
Initial Public
Offering of
6.2 million shares;
net proceeds of
$88.3 million
Signature Bank becomes
independent from former parent
Bank Hapoalim; Public Offering
of 15.2 million shares
Commercial Real
Estate Banking
Team launched
Public Offering
of 5.4 million
shares; net
proceeds of
$148.1 million
Public Offering
of 5.2 million
shares; net
proceeds of
$127.3 million
Public Offering
of 4.7 million
shares; net
proceeds of
$253.3 million
Signature Financial LLC
wholly owned
(specialty finance)
subsidiary established
Asset-based
Lending
Group
established
Public Offering
of 2.4 million
shares; net
proceeds of
$295.8 million
First banking office
established outside
New York State opens
in Greenwich,
Connecticut
Signature Public
Funding Corp.
(municipal finance)
launched
Public Offering
of 2.4 million
shares; net
proceeds of
$318.7 million
Bank issues
$260 million in
Subordinated
Debt
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
10
$22.4
Teams
Joined
billion
in Assets
4
6
Teams
Joined
$27.3
billion
in Assets
5
Teams
Joined
$35.5
billion
in Assets
Signature Bank
earns annual Cigna
Well-Being Award
in the New York City
metro area
3
Teams
Joined
$39
billion
in Assets
Signature
Bank named
Best Bank in
America by
Forbes
Signature Bank
receives investment
grade ratings
from Kroll Bond
Rating Agency
New York Law
Journal readers
vote Signature
Bank Best
Business Bank for
third consecutive
year (2014, 2015
and 2016)
Signature Bank
established
Open for
Business
2000
2001
14
Teams
Joined
2002
6
Teams
Joined
SBA Group
established
in Houston
2003
2
Teams
Joined
2004
8
Teams
Joined
$3.4
billion
in Assets
8
Teams
Joined
$4.4
billion
in Assets
10
Teams
Joined
$5.4
billion
in Assets
7
Teams
Joined
$5.8
billion
in Assets
6
Teams
Joined
$7.2
billion
in Assets
14
Teams
Joined
$9.2
billion
in Assets
6
Teams
Joined
$11.7
billion
in Assets
7
Teams
Joined
$14.7
billion
in Assets
4
Teams
Joined
$17.5
billion
in Assets
Crain’s
New York
Business ranks
Signature Bank
21st on Top 50
Best Places to
Work in New
York City list
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, 2016
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 con-
tained 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, 2016 was $6.62 billion.
As of February 28, 2017, the Registrant had outstanding 54,610,419 shares of Common Stock.
Portions of the registrant’s definitive Proxy Statement for Annual Meeting of Stockholders to be held April 20, 2017. (Part III)
DOCUMENTS INCORPOR ATED BY REFERENCE
SIGNATURE BANK
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
INDEX
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
7
29
48
48
49
49
50
53
55
93
95
95
95
97
97
97
97
97
97
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 that are
subject to risks and uncertainties. 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, brokered 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;
3
•
results from new business initiatives;
• other business operations and strategies;
• changes in federal, state or local tax laws; and
•
the impact of new accounting pronouncements.
As you read and consider the 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;
•
local, national and global political and macroeconomic uncertainty and volatility;
• our inability to successfully implement our business strategy;
• our inability to successfully integrate new business lines into our existing operations;
• changes to existing statutes and regulations or the way in which they are interpreted and applied by courts or
governmental agencies;
• 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;
• 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 United States;
4
• 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 (“ALLL”) 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 reliance on brokered deposits and continuing to be “well-capitalized”;
• 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;
• exposure to legal claims and litigation;
• potential responsibility for environmental claims;
• downgrades of our credit rating;
• our inability to raise additional funding needed for our operations;
•
inflation or deflation;
• 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 federal, state or local tax laws;
5
• changes in accounting standards, policies, and practices or interpretation of new or existing standards, policies
and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board,
or the Securities and Exchange Commission (the “SEC”);
• changes in our reputation and negative public opinion;
•
•
increases in FDIC insurance premiums;
regulatory net capital requirements that constrain our brokerage business;
• soundness of other financial institutions;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• changes in consumer spending, borrowing and savings habits;
• changes in our organization, compensation and benefit plans; 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.
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.
6
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”), Signature Financial, LLC (“Signature Financial”) and Signature Public
Funding Corporation (“Signature Public Funding”).
Introduction
We are a New York-based full-service commercial bank with 30 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
their senior managers.
Through our Signature Financial subsidiary, a specialty finance company based in Melville, Long Island, we offer a
variety of financing and leasing products, including equipment, transportation, taxi medallion, commercial marine,
and national franchise financing and/or leasing. Signature Financial’s clients are located throughout the United
States.
We provide brokerage, asset management and insurance products and services through our Signature Securities
Group Corporation (“Signature Securities”) subsidiary, a licensed broker-dealer and investment adviser.
Additionally, through Signature Securities, we purchase, securitize and sell the guaranteed portions of U.S. Small
Business Administration (“SBA”) loans.
Through our Signature Public Funding (“Signature Public Funding”) subsidiary based in Towson, Maryland, we
provide a range of municipal finance and tax-exempt lending and leasing products to government entities
throughout the country, including state and local governments, school districts, fire and police and other municipal
entities. The subsidiary is overseen by the management team of Signature Financial who has extensive
experience in the municipal finance space.
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 $39.05 billion in assets, $31.86 billion in deposits,
$29.04 billion in loans, $3.61 billion in equity capital and $3.35 billion in other assets under management as of
December 31, 2016. 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
Subordinated Debt Offering
On April 19, 2016, the Bank issued $260 million aggregate principal amount of Variable Rate Subordinated Notes
due April 19, 2026 (the “Notes”) to institutional investors. The Notes accrue interest at a fixed rate of 5.30% for the
first five years until April 2021. After this date and for the remaining five years of the Notes’ term, interest will
accrue at a variable rate of LIBOR plus 3.92%. Additionally, during the variable interest rate period and at the
Bank’s option, the Notes can be prepaid by the Bank. Net proceeds from this offering were used for general
corporate purposes and to facilitate our continued growth.
7
Common Stock Offering
In January 2016, the Bank completed a public offering of 2,200,000 shares of common stock generating net
proceeds of approximately $296.1 million. The Bank also granted the underwriters an option to purchase up to
330,000 additional shares. Subsequently, in February 2016, the underwriters exercised the option to purchase
166,855 additional shares. In total, the net proceeds from this offering were approximately $318.7 million. The net
proceeds from this offering were used for general corporate purposes and to facilitate our continued growth.
Core Deposit Growth
During 2016, our deposits grew $5.09 billion, or 19.0%, to $31.86 billion. Deposits at December 31, 2016 included
$1.34 billion of time deposits. At year-end 2015, deposits included $954.1 million of time deposits. Core deposits,
which exclude time deposits, increased $4.70 billion, or 18.2%, during 2016 as a result of 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, their owners and their 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 45.1% of our
total deposits and time deposits accounting for only 4.2% of our total deposits as of December 31, 2016. Our
average cost for total deposits was 0.41% for the year ended December 31, 2016.
Strategic Hires
During 2016, we increased our network of seasoned banking professionals by adding three private client banking
teams and several new banking group directors. Our full-time equivalent number of employees grew from 1,122 to
1,218 during 2016.
Private Client Banking Teams and Offices
As of December 31, 2016, we had 97 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 2016 in Bay Ridge, Brooklyn. We
currently operate 30 private client offices 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.
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 their 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.
8
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
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 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 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 and risk management review of compensation practices. 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.
Because we are a relationship-based commercial bank, we compensate our employees for average balances, not
for the number of accounts or products. Incentive revenue is the same for both retaining and obtaining clients.
Additionally, there are no sales competitions or sales requirements, nor are there any cross-selling requirements.
Maintain a flat organization structure for business development purposes that provides our clients and
group directors with direct access to senior management
Another key element of our strategy is our organizational structure. We operate with a flat organizational and
reporting structure, through which our group directors report directly to senior management. More importantly, it
gives our clients direct access to senior management.
9
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 our existing infrastructure
(physical and systems infrastructure, as well as people) can accommodate additional growth without substantial
additional support area personnel or significant spending on technology and operations in the medium term.
Be committed to a sound risk management process while focusing on profitability
Risk management is an important element of our business. We evaluate the inherent risks that affect our
business, including interest rate risk, credit risk, operational risk, regulatory risk, and reputation risk. We have a
Chief Risk Officer 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. 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 Global Select 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.
10
•
•
•
•
•
•
•
•
•
In September 2008, we completed a public offering of 5,400,000 shares of our common stock generating
net proceeds of $148.1 million.
In December 2008, we issued 120,000 shares of senior preferred stock (with an aggregate liquidation
preference of $120.0 million) and a warrant to purchase 595,829 common shares to the U.S. Treasury in
the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”),
for an aggregate purchase price of $120.0 million.
In light of the restrictions of the American Recovery and Reinvestment Act of 2009, on March 31, 2009,
we repurchased the 120,000 shares of preferred stock we issued to the U.S. Treasury for $120.0 million
plus accrued and unpaid dividends of $767,000.
In June 2009, we completed a public offering of 5,175,000 shares of our common stock generating net
proceeds of $127.3 million.
In March 2010, the U.S. Treasury sold, in a public offering, a warrant to purchase 595,829 shares of our
common stock that was received from us in the TARP Capital Purchase Program. As of December 31,
2016, 547,634 of these warrants have been exercised, which resulted in the creation of 128,683 shares
of treasury stock that have been reissued in connection with the exercise of options and the vesting of
restricted stock granted under the Bank’s equity incentive plan.
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.
In July 2014, we completed a public offering of 2,415,000 shares of our common stock generating net
proceeds of approximately $295.8 million.
In February 2016, we completed a public offering of 2,366,855 shares of our common stock generating
net proceeds of approximately $318.7 million.
In April 2016, the Bank issued $260 million of subordinated debt to institutional investors.
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 products, including equipment transportation, taxi medallion; commercial
marine, and national franchise financing and/or leasing;
• Municipal finance and tax-exempt lending and leasing products to government entities;
• 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;
11
• 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 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, their owners and their 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 competitive with other banks. Our business
deposit products include commercial checking accounts, money market accounts, escrow deposit 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, 2016 and 2015:
(dollars in thousands)
Amount
Percentage
Amount
Percentage
December 31,
2016
2015
Personal demand deposit accounts (1)
Business demand deposit accounts (1)
Brokered demand deposit accounts (1)
Rent security
Personal NOW
Business NOW
Personal money market accounts
Business money market accounts
Brokered money market accounts
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand deposit accounts (1)
NOW
Money market accounts
Time deposits
Brokered deposits (2)
Total
Personal
Business
Brokered deposits (2)
Total
$
826,382
9,642,408
51,739
199,243
51,167
3,857,269
4,073,418
11,677,906
137,871
298,742
620,607
424,508
31,861,260
10,468,790
3,908,436
15,950,567
919,349
614,118
31,861,260
5,249,709
25,997,433
614,118
31,861,260
$
$
$
$
$
2.59%
30.26%
0.16%
0.63%
0.16%
12.11%
12.78%
36.66%
0.43%
0.94%
1.95%
1.33%
100.00%
32.85%
12.27%
50.07%
2.89%
1.92%
100.00%
16.47%
81.61%
1.92%
100.00%
693,297
7,801,557
72,446
164,014
46,650
2,687,552
3,625,105
10,541,963
187,254
328,031
430,016
196,038
26,773,923
8,494,854
2,734,202
14,331,082
758,047
455,738
26,773,923
4,693,083
21,625,102
455,738
26,773,923
2.59%
29.14%
0.27%
0.61%
0.17%
10.04%
13.54%
39.37%
0.70%
1.23%
1.61%
0.73%
100.00%
31.73%
10.21%
53.52%
2.84%
1.70%
100.00%
17.53%
80.77%
1.70%
100.00%
(1) Non-interest bearing.
(2)
Includes non-interest bearing deposits of $51.7 million and $72.4 million as of December 31, 2016 and December 31,
2015, respectively.
12
Lending Activities
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 their senior managers, generally high net
worth individuals who meet our credit standards. Our 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,
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 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. 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, 2016, funded C&I loans totaled approximately 19% 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.
13
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, 2016:
(dollars in thousands)
Transportation Services
Real Estate and Real Estate Management
Taxi Medallions
Manufacturing
Building and Construction Contractors
Financial Services
Health Services
Retail Trade
Wholesale Trade
Professional Services
Automotive Services
Accomodation and Food Services
Recreational Services
Business Services
Educational Services
Special Trade Contractors
Mining
Public Administration
Utilities
Legal Services
Membership Organizations
Communications
Audio/Video Services
Other Industries
Total
Loan Amount
Percentage
$
868,507
784,946
627,399
491,822
417,584
219,407
208,715
203,336
201,460
201,134
192,741
165,683
137,272
91,047
88,455
54,327
49,500
45,669
33,748
30,728
30,360
27,494
20,759
287,130
5,479,223
$
15.86%
14.33%
11.45%
8.98%
7.62%
4.00%
3.81%
3.71%
3.68%
3.67%
3.52%
3.02%
2.51%
1.66%
1.61%
0.99%
0.90%
0.83%
0.62%
0.56%
0.55%
0.50%
0.38%
5.24%
100.00%
As of December 31, 2016, one of the largest components of our C&I portfolio consisted of loans to finance taxi
medallions, which are the licenses required to operate taxicabs. We conduct most of this business in New York
City, which is a well-regulated market. The recent development of car-service applications has increased
competition within the taxi industry and we have seen an increase in the nonperformance of loans made to finance
taxi medallions. Moreover, the increase in competition in the taxi industry has affected the value of medallions that
serve as our primary collateral for our taxi medallion loans. See the discussion of asset quality and the ALLL later
in this report, as well as in Note 8 to our Consolidated Financial Statements.
“Other Industries” includes 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 property, multi-family residential property,1-4
family residential property, and construction and land. We also provide temporary financing for commercial and
residential property. Our permanent real estate loans generally have terms of up to ten 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
14
the property to verify the ongoing adequacy of the collateral. At December 31, 2016, funded real estate loans
totaled approximately $23.53 billion, representing approximately 80% of our total funded loans.
The following table shows the distribution of our real estate loans by collateral type as of December 31, 2016:
(dollars in thousands)
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Construction and land
Total
Loan Amount
Percentage
$
$
14,366,520
7,994,707
535,338
148,094
485,309
23,529,968
61.05%
33.98%
2.28%
0.63%
2.06%
100.00%
We do not consider personal residential real estate loans a core part of our business. These loans consist of first
and second mortgage loans for residential properties. The borrowers are typically high net worth individuals from
our private client services. Effective January 2016, we no longer originate these loans, though we expect to
continue to service the remaining portfolio until maturity. .
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 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, 2016, our commitments under letters of credit totaled approximately
$394.5 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 ensure that the borrower has sufficient liquidity to
repay the loan. At December 31, 2016, our consumer loans totaled $10.3 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 Financial Industry Regulatory
Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Signature Securities is an
introducing firm and, as such, clears its trades through National Financial Services, LLC, a wholly-owned
subsidiary of Fidelity Investments. Signature Securities is also registered as an investment adviser. 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 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
15
investment manager due diligence for us on these money managers and mutual funds. 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, 2016, we had $559.5 million in SBA loans held for sale, representing approximately 1.7% of our
total funded loans, compared to $456.4 million at December 31, 2015.
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 participant 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, 2016, the carrying amount
of our SBA excess servicing strip assets totaled $130.4 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,
mortgage banking companies, money market mutual funds, asset-based non-bank lenders, and other financial
16
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 deposits, loans, 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
The majority 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, Newark and Jersey City is – with approximately $1.7 trillion in total deposits, as of June 30, 2016 – more
than three times larger than the second largest MSA in the U.S. (Los Angeles, Long Beach, Anaheim). 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, 2016, we operated 30 private client offices in the New York metropolitan area. These 30
offices housed a total of 97 private client banking teams. As part of the continuing development of our business
strategy, we expect to add additional private client banking teams in 2017. We believe these additional teams 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, General Ledger,
Teller, and Internet Banking) is provided by Fidelity Information Services.
Our information technology environment includes the Fidelity Information Services’ technology centers in Little
Rock, Arkansas and Brown Deer, Wisconsin. A combination of backup power generation, uninterruptible power
systems and 24 hour a day monitoring of the facility perimeters, hardware, operating system software, network
connectivity, and building environmental systems minimizes the risk of any serious outage or security breach. For
disaster recovery purposes, full redundancy of the Little Rock and Brown Deer technology centers are provided
through separate facilities located in Jacksonville, Florida and Wisconsin.
Our core brokerage systems are provided by and run at our clearing firm, National Financial Services, LLC, a
subsidiary of Fidelity Global Brokerage Group, Inc. Our personnel connect to the system via both dedicated and
internet based connections to National Financial Services in Boston, Massachusetts.
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Employees
As of December 31, 2016, we had 1,218 full-time equivalent employees, 716 of whom were officers. None of our
employees are 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 (“DFS”)
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. We
also are subject to enforcement and rulemaking authorities of the Consumer Financial Protection Bureau (“CFPB”)
for financial products and services under its jurisdiction. These regulators oversee our compliance with applicable
federal and New York laws and regulations governing our activities, operations, and business. We are not
controlled by a parent holding company, which would be subject to primary federal supervision by the Federal
Reserve as a bank holding company. As a bank without a bank holding company, a relatively simple capital and
corporate structure, and a traditional lending and deposit-taking business model, Signature Bank in certain
respects is subject to somewhat less burdensome federal bank regulatory requirements than larger banks with
more complex structures and activities and banks that are subsidiaries of bank holding companies. We are,
however, subject to the disclosure and regulatory requirements of the Securities Exchange Act of 1934, as
administered by the FDIC, and the rules adopted for The NASDAQ Stock Market LLC that are applicable to listed
companies.
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. 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.
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.
In addition, the FDIC, as a supervisory matter, expects us to have governance, internal control, compliance, and
supervisory programs consistent with our size and activities. As the Bank approaches $50 billion in assets, the
FDIC will generally expect us to develop and implement enhanced governance, internal control, compliance, and
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supervisory programs, to implement select banking regulations that do not technically apply to an institution of our
size or structure, and to incur the costs to implement, staff, and maintain those programs.
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 conducted by a state bank as principal
are similarly generally limited to those of a national bank. Exceptions include where approval is received for the
activity from the FDIC.
Restrictions on Dividends and Other Distributions
Payments of dividends on our common stock may be subject to the prior approval of the New York State DFS and
of 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 DFS 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. See “—Prompt Corrective Action and Enforcement Powers.” In addition, the FDIC has stated
that excessive dividends can negate strong earnings performance and result in a weakened capital position and
that dividends generally can be disbursed, in reasonable amounts, only after losses are eliminated and necessary
reserves and prudent capital levels are established.
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend
to retain any earnings to finance our operations and the expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will be dependent upon then-existing conditions, including our financial
condition and results of operations, capital requirements, contractual restrictions, business prospects and other
factors that the Board of Directors considers relevant.
Capital and Related Requirements
We are subject to comprehensive capital adequacy requirements intended to protect against losses that we may
incur. FDIC capital adequacy 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%, and a ratio of Tier 1 capital to total risk-
weighted assets of 6.0%. 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. Total capital includes Tier 1 capital, a
limited amount of allowances for loan and lease losses, perpetual preferred stock, and subordinated debt. At
December 31, 2016, our total risk-based capital ratio was 13.46%, and our Tier 1 risk-based capital ratio was
11.92%. We are also required to maintain a minimum leverage capital ratio—the ratio of Tier 1 capital (net of
intangibles) to adjusted total assets—of 4.0%. At December 31, 2016, our leverage capital ratio was 9.61%. In
addition we must maintain a minimum common equity tier 1 capital ratio of 4.5 %. Common equity Tier 1 capital is
a subset of Tier 1 capital that, for us, consists of common stock instruments that meet the eligibility criteria in FDIC
regulations, retained earnings, accumulated other comprehensive income (loss) and common equity Tier 1
minority interest. At December 31, 2016, our common equity Tier 1 capital ratio was 11.92%.
The FDIC’s current capital rules 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 (“BCBS”) in December 2009, a rules text released in December 2010 and revised in June 2011, and
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loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage, and
liquidity requirements. BCBS later released documents presenting specific liquidity tests for measuring banks’
liquidity: the liquidity coverage ratio (“LCR”), a test intended to promote the short-term resilience of the liquidity
risk profile of banks that was presented in January 2013, and the net stable funding ratio (“NSFR”), a test intended
to require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance
sheet activities. These liquidity tests also are considered part of Basel III.
The federal banking agencies issued proposed Basel III implementation rules in June 2012. On July 9, 2013, the
FDIC approved final rules that substantially amended the regulatory risk-based capital rules applicable to
Signature Bank, effective beginning January 1, 2015. The FDIC’s final capital rules include new risk-based capital
and leverage ratios, which are being phased in from 2015 to 2019, and 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 represented the following changes to the bank’s capital adequacy
requirements: (i) a new common equity Tier 1 risk-based capital ratio; (ii) an increase in the Tier 1 risk-based
capital ratio minimum requirement from 4.0% to 6.0%; and (iii) a Tier 1 leverage ratio minimum requirement of
4.0% for all institutions, where prior to January 1, 2015, banks that received the highest rating of five categories
used by regulators to rate banks and were not anticipating or experiencing any significant growth were required to
maintain a leverage capital ratio of at least 3.0%. The final rules also established a “capital conservation buffer”
above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1
capital, to be phased in over several years. The phase-in of the capital conservation buffer began on January 1,
2016, at a level of 0.625% of risk-weighted assets for 2016 and increased to 1.250% for 2017. The minimum
buffer then will be 1.875% for 2018 and 2.500% for 2019 and thereafter, resulting in the following effective
minimum capital 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 set forth certain changes for the calculation of risk-weighted assets, which we have been required
to utilize since 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 are in compliance
with the requirements as set forth in the final rules as they are presently in effect.
In addition to these capital rules, federal financial regulators have begun to adopt liquidity rules to implement the
LCR and NSFR. The LCR is designed to ensure that a bank maintains an adequate level of unencumbered high-
quality liquid assets equal to the bank’s expected net cash outflow for a 30-day time horizon (or if greater, 25% of
its expected total cash outflow) under an acute liquidity stress scenario. The NSFR is designed to promote more
medium- and long-term funding of the assets and activities of banks over a one-year time horizon. These
requirements would incentivize banks to increase their holdings of sovereign debt, including U.S. Treasury
securities, as a component of assets and increase the use of long-term debt as a funding source.
In September 2014, the federal banking agencies approved final rules implementing the LCR for large,
international banking organizations with $250 billion or more in consolidated assets or $10 billion or more in total
on-balance sheet foreign exposure and their consolidated subsidiary banks, which does not apply to us based on
our current total consolidated assets. Concurrently, the Federal Reserve adopted a modified version of the LCR
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for certain bank holding companies and savings and loan holding companies that have $50 billion or more in total
consolidated assets but would not otherwise be covered by the LCR. In April 2016, the federal banking agencies
proposed rules to implement the NSFR. Like the LCR, the proposed NSFR would apply to large, international
banking organizations with $250 billion or more in consolidated assets or $10 billion or more in total on-balance
sheet foreign exposure and their consolidated subsidiary banks and, in modified form, to certain bank holding
companies and savings and loan holding companies that have $50 billion or more in total consolidated assets but
would not otherwise be covered by the NSFR.
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 (“PCA”) provisions: “well capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” As of
December 31, 2016, the capital ratios of Signature Bank exceeded the minimum ratios established for a “well
capitalized” institution.
As of January 1, 2015, the definitions of these capital categories changed in accordance with the federal banking
agencies’ final rule to implement Basel III and new minimum leverage and risk-based capital requirements. Under
the revised PCA capital category definitions, we will be categorized as “well capitalized” if we (i) have a total risk-
based capital ratio of 10.0% or greater; (ii) have a Tier 1 risk-based capital ratio of 8.0% or greater; (iii) have a
common equity Tier 1 risk-based capital ratio of 6.5% or greater; (iv) have a leverage ratio of 5.0% or greater; and
(v) are not subject to any written agreement, order, capital directive, or PCA directive issued by the FDIC to meet
and maintain a specific capital level.
We will be categorized as “adequately capitalized” if we have (i) a total risk-based capital ratio of 8.0% or greater;
(ii) a Tier 1 risk-based capital ratio of 6.0% or greater; (iii) a common equity Tier 1 capital ratio of 4.5% or greater;
and (iv) a leverage ratio of 4.0% or greater (3.0% if we are rated in the highest supervisory category).
We will be categorized as “undercapitalized” if we have (i) a total risk-based capital ratio that is less than 8.0%;
(ii) a Tier 1 risk-based capital ratio that is less than 6.0%; (iii) a common equity Tier 1 capital ratio that is less than
4.5%; or (iv) a leverage ratio that is less than 4.0%.
We will be categorized as “significantly undercapitalized” if we have (i) a total risk-based capital ratio that is less
than 6.0%; (ii) a Tier 1 risk-based capital ratio that is less than 4.0%; (iii) a common equity Tier 1 capital ratio that
is less than 3.0%; or (iv) a leverage ratio that is less than 3.0%.
We will 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.
In addition to measures taken under the PCA 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 DFS also has
broad powers to enforce compliance with New York laws and regulations. The New York State DFS 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 may continue to result in
additional legislative and regulatory actions that will affect the operations of the Bank. Under the Dodd-Frank Act,
federal banking agencies are required to draft and implement enhanced supervision, examination, and capital and
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liquidity standards for depository institutions. The capital provisions of the Dodd-Frank Act include, among other
things, changes to capital and leverage limits and limitations on the use of hybrid capital instruments. See “—
Capital Adequacy Requirements.” 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 banking 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. 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. On March 31, 2015, we
submitted stress testing results using data as of September 30, 2014, which we publicly disclosed on June 18,
2015. In 2016, we submitted our stress testing results on July 28th based on data as of December 31, 2015,
which we publicly disclosed on October 24, 2016. The stress testing results 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 defined in the rule as “covered funds” (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). Banks were required to conform their activities and investments
to the final regulations’ requirements by July 21, 2015. 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 fully 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, and in December
2014, the Federal Reserve exercised its authority to extend the divestiture period for such pre-2014 investments to
July 21, 2016. In July 2016, the Federal Reserve further extended the divestiture period to July 21, 2017. We
hold certain securities in our available-for-sale investment portfolio that do not meet Volcker Rule exemptive
criteria for continued ownership and, therefore, must be divested within the divestiture period. These securities,
which are predominantly collateralized mortgage obligations, had a fair value totaling $35.3 million and an
amortized cost of $33.9 million as of December 31, 2016. These securities had an unrealized gain as of
December 31, 2016.
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, 2016, $10.47 billion,
or 32.9%, of our total deposits were held in non-interest bearing demand deposit accounts. Thus far, the change
has not had a meaningful effect on our business.
Applicable federal law governing interstate branching, as amended by the Dodd-Frank Act, 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.
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Consumer Financial Protection
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, and funds availability.
To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and
services, the Dodd-Frank Act established the CFPB. This agency is responsible for various functions, including
conducting financial education programs; collecting, investigating, and responding to consumer complaints; and
interpreting and enforcing federal consumer financial laws, as defined by the Dodd-Frank Act, that, among other
things, govern the provision of deposit accounts along with mortgage origination and servicing. Some federal
consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, the Truth in Lending Act
(“TILA”), the Truth in Savings Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act
(“RESPA”), the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting
Act. The CFPB also is permitted to prevent any institution under its authority from engaging in an unfair,
deceptive, or abusive act or practice in connection with consumer financial products and services.
In December 2013, the CFPB issued a final rule adopting integrated disclosure in connection with mortgage
origination that incorporates disclosure requirements under RESPA and TILA, and the disclosure requirement
became effective in October 2015. The CFPB issued proposed amendments to this disclosure requirement in
July 2016. In accordance with deadlines set by the Dodd-Frank Act, the CFPB also issued final rules in January
2013, which became effective in January 2014, that established new mortgage servicing standards and mortgage
lending requirements using a “qualified mortgage” definition to fulfill the Dodd-Frank Act requirement that
mortgage lenders consider a borrower’s ability to repay. See “Risk Factors—Risks Relating to Our Industry—New
regulations could restrict our ability to originate, service, and sell mortgage loans.” In August 2016, the CFPB
adopted a final rule providing additional borrower foreclosure protections under these standards.
In May 2016, the CFPB issued a proposed rule that would prohibit the use of arbitration agreements to block class
actions in certain contracts for consumer financial products and services. The proposed generally would apply to
contracts “entered into” more than 180 days after the effective date of any final rule. These and other CFPB
regulations have increased, and likely will continue to increase, the Bank’s compliance expenses and limit the
terms under which the Bank can provide consumer financial products.
Additionally, the CFPB has the authority to take supervisory and enforcement action against banks and other
financial services companies under the agency’s jurisdiction that fail to comply with federal consumer financial
laws. As an insured depository institution with total assets of more than $10 billion, the Bank is subject to the
CFPB’s supervisory and enforcement authorities. 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 stringent consumer compliance
environment. 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. The CFPB has been very active in bringing enforcement actions against banks
and other financial institutions to enforce consumer financial laws, and has developed a number of new
enforcement theories and applications of these laws. Other federal financial regulatory agencies, including the
FDIC, also have become increasingly active in this area with respect to institutions over which they have
jurisdiction. We have incurred and may in the future incur additional costs in complying with these requirements.
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.
Community Reinvestment Act and Fair Lending
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 on February 8, 2016, and the most
recent New York State examination concluded on December 31, 2014. 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 DFS
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.
Fair lending laws prohibit discrimination in the provision of banking services, and the enforcement of these laws
has been an increasing focus for the CFPB and other regulators. Fair lending laws include the Equal Credit
Opportunity Act of 1974 and the Fair Housing Act of 1968, which outlaw discrimination in credit and residential real
estate transactions on the basis of prohibited factors including, among others, race, color, national origin, gender,
and religion. A lender may be liable for policies that result in a disparate treatment of or have a disparate impact
on a protected class of applicants or borrowers. If a pattern or practice of lending discrimination is alleged by a
regulator, then that agency may refer the matter to the U.S. Department of Justice (“DOJ”) for investigation. In
December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies
have agreed to share information, coordinate investigations and have generally committed to strengthen their
coordination efforts. Signature Bank is required to have a fair lending program that is of sufficient scope to monitor
the inherent fair lending risk of the institution and that appropriately remediates issues which are identified.
Anti-Money Laundering Regulation
We must also comply with the anti-money laundering (“AML”) 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.
Signature Bank also is subject to New York AML laws and regulations. In June 2016, the New York State DFS
adopted a final rule that requires certain New York-regulated financial institutions, including Signature Bank, to
comply with enhanced anti-terrorism and AML requirements beginning in 2017. The rule adds, among other AML
program requirements, greater specificity to certain transaction monitoring and filtering requirements and the
obligation to conduct an ongoing, comprehensive risk assessment and expressly eliminates a regulated
institution’s ability to adjust its monitoring and filtering programs to limit the number of alerts generated. Beginning
in April 2018, the rule also will require chief information officers to submit certifications of compliance with these
requirements annually. Signature Bank likely will incur additional cost in complying with these requirements.
Financial Privacy and Cybersecurity
Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and related regulations, we are limited
in our ability to disclose non-public information about consumers to nonaffiliated third parties. These limitations
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require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent
disclosure of certain personal information to a nonaffiliated third party. Federal banking agencies, including the
FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for
implementing safeguards under the supervision of the board of directors. These guidelines, along with related
regulatory materials, increasingly focus on risk management and processes related to information technology and
the use of third parties in the provision of financial services. In October 2016, the federal banking agencies issued
an advance notice of proposed rulemaking on enhanced cybersecurity risk-management and resilience standards
that would apply to large and interconnected banking organizations and to services provided by third parties to
these firms. These enhanced standards would apply to depository institutions and depository institution holding
companies with total consolidated assets of $50 billion or more.
Signature Bank also is subject to New York financial privacy laws and regulations. In September 2016, the New
York State DFS issued a proposed rule, which it re-issued in revised form in December 2016, that would require
banks, insurance companies, and other financial services institutions regulated by the New York State DFS to
establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and
soundness of New York State’s financial services industry. The cybersecurity rule would add specific
requirements for these institutions’ cybersecurity compliance programs and, like the New York State DFS’s
enhanced anti-terrorism and AML requirements, would impose an obligation to conduct an ongoing,
comprehensive risk assessment and require each institution’s board of directors, or a senior officer, to submit
annual certifications of compliance with these requirements. Signature Bank likely will incur additional cost in
complying with these requirements.
Transactions with Related Parties
Transactions between banks and their 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% 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% 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. The Federal Reserve Act and its implementing Regulation O also provide limitations
on the ability of Signature Bank to extend credit to executive officers, directors and 10% shareholders (“insiders”).
The law limits both the individual and aggregate amount of loans Signature Bank may make to insiders based, in
part, on 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 DFS is required before any person or group of persons deemed to be acting
in concert may acquire “control” of a banking institution, which includes 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
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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 federal 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 person or group of persons acting in concert who
intends to acquire 10% or more of any class of our voting stock or otherwise obtain control over us would be
required to provide prior notice to and obtain the non-objection of the FDIC.
Incentive Compensation
Guidelines adopted by the federal banking agencies pursuant to the Federal Deposit Insurance Act (“FDI Act”)
prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive
when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer,
employee, director or principal shareholder.
In June 2010, the federal banking agencies jointly adopted the Guidance on Sound Incentive Compensation
Policies intended to ensure that banking organizations do not undermine the safety and soundness of such
organizations by encouraging excessive risk-taking. This guidance, which covers all employees that have the
ability to expose the organization to material amounts of risk, either individually or as part of a group, is based
upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide
employee incentives that appropriately balance risk in a manner that does not encourage employees to expose
their organizations to imprudent risk, (ii) be compatible with effective controls and risk management, and (iii) be
supported by strong corporate governance, including active and effective oversight by the organization’s board of
directors. Any deficiencies in the Bank’s compensation practices could lead to supervisory or enforcement actions
by the FDIC.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint
regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such
as us, having at least $1 billion in total assets that encourage inappropriate risk-taking by providing an executive
officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could
lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines
requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The federal banking
agencies proposed such regulations in April 2011 and issued a second proposed rule in April 2016. The second
proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total
consolidated assets, for which it would go beyond the Guidance on Sound Incentive Compensation Policies
discussed above to prohibit certain types and features of incentive-based compensation arrangements, require
incentive-based compensation arrangements to adhere to certain basic principles, and require appropriate board
or committee oversight and recordkeeping and disclosures to the appropriate agency. In addition, institutions with
at least $50 billion in average total consolidated assets would be subject to additional compensation-related
requirements and prohibitions.
In October 2016, the New York State DFS also announced a renewed focus on employee incentive arrangements
and issued new guidance to New York State-regulated banks to ensure that these arrangements do not
encourage inappropriate practices. The guidance listed adapted versions of the key principles from the Guidance
on Sound Incentive Compensation Policies as minimum requirements and advised these banks that incentive
compensation arrangements must be subject to effective risk management, oversight, and control. In
November 2016, the CFPB issued similar guidance to financial services companies, including the entities that it
supervises.
Regulation of Signature Securities
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
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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 DFS.
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 (the pre-
2011 predecessor agencies of the New York State DFS) 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.
Deposit Premiums and Assessments
Under FDIC regulations, we are required to pay premiums to the Deposit Insurance Fund (“DIF”) 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, PCA capital evaluations, 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. The assessment rate schedule includes an adjustment for significant amounts of brokered deposits
applicable to large institutions that are either less than well capitalized or have a composite rating of “3,” “4,” or “5”
under the Uniform Financial Institution Rating System. For such an institution, an assessment rate adjustment
applies when its ratio of brokered deposits to domestic deposits is greater than 10%.
The Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the DIF to insured
deposits from 1.15% to 1.35% and required that the ratio reach 1.35% by September 30, 2020. Banks with total
assets of $10 billion or more are responsible for funding this increase. In March 2016, the FDIC adopted a final
rule, which took effect on June 30, 2016, imposing a surcharge on banks with at least $10 billion in total assets at
an annual rate of four and one-half basis points applied to the institution’s assessment base (with certain
adjustments) in order to reach a DIF reserve ratio of 1.35%. The FDIC has estimated that this assessment should
be sufficient to reach a 1.35% ratio approximately two years after it becomes effective. However, if this does not
occur by December 31, 2018, the final rule will impose an additional shortfall assessment. In either case, these
assessments will end once the ratio reaches 1.35%. In conjunction with this surcharge, a new assessment rate
schedule for the regular surcharge was implemented. Under the newly effective assessment rate schedules, the
total base assessment rates for large and highly complex institutions range from 1 to 40 basis points. In total, the
changes to the FDIC’s assessments are expected to increase our deposit insurance assessments by
approximately $4 million per year.
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 0.565 basis points of insured deposits on an annualized basis in fiscal year 2016.
The FICO bonds mature from 2017 through 2019.
Other Regulatory Requirements
Federal banking laws and regulations, including the Dodd-Frank Act and its implementing rules, apply increasingly
stringent regulatory and supervisory requirements to banks or bank holding companies that cross total asset
thresholds of $10 billion, $50 billion, and $250 billion. Signature Bank is positioned to be subject, in some
instances, to somewhat lighter federal bank regulatory requirements than larger banks and banks that are
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subsidiaries of registered bank holding companies. As an organization with a bank as its top-level company and
with a relatively simple business model, Signature Bank, at its asset size of $39.05 billion as of December 31,
2016, is, and in the foreseeable future expects to be, subject to only some of these escalating requirements.
The FDI Act, as administered by the FDIC, restricts the acceptance of brokered deposits and certain restrictions
on deposit interest rates. Banks that do not maintain their regulatory capital above the level required to be “well
capitalized” face tiered limits on their ability to accept or renew deposits classified as “brokered deposits.”
“Adequately capitalized” banks may not accept or renew brokered deposits unless they obtain a waiver from the
FDIC. Brokered deposits include deposits obtained through a deposit broker. A “deposit broker” is broadly
defined by statute and FDIC rules and interpretations. In some circumstances, employees of a bank and its
subsidiaries can be treated as deposit brokers and the customer deposits that they are involved in servicing can
be treated as brokered deposits. In January 2015, the FDIC issued guidance on its rules on brokered deposits,
which it updated in June 2016, that reiterated the FDIC’s views that use of brokered deposits to fund unsound or
rapid expansion of loans and investment portfolios has contributed to institutions’ weakened financial and liquidity
positions over successive economic cycles and that the overuse of brokered deposits and the improper
management of brokered deposits by problem institutions have contributed to bank failures and losses to the
Deposit Insurance Fund. See “—Deposit Premiums and Assessments” for a discussion of the brokered-deposit
assessment rate adjustment applicable to certain institutions.
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.
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.
Commercial real estate loans represent a significant portion of our loan portfolio. As of December 31, 2015, our
ratio of total commercial real estate loans to total risk-based capital was 593.3%, and as of December 31, 2016,
that ratio had decreased to 554.2%. From December 31, 2013 to December 31, 2016, the outstanding balance of
our commercial real estate loan portfolio increased $12.95 billion, or 130.9%. Due to the risks associated with this
type of lending, in 2006, the federal banking agencies, including the FDIC, issued guidance on commercial real
estate concentration risk management. Under this guidance, a bank’s commercial real estate lending exposure
may receive increased supervisory scrutiny under certain circumstances, including where total commercial real
estate loans represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the
commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. In
December 2015, the agencies released a new statement on prudent risk management for commercial real estate
lending. In this statement, the agencies expressed concerns about easing commercial real estate underwriting
standards, directed financial institutions to maintain underwriting discipline and exercise risk management
practices to identify, measure, and monitor lending risks, and indicated that they will continue to pay special
attention to commercial real estate lending activities and concentration going forward.
The FDIC regulates its supervised institutions’ relationships with and management of third parties. Federal
banking guidance requires us to conduct due diligence and oversight in third-party business relationships and to
control risks in the relationship to the same extent as if the activity were directly performed by the Bank. In
July 2016, the FDIC proposed new Guidance for Third-Party Lending to set forth safety and soundness and
consumer compliance measures FDIC-supervised institutions should follow when lending through a business
relationship with a third party.
Future Legislation and Regulation
Both the new President and senior members of the House of Representatives have recently advocated for
substantial changes to the Dodd-Frank Act and federal banking agencies. President Trump’s Chief of Staff has
issued a memorandum to the heads of executive departments and agencies directing them, with certain
exceptions, to effectively freeze the administrative rule-making process until a department or agency head
appointed, or designated by President Trump, reviews and approves any changes to or new regulation.. Although
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significant changes are expected from both Congress and federal regulatory agencies, at this time, it is difficult to
predict the changes that will result from a Republican President of the United States and that both Houses of
Congress are controlled by the same political party. The impact of any legislative or regulatory changes on our
competitors and on the financial services industry as a whole cannot be determined at this time. See “Risk
Factors—Risks Related to Our Industry—The financial services industry, as well as the broader economy, may be
subject to new legislation, regulation, and government policy.”
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
Volatility in global financial markets might continue and the federal government may continue to take
measures to intervene.
From late 2007 to 2009, the United States economy experienced the worst economic downturn since the Great
Depression, resulting in a general reduction in business activity and growth across industries and regions as well
as significant increases in unemployment. The federal government took significant measures in response to these
events, such as enactment of the Emergency Economic Stabilization Act of 2008, other regulatory actions
applicable to financial institutions and accommodative monetary policy. Although the economy has been in
recovery phase since 2009, global financial markets, and in particular, credit markets, have continued to
experience periods of disruption and volatility following adverse changes in the global economy. We cannot
predict the federal government’s responses to any further dislocation and instability in the global economy and
potential future government responses and changes in law or regulation, may affect our business, results of
operations and financial conditions.
Additionally, economic conditions throughout the world remain uncertain, including conditions in Brazil, China,
India, and certain African and European countries. Further, in June 2016 a referendum was held in the United
Kingdom (the, “U.K.”) to determine whether the country should remain a member of the European Union (the
“E.U.”), with voters approving withdrawal from the E.U. The U.K. government is expected to begin discussions
with the E.U. on the terms and conditions of the proposed withdrawal from the E.U. The ultimate result of these
discussions, in addition to the impact of any anticipated and future changes in global fiscal and monetary policy,
are difficult to predict and may further deteriorate economic conditions or increase volatility in financial markets.
We hold corporate debt securities issued by U.S. financial institutions that have material exposure to foreign
countries. As such, further deterioration of the economic conditions or increase in volatility of financial markets
outside of the United States 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. Furthermore, a slowdown or deterioration of economic conditions in
other parts of the world may have an adverse effect on economic conditions in the United States, which could
materially and adversely affect our financial condition and results of operations. We cannot predict the federal
government’s response to any dislocation or instability in the United States, and potential future government
responses and changes in law or regulation may affect our business, results of operations and financial condition.
Difficult market conditions have adversely affected our industry.
Recent uncertainty and deterioration in market conditions may have adverse effects on certain industries, may
have an adverse effect on certain regional or national economic conditions in the United States, and may have an
adverse effect on the market for commercial and industrial loans. 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
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portfolio. Difficult market conditions could have an adverse impact on the ability of borrowers, especially
industries that are more exposed to those conditions, to make timely loan payments, which could lead to
losses on such loans. 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, as well as 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;
•
•
•
•
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 and teams;
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 2013, we added a team focused on asset-based lending, marking our entry into that arena, in order to
diversify revenue streams and further broaden our offerings to middle market commercial clients. Subsequently,
in 2014, we expanded the product lines of Signature Financial by adding national franchise financing and
commercial marine financing. In 2015, the Bank launched a new wholly owned subsidiary, Signature Public
Funding, further expanding product lines to include a range of municipal finance and tax-exempt lending and
leasing products to government entities throughout the country, including state and local governments, school
districts, fire and police and other municipal entities. Although we continue to expend substantial managerial,
operating and financial resources as our business grows, we may be unable to successfully continue the
integration of these new business lines, and we may be unable to realize the expected revenue contributions.
Moreover, we may not be as successful in managing new business lines as we have been for business lines with
which we have more experience. We will be required to employ and maintain qualified personnel, and as our
business expands into new and existing markets, we may be required to install additional operational and control
systems. Any failure to successfully manage this integration may adversely affect our future financial condition and
results of operations.
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Our operations are significantly affected by interest rate levels and we are 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 beyond our control, including general economic conditions and policies of various
governmental and regulatory agencies, particularly of 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 and borrowings. There are indications that interest rates may begin to
move above their recent historical lows. In December 2015 and then again in December 2016, the Federal
Reserve raised its benchmark interest rate by a quarter of a percentage point. 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. For a discussion of our interest rate risk management process, see “Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.”
We compete with many larger financial institutions which have substantially greater financial and other
resources than we have.
There is significant competition among commercial banking institutions in the New York metropolitan area. We
compete with bank holding companies, national and state-chartered commercial banks, savings and loan
associations, consumer finance companies, credit unions, securities brokerage firms, insurance companies,
mortgage banking companies, money market mutual funds, asset-based non-bank lenders and other financial
institutions. Many of these competitors have substantially greater financial resources, lending limits and larger
office networks than we do, and are able to offer a broader range of products and services than we can. Because
we compete against larger institutions, our failure to compete effectively for deposit, loan and other clients in our
markets could cause us to lose market share or slow our growth rate and could have a material adverse effect on
our financial condition and results of operations.
The market for banking and brokerage services is extremely competitive and allows consumers to access financial
products and compare interest rates and services from numerous financial institutions located across the United
States. As a result, clients of all financial institutions, including those within our target market, are sensitive to
competitive interest rate levels and services. Our future success in attracting and retaining client deposits
depends, in part, on our ability to offer competitive rates and services. 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. These technological
advancements also 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.
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Government intervention in the banking industry has the potential to change the competitive landscape.
There has been significant government intervention in the banking industry in response to the economic crisis,
including equity investments, liquidity facilities and guarantees. Given the state of the global economy, it is
possible that the government could 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, non-bank lenders, some pursuing non-traditional models, which are not subject to regulatory capital
limits or bank supervision, have become active competitors. In December 2016, the OCC proposed the creation
of a new special purpose national bank charter for financial technology companies. If this charter is adopted and
used to offer competing services, it could result in increased competition for our clients’ banking business.
Similarly, the FDIC introduced a bidding process for institutions that have been or will be placed into receivership
by federal or state regulators and made the process open to existing financial institutions, as well as groups
without pre-existing operations. This process and other programs 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 98% of our portfolio of investment securities was rated investment grade as of December 31, 2016,
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 to 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 the potential for significant declines in the fair
value of our investment portfolio and taxi medallions.
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 have 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.
Additionally, taxi medallions have experienced, and are likely to continue to experience, periods of illiquidity,
caused by, among other things, increased competition from Transportation Network Companies and the recent
failure of a credit union with a significant portfolio of loans secured by taxi medallions. Continued adverse
conditions could result in a significant decline in the fair value of these medallions. We have in the past, and
depending on the probability of a near-term market recovery, may in the future be required to recognize additional
charge-offs, increase related reserves, or recognize negative fair value adjustments to repossessed assets as a
result of the decline in the fair value of these assets.
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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, particularly if unemployment and
under-employment rates were to return to elevated levels, (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 in the recent past. Although home prices appear to have stabilized, if the value of homes were to
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 recent
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.
Adverse developments in the residential mortgage market may adversely affect the value of our
investment portfolio.
Although there has been some recent improvement, in the recent past the residential mortgage market in the
United States has experienced a variety of difficulties resulting from changed economic conditions, including
increased unemployment and under-employment 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 decade. As a result of these difficulties and changed
economic conditions, many companies operating in the mortgage sector failed and others faced serious operating
and financial challenges. While the Federal Reserve took certain actions in an effort to ameliorate market
conditions, its efforts may be ineffective in the future, and it may face political restraints on its ability to take action
if new difficulties or conditions materialize. 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 also negatively impacted other sectors in which the issuers
of securities in which we invest operate, which 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 (“FHLBs”), Fannie Mae and Freddie Mac. Fannie Mae, Freddie Mac and the FHLBs 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 prior years and experienced significant
difficulties stemming from the market disruptions of the economic crisis, including significant increases in credit-
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related expenses and credit losses.
U.S. debt ceiling and budget deficit concerns in recent years have increased the possibility of additional U.S.
government shutdowns, credit-rating downgrades and economic slowdowns, or a recession in the United States.
Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings
agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. Since
the 2016 presidential election, there is increased uncertainty regarding the U.S. federal budget as the new
administration and Congress work on their future budget plans. Any further downgrades to the U.S. government’s
sovereign credit rating or its perceived creditworthiness could adversely affect the ability of the U.S. government to
support the financial stability of Fannie Mae, Freddie Mac and the FHLBs.
Should the U.S. government contain, reduce or eliminate support for the financial stability of Fannie Mae, Freddie
Mac and the FHLBs, the ability for those entities to operate as independent entities is questionable. Any failure by
Fannie Mae, Freddie Mac or the FHLBs to honor their guarantees of mortgage-backed securities, debt or other
obligations will have severe ramifications for the capital markets and the financial industry. Any failure by Fannie
Mae, Freddie Mac or the FHLBs to pay principal or interest on their mortgage guarantees and debentures when
due could also materially adversely affect our results of operations and financial condition.
The future of Fannie Mae and Freddie Mac remains uncertain. Members of Congress have recently introduced
bills that would reform the housing finance system and government-sponsored enterprises. Among these bills was
a proposal to wind down Fannie Mae and Freddie Mac over a period of time, and to restrict the activities of these
enterprises before the wind down. Alternatively, there have been proposals to privatize Fannie Mae and Freddie
Mac. We are unable to predict whether this or another proposal will be adopted, and, if so, what the effect of the
adopted reform would be.
There are material risks involved in commercial lending, which generally involves a higher risk than
residential mortgage loans, that could adversely affect our business.
Commercial loans represented approximately 99% of our total loan portfolio as of December 31, 2016, and our
business plan calls for continued efforts to increase our assets invested in commercial loans. Our credit-rated
commercial loans include commercial and industrial loans to our privately-owned business clients 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 real estate, inventory and accounts receivable. These loans carry incrementally higher risk,
because their repayment often depends solely on the financial performance of the borrower’s business. In
addition, the federal banking agencies, including the FDIC, have applied increased regulatory scrutiny to
institutions with commercial loan portfolios that are fast growing or large relative to the institutions’ total capital.
For a discussion of supervisory issues associated with commercial real estate portfolio concentration, see
“Regulation and Supervision—Other Regulatory Requirements.”
For all of these reasons, increases in nonperforming 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.
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.
Historically, one of our target market segments has been the taxi industry and loans secured by taxi medallions.
As a result, we have greater exposure to this market segment than other financial institutions that have a more
diversified client base. The recent development of car-service applications has increased competition within the
taxi industry and we have seen an increase in the nonperformance of loans made to finance taxi medallions.
Moreover, the increase in competition in the taxi industry has affected the value of medallions that serve as
collateral for our taxi medallion loans. As of December 31, 2016, $627.4 million (or 11.5%) of our commercial and
industrial loans were to finance taxi medallions, compared to $793.7 million (or 16.6%) at December 31, 2015. In
2016, we restructured $195.1 million (24.6% of our total outstanding balance of these loans as of December 31,
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2015); we anticipate that we will need to restructure additional taxi medallion loans in 2017. If we are unable to
restructure such loans successfully or we are unable to repossess and dispose of medallions at a price that is
adequate to cover the outstanding balance of such loans, then our financial condition and results of operations
may be materially adversely affected. Restructured loans do not include refinancing and maturity extensions in
the ordinary course of business.
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, as well as substantially all of the real estate collateral for the loans in our portfolio
is located in 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 governments affecting multi-family borrowers, such as rent freezes on rent-
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 in the New York metropolitan area 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, 2016, approximately 82.3% 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, substantially all of which is concentrated in
the New York metropolitan area, 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, 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 stress testing and 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
35
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.
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 regulatory agencies, 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. In
addition, changes to the accounting standards that govern our financial reporting related to our loans may result in
unanticipated effects on the timing or amount of our loan losses. An increase in the ALLL required by these
regulatory agencies or the unanticipated recognition of losses on our loans 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 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 $2.05 billion at December 31, 2016 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 our borrowings. At December 31, 2016, we held $132.6 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
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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, specialty finance, 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 or other key professionals may leave us at any time and 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 a number of our key group directors or other key
professionals were to leave, our business could be materially adversely affected. We cannot assure you that such
losses will not occur.
Our SBA division is also dependent upon relationships our SBA professionals have developed with clients from
whom we purchase loans and upon relationships with investors in pooled securities. The loss of a key member of
our SBA division team may lead to the loss of existing clients. We cannot assure you that we will be able to recruit
qualified replacements with a comparable level of expertise and relationship base.
We may not be able to acquire suitable client relationship groups or manage our growth.
A principal component of our growth strategy is to increase market penetration and product diversification by
recruiting group directors and their teams. However, we believe that there is 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 or such
directors or teams also may face litigation in some instances brought by former employers of these individuals
relating to their separation from the former employer. 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
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 in control of the Bank.
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 or group of individuals or entities deemed to be acting in concert who
acquires 10% or more of our voting stock or otherwise obtains control over Signature Bank would be required to
file a notice with the FDIC under the Change in Bank Control Act and to receive a non-objection to such
acquisition of control. Finally, any person or group of persons deemed to be acting in concert would be required to
obtain approval of the New York State DFS before acquiring 10% or more of our voting stock. See “Regulation and
Supervision—Change in Control.” 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
37
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 to the SBA program 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 use brokered deposits to fund a portion of our activities and the loss of our ability to accept or renew
brokered deposits could have an adverse effect on us.
We use “brokered deposits” to fund a portion of our activities. At December 31, 2016, $614.1 million, or 1.9% of
our total deposit account balances consisted of brokered deposits, an increase of $158.4 million or 34.7% when
compared to $455.7 million at the end of the prior year. Acceptance or renewal of “brokered deposits” is regulated
by the FDIC. If we do not maintain our regulatory capital above the level required to be “well-capitalized,” then we
will be limited in our ability to accept or renew deposits classified as brokered deposits unless we obtain a waiver
from the FDIC and are at least “adequately” capitalized. See “Regulation and Supervision—Other Regulatory
Requirements.” If we are no longer able to accept or renew brokered deposits, we will need to replace that funding
or reduce our assets.
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, LLC (a Fidelity
Investments company), National Financial Services, LLC processes all securities transactions for the account of
Signature Securities and the accounts of its clients. Services of the clearing firm include billing and credit
extension and control, receipt, custody and delivery of securities. Signature Securities is dependent on the ability
of its clearing firm to process securities transactions in an orderly fashion. In addition, Fidelity Information
Services provides us with all our core banking applications. Our outsourcing agreements can generally be
terminated by either party upon notice. The termination of some of our outsourcing agreements, including the
agreements with National Financial Services, LLC 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.
Our third party outsourcing relationships are subject to evolving regulatory requirements regarding vendor
management. Federal banking guidance requires us to conduct due diligence and oversight in third party
business relationships and to control risks in the relationship to the same extent as if the activity were directly
performed by the Bank. In July 2016, the FDIC proposed new Guidance for Third Party Lending to set forth safety
and soundness and consumer compliance measures FDIC-supervised institutions should follow when lending
through a business relationship with a third party. If our regulators conclude that we are not exercising proper
oversight and control over third party vendors, or that third parties are not performing their services appropriately,
then we may be subject to enforcement actions. These regulatory changes or enforcement actions could result in
additional costs and result in a material adverse effect on our business and our ability to use third party services to
receive cost-effective operational support.
We are subject to various legal claims and litigation.
From time to time, customers, employees and others that we do business with make claims and take legal action
against us for various occurrences, including the performance of our fiduciary responsibilities. The outcome of
these cases is uncertain. Regardless of whether these claims and legal actions are founded or unfounded, if such
claims and legal actions are not resolved in a timely manner favorable to us, they may result in significant financial
liability and/or adversely affect the market perception of us and our products and services, as well as impact
customer demand for our products and services. Any financial liability or reputational damage may adversely
affect our future financial condition and results of operations. Even if these claims and legal actions do not result
in a financial liability or reputational damage, defending these claims and actions have resulted in, and will
continue to result in, increased legal and professional services costs, which may be material in amount.
38
Our management of the risk of system failures or breaches of our network security is increasingly subject
to regulation and 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 and
cybersecurity threats. 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, including through coordinated attacks sponsored by foreign
nations and criminal organizations to disrupt business operations and other compromises to data and systems for
political or criminal purposes. 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. Our cybersecurity
procedures are increasingly subject to regulations administered and enforced by our regulators, which could result
in elevated liability from these disruptions. See “Regulation and Supervision—Financial Privacy and
Cybersecurity.”
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, and we could be subject to regulatory
enforcement action or held liable to our clients if we are deemed to have made false claims about our data security
practices or procedures or their efficacy.
We carry specific “cyber” insurance coverage, which would apply in the event of various breach scenarios, but 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. Risks and
exposures related to cyber security attacks are expected to remain high for the foreseeable future due to the
rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet
banking, mobile banking and other technology-based products and services by us and our clients.
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 DFS 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. See “Regulation and Supervision—Restrictions
on Dividends and Other Distributions.”
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We may be responsible for environmental claims.
There is a risk that hazardous or toxic waste could be found on the properties that secure our loans. In such
event, we could be held responsible for the cost of cleaning up or removing such waste, and such cost could
significantly exceed the value of the underlying properties and adversely affect our profitability. Additionally, even
if we are not held responsible for these cleanup and removal costs, the value of the collateralized property could
be significantly lower than originally projected, thus adversely affecting the value of our security interest. Although
we have policies and procedures that require us to perform environmental due diligence prior to accepting a
property as collateral and an environmental review before initiating any foreclosure action on real property, there
can be no assurance that this will be sufficient to protect us from all potential environmental liabilities associated
with collateralized properties.
Downgrades of our credit rating could negatively affect our funding and liquidity by reducing our funding
capacity and increasing our funding costs.
Kroll Bond Rating Agency (“KBRA”), a full-service rating agency, provides us with deposit and debt ratings which
evaluate liquidity, asset quality, capital adequacy and earnings. KBRA continuously evaluates these ratings based
on a number of factors, including standalone financial strength, as well as factors not entirely within our control,
such as KBRA’s proprietary rating methodology and assumptions and conditions affecting the financial services
industry and markets generally. We may not be able to maintain our current ratings. Downgrades of our deposit
and debt ratings could negatively impact our ability to access the capital markets and other sources of funds as
well as the costs of those funds, and our ability to maintain certain deposits. This could affect our growth,
profitability, and financial condition, including our liquidity.
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 our 2016 issuance of $260 million aggregate principal amount of Variable Rate
Subordinated Notes, our 2016 public offering of 2,366,855 shares of our common stock and our 2014 public
offering of 2,415,000 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.
Inflation or deflation could adversely affect our business and financial results.
Inflation can adversely affect us by increasing costs of capital and labor and reducing the purchasing power of our
cash resources. In addition, inflation is often accompanied by higher interest rates, which may negatively affect
the market value of securities in our investment portfolio. Current or future efforts by the government to stimulate
the economy may increase the risk of significant inflation and its adverse impact on our financial condition and
results of operations.
Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.
This could lead to a further deterioration in economic conditions, including an increase in the rate of
unemployment and under-employment. Deflation is often accompanied by lower interest rates, which may lower
the rate of interest we earn on our loans and may have a material adverse effect on our net interest income and
earnings. Renewed declines in oil and gas prices could increase the risk of significant deflation, which would have
an adverse effect on our financial condition and results of operations.
The misconduct of employees or their failure to abide by regulatory requirements is 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
40
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. See “Regulation and
Supervision—Regulation of Signature Securities.” 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, LLC 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, LLC makes margin loans to our clients to purchase securities with funds
they borrow from National Financial Services, LLC. We must indemnify National Financial Services, LLC 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, acts of war or terrorism, public health issues
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 civil unrest, acts of war or terrorism against the United States and other acts of violence or threats to
national security 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. Moreover, a public health issue such as a major epidemic or pandemic could adversely
affect economic conditions. The United States and other countries have experienced, and may experience in the
future, outbreaks of contagious diseases that affect public perception of health risk. In the event of a widespread,
prolonged, actual or perceived outbreak of a contagious disease, our operations could be negatively impacted by
a reduction in customer traffic, quarantines or closures of our offices and facilities, the decline in productivity of our
key officers and employees or other factors. 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 cause significant property damage, thus increasing our expenses and/or reducing our
41
revenues. In addition, such events could affect the ability of our depositors to maintain their deposits with us, and
adverse consequences may also result from corresponding 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, state or local 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.
The Financial Accounting Standards Board’s recently adopted ASU 2016-13 will result in a significant
change in how we recognize credit losses and may have a material impact on our financial condition or
results of operations.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments-
Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which will replace the current
“incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current
Expected Credit Loss (“CECL”) model. The new CECL standard will be mandatory for fiscal years beginning after
December 15, 2019 and for interim periods within those fiscal years. Under the CECL model, we will be required
to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity
debt securities, at the net amount expected to be collected. This differs significantly from the “incurred loss” model
required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly,
we expect that the adoption of the CECL model will significantly affect how we determine our allowance for loan
and lease losses and could require us to significantly increase our allowance. Moreover, the CECL model may
create more volatility in the level of our allowance for loan and lease losses.
We are currently evaluating the impact the CECL model will have on our accounting, but we expect to recognize a
one-time cumulative-effect adjustment to our allowance for loan and lease losses as of the beginning of the first
reporting period in which the new standard is effective. We cannot yet determine the magnitude of any such one-
time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of
operations, but any requirement to materially increase our level of allowance for loan and lease losses for any
reason could adversely affect our business, financial condition and results of operations.
Other changes in accounting standards or interpretation in new or existing standards could materially
affect our financial results.
From time to time the FASB and SEC change accounting regulations and reporting standards that govern our
preparation of financial statements, and bank regulators often provide supervisory views regarding the
implementation of these standards. In addition, the FASB, SEC and the bank regulators may revise their previous
interpretations regarding existing accounting regulations and the application of these accounting standards.
These changes in accounting regulations and reporting standards and revisions in accounting 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.
42
Negative public opinion could damage our reputation and adversely affect our earnings.
Reputational risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business.
Negative public opinion can result from the actual or perceived manner in which we conduct our business
activities; our management of actual or potential conflicts of interest and ethical issues; and our protection of
confidential client information. Our brand and reputation may also be harmed by actions taken by third parties that
we contract with to provide services to the extent such parties fail to meet their contractual, legal and regulatory
obligations or act in a manner that is harmful to our clients. If we fail to supervise these relationships effectively,
we could also be subject to regulatory enforcement, including fines and penalties. Negative public opinion can
adversely affect our ability to keep and attract clients and can expose us to litigation and regulatory action. We
take steps to minimize reputation risk in the way we conduct our business activities and deal with our clients,
communities and vendors but our efforts may not be sufficient.
Risks Related to Our Industry
We are subject to stringent regulatory capital requirements, which may adversely impact our return on
equity, require us to raise additional capital, or constrain us from obtaining deposits, paying dividends or
repurchasing shares.
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.
Under FDIC rules adopted since 2010, Signature Bank is subject to new and revised regulatory risk-based capital
rules. The FDIC rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-
Frank Act. The FDIC rules include new risk-based capital and leverage ratios and refine the definition of what
constitutes “capital” for purposes of calculating those ratios. The new minimum capital-level requirements include:
(i) a new common equity Tier 1 risk-based capital ratio of 4.5%; (ii) an increase in the Tier 1 risk-based capital ratio
minimum requirement from 4.0% to 6.0%; and (iii) a Tier 1 leverage ratio minimum requirement of 4.0%. The final
rules also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital
requirements, to be phased in over several years, which will result in the following effective minimum ratios: (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%.
The phase-in of the capital conservation buffer requirement began on January 1, 2016, at a level of 0.625% of
risk-weighted assets, and will 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 levels fall below the buffer amount. See “Regulation and Supervision—Capital and Related Requirements.”
The application of more stringent capital requirements for Signature Bank could result in, among other things,
lower returns on equity, requirements to raise additional capital, and regulatory actions such as limitations on our
ability 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, and banking professionals and otherwise conduct our business.
In addition, we are subject to FDIC regulations that impose a system of mandatory and discretionary supervisory
actions that become more severe as our capital levels decline. The regulations include five capital categories
ranging from “well capitalized” to “critically undercapitalized.” Such classifications are used by the FDIC to
determine our deposit insurance premium and ability to accept brokered deposits and affect the approval of our
applications to increase our asset size or otherwise expand our business activities or acquire other institutions.
To be categorized as “well capitalized” under the Act and, thus, subject to the fewest restrictions, we must (i) have
a total risk-based capital ratio of 10.0% or greater; (ii) have a Tier 1 risk-based capital ratio of 8.0% or greater;
(iii) have a common equity Tier 1 risk-based capital ratio of 6.5% or greater; (iv) have a leverage ratio of 5.0% or
greater; and (v) 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
our asset growth opportunities and restrict our ability to increase earnings.
43
Our failure to comply with our minimum capital requirements would have a material adverse effect on our financial
condition and results of operations. See “Regulation and Supervision—Prompt Corrective Action and
Enforcement Powers.”
FDIC insurance premiums fluctuate materially, which could negatively affect our profitability.
The FDIC insures deposit accounts at certain financial institutions, including Signature Bank. Under FDIC
regulations, we are required to pay premiums to the Deposit Insurance Fund (“DIF”) to maintain our deposit
accounts’ required insurance. After the passage of the Dodd-Frank Act, the FDIC adopted new rules that
redefined how deposit insurance assessments are calculated. 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, PCA capital evaluations, 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. The assessment rate schedule includes an adjustment for
significant amounts of brokered deposits applicable to large institutions that are either less than well capitalized or
have a composite rating of “3,” “4,” or “5” under the Uniform Financial Institution Rating System. For such an
institution, an assessment rate adjustment applies when its ratio of brokered deposits to domestic deposits is
greater than 10%. If our regulatory ratings, PCA capital evaluations, financial measures, or levels of brokered
deposits change in ways that indicate greater risk, our deposit insurance assessments could increase materially.
In March 2016, the FDIC adopted another final rule, which took effect on June 30, 2016, imposing a surcharge on
banks with at least $10 billion in total assets at an annual rate of four and one-half basis points applied to the
institution’s assessment base (with certain adjustments) in order to reach a DIF reserve ratio of 1.35%. In total,
recent changes to the FDIC’s assessments are expected to increase our deposit insurance assessments by
approximately $4 million per year. See “Regulation and Supervision—Deposit Premiums and Assessments.” Any
further increase in assessment fees, whether due to the FDIC’s assessment of our risk level, additional regulatory
changes, or increases in our assessment base, 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 DFS, the Federal
Reserve, the CFPB, the SEC and FINRA. As we expand our operations, we will become subject to regulation by
additional states. Regulations adopted by our banking regulators are generally intended to provide protection for
our depositors and our clients, rather than our shareholders, and 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. See “Regulation and Supervision—The
financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and
government policy.”
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
44
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 DFS. See “Regulation and Supervision—Regulation
of Signature Securities.” 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 ongoing examination by the FDIC, the New York State DFS, the SEC, the CFPB,
self-regulatory organizations and various state authorities. Our banking operations, sales practices, 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 discovered through examination, customer
complaints, or other means 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. For example, the enforcement of fair lending laws has been an increasing
area of focus for regulators, including the FDIC and the CFPB, and an examination or customer complaint could
lead to an enforcement action in this area. See “Regulation and Supervision—Community Reinvestment Act and
Fair Lending.”
General regulatory sanctions that regulators may seek against a bank 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, among other penalties.
The Dodd-Frank Act may continue to affect our results of operations, financial condition or liquidity.
The Dodd-Frank Act, signed into law in 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 may continue to result in additional legislative and regulatory actions that will affect the operations of the
Bank.
Under the Dodd-Frank Act, federal banking agencies are required to draft and implement enhanced supervision,
examination, and capital and liquidity standards for depository institutions. The enhanced requirements include
changes to capital, leverage and liquidity standards and numerous other requirements. The Dodd-Frank Act also
established the CFPB, and gave it broad authority, and permits states to adopt stricter consumer protection laws
and enforce consumer protection rules issued by the CFPB.
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). Banks were required to conform their activities and investments to the final regulations’ requirements
by July 2015, but the Federal Reserve has exercised its authority to extend the divestiture period for pre-2014
investments to July 21, 2017. We hold certain securities in our available-for-sale investment portfolio that do not
meet Volcker Rule exemptive criteria for continued ownership and, therefore, must be divested within the
divestiture period. These securities, which are predominantly collateralized mortgage obligations, had a fair value
totaling $35.3 million and an amortized cost of $33.9 million as of December 31, 2016. Although these securities
had an unrealized gain as of December 31, 2016, 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.
45
Regulations could restrict our ability to service and sell mortgage loans.
The CFPB has issued rules establishing mortgage lending and servicing requirements, which became effective in
January 2014. As of January 2016, we ceased originating personal residential mortgages, although we continue
to service our current portfolio of such mortgages until they run off. The CFPB’s mortgage servicing requirements
establish regulatory procedures and obligations for various areas of the servicing process including periodic
disclosures, error resolution, borrower information requests, and loss mitigation. See “Regulation and
Supervision—Consumer Financial Protection.” The CFPB’s mortgage servicing and disclosure rules, as well as
other mortgage regulations that the CFPB or other regulators may adopt, could limit our ability to retain certain
types of loans or loans to certain borrowers, or could make it more expensive and time consuming to service these
loans, which could limit our growth or profitability.
We will be expected to make additional expenditures on enhanced governance, internal control,
compliance, and supervisory programs and to comply with additional regulations as we approach
$50 billion in assets.
The FDIC, as a supervisory matter, expects us to have governance, internal control, compliance, and supervisory
programs consistent with our size and activities. As the Bank approaches $50 billion in assets, the FDIC will
generally expect us to develop and implement enhanced governance, internal control, compliance, and
supervisory programs, to implement select banking regulations that do not technically apply to an institution of our
size or structure, and to incur the costs to implement, staff, and maintain those programs. Meeting the FDIC’s
enhanced supervisory expectations could cause us to incur materially greater costs than comparably sized
institutions with a different primary federal regulator and could prevent us from making profitable investments or
from engaging in new activities.
The financial services industry, as well as the broader economy, may be subject to new legislation,
regulation, tax reform, and government policy.
At this time, it is difficult to predict the legislative, regulatory, and tax changes that will result from a Republican
President of the United States and both Houses of Congress all controlled by the same political party. Both the
incoming President and senior members of the House of Representatives have recently advocated for substantial
changes to the Dodd-Frank Act and federal banking agencies, as well as significant tax reform. It is difficult to
predict the impact that any legislative, regulatory and tax changes will have on our clients’ competitors and on the
financial services industry as a whole. Our results of operations also could be adversely affected by changes in
the way in which existing statutes, regulations, and laws are interpreted or applied by courts and government
agencies.
The new Administration and Congress also may cause broader economic changes due to changes in governing
ideology and governing style. New appointments to the Board of Governors of the Federal Reserve System could
affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and
economic growth. Future legislation, regulation, tax reform, and government policy could affect the banking
industry as a whole, including our business and results of operations, in ways that are difficult to predict.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.
We have exposure to many different industries and counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including broker-dealers, commercial banks, investment banks,
mutual and hedge funds and other institutional clients. Many of these transactions expose us to credit risk in the
event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral
held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or
derivative exposure due us. There can be no assurance that any such losses would not materially and adversely
affect our results of operations.
46
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 material adverse effects.
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. As a result, some financial institutions have commenced offering interest
on demand deposits to compete for clients. As of December 31, 2016, $10.47 billion, or 32.9%, of our total
deposits were held in non-interest-bearing demand deposit accounts. Although some market interest rates have
increased, interest rates generally remain near historic lows. Particularly to the extent that interest rates return to
higher levels, our interest expense will increase and our net interest margin will decrease if we have to offer higher
rates of interest on demand deposits than we currently offer to attract additional clients or maintain current clients,
which could have a material adverse effect on our business, financial condition and results of operations.
47
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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
Staten Island
Bronx
Greenwich, CT
Private Client Accomodation Offices
Manhattan
Brooklyn
Bank and Brokerage Operations and Support
Manhattan
SBA & Institutional Trading
Houston, TX
Signature Financial
Bethel, CT
El Dorado Hills, CA
Grand Island, NY
Littleton, CO
Long Island
Norwell, MA
Prairie, MN
Redmond, WA
Signature Public Funding Corp.
Towson, MD
Total Locations
Number of
Offices
9
7
4
4
2
2
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
44
For additional information on our lease commitments, see Note 19 to our Consolidated Financial Statements.
48
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
Not applicable.
49
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,
2016, 54,610,170 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:
2016
Fourth quarter
Third quarter
Second quarter
First quarter
2015
Fourth quarter
Third quarter
Second quarter
First quarter
Common Stock
High
Low
$
157.46
132.00
147.57
151.43
$
163.15
155.84
149.65
133.69
113.53
114.01
114.36
119.60
132.54
126.49
128.37
113.98
On December 31, 2016, the last reported sale price of our common stock was $150.20 and there were seven
holders of record of our common stock, including record holders on behalf of an indeterminate number of
beneficial holders.
50
Performance Graph
The following graph compares the performance of our common stock with the performance of the Standard &
Poor’s 500 Index and the Industry Classification Benchmark (“ICB”) 8300 Banks Index:
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
December 31,
2011
December 31,
2012
December 31,
2013
December 31,
2014
December 31,
2015
December 31,
2016
Signature Bank
Standard & Poor's 500 Index
ICB 8300 Banks Index
The performance period reflected below assumes that $100 was invested in our common stock and each of the
indexes listed below on December 31, 2011. The performance of our common stock reflected below is not
indicative of our future performance.
December 31,
2011
December 31,
2012
December 31,
2013
December 31,
2014
December 31,
2015
December 31,
2016
Signature Bank
Standard & Poor's 500 Index
ICB 8300 Banks Index
100.00
100.00
100.00
118.92
113.41
134.74
179.06
146.98
184.08
209.97
163.72
205.85
255.66
162.53
210.40
250.38
178.02
266.24
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.
51
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend
to retain any earnings to finance our operations and the expansion of our business and we do not anticipate
paying any cash dividends on our common stock. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will be dependent upon then existing conditions, including our financial
condition and results of operations, capital requirements, contractual restrictions, business prospects and other
factors that the Board of Directors considers relevant.
In addition, payments of dividends may be subject to the prior approval of the New York State Department of
Financial Services and the FDIC. Under New York law, we are prohibited from declaring a dividend so long as
there is any impairment of our capital stock. In addition, we would be required to obtain the approval of the New
York State Department of Financial Services if the total of all our dividends declared in any calendar year would
exceed the total of our net profits for that year combined with retained net profits of the preceding two years, less
any required transfer to surplus or a fund for the retirement of any preferred stock. We would also be required to
obtain the approval of the FDIC prior to declaring a dividend if after paying the dividend we would be
undercapitalized, significantly undercapitalized or critically undercapitalized. Our ability to pay dividends also
depends upon the amount of cash available to us from our subsidiaries. Restrictions on our subsidiaries’ ability to
make dividends and advances to us will tend to limit our ability to pay dividends to our shareholders.
52
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:
Net impairment losses on securities recognized in earnings
(427)
(963)
2016
At or for the years ended December 31,
2015
2013
2014
2012
$
1,317,151
1,106,948
169,909
1,147,242
155,774
991,468
129,847
977,101
44,914
932,187
42,750
376,771
657,447
261,123
$
396,324
37,104
341,214
628,077
255,012
373,065
924,273
123,122
801,151
31,110
770,041
(1,724)
34,982
293,244
511,779
215,075
296,704
755,150
106,807
648,343
41,643
606,700
(6,149)
32,011
247,177
391,534
162,790
228,744
660,556
110,750
549,806
41,427
508,379
(3,073)
36,239
218,243
326,375
140,892
185,483
$
7.42
$
7.37
7.35
7.27
6.05
5.95
4.84
4.76
3.98
3.91
$
39,047,611
33,450,545
27,318,640
22,376,663
17,456,057
6,335,347
6,240,761
6,073,459
5,632,233
6,130,356
2,038,125
2,133,144
2,208,551
2,175,844
559,528
456,358
548,297
420,759
739,835
369,468
28,829,670
23,597,541
17,693,316
13,384,400
9,664,337
Total non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
PER COMMON SHARE DATA
Earnings per share - basic
Earnings per share - diluted
BALANCE SHEET DATA
Total assets
Securities available-for-sale
Securities held-to-maturity
Loans held for sale
Loans and leases, net
Allowance for loan and lease losses
213,495
195,023
164,392
135,071
107,433
Deposits
Borrowings
Shareholders' equity
31,861,260
26,773,923
22,620,275
17,057,097
14,082,652
3,200,488
3,537,163
2,050,163
3,370,313
1,585,000
3,612,264
2,891,834
2,496,238
1,799,939
1,650,327
(Continued on the next page)
53
(dollars in thousands, except per share amounts)
2016
2015
2014
2013
2012
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
Yield on average interest-earning assets
Yield on average interest-earning assets, tax-equivalent basis (4)
Average rate on deposits and borrowings
Net interest margin
Net interest margin, tax-equivalent basis (4)
Efficiency ratio (1)
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
Common Equity Tier 1 Risk-Based Capital Ratio (3)
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
Average equity to average assets
Average tangible equity to average tangible assets (2)
Per common share data:
Number of weighted average common
shares outstanding
Book value per common share
$
3,354,085
$
5,207,906
$
3,566,595
$
2,240,723
$
1,741,054
$
36,004,958
$
29,962,220
$
24,340,755
$
19,324,652
$
15,556,626
1,218
30
1,122
29
1,010
28
945
27
844
26
1.09%
12.19%
3.66%
3.66%
0.52%
3.19%
3.19%
1.23%
13.85%
3.69%
3.69%
0.47%
3.26%
3.26%
1.20%
13.81%
3.80%
3.80%
0.55%
3.29%
3.29%
1.16%
13.26%
3.91%
3.91%
0.60%
3.36%
3.36%
1.17%
12.13%
4.25%
4.25%
0.78%
3.53%
3.53%
31.66%
33.64%
35.07%
36.33%
37.24%
0.52%
0.74%
0.07%
0.82%
0.01%
0.92%
0.12%
1.00%
0.25%
1.10%
135.49%
271.22%
782.52%
430.96%
395.12%
0.54%
0.46%
9.61%
11.92%
11.92%
13.46%
8.93%
8.88%
0.30%
0.22%
8.87%
11.33%
11.33%
12.10%
8.88%
8.88%
0.12%
0.08%
0.23%
0.16%
0.28%
0.19%
9.25%
8.54%
9.51%
-
13.49%
14.39%
8.69%
8.69%
-
14.07%
15.10%
8.76%
8.76%
-
15.32%
16.35%
9.64%
9.64%
53,406
50,739
49,066
47,267
46,633
$
66.15
$
56.81
$
49.61
$
38.06
$
34.94
(1)
(2)
The efficiency ratio is considered a non-GAAP fianancial measure and 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. This ratio is a metric used by management to evaluate the performance of the Bank's
business activities. A decrease in our efficiency ratio represents improvement.
This ratio is considered to be a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial
measures determined in accordance with GAAP. We believe this non-GAAP ratio, when viewed together with the corresponding ratios calculated in
accordance with GAAP, provides meaningful supplemental information regarding our performance.
(3)
As part of the final rules implementing Basel III regulatory capital reforms, a new common equity Tier 1 risk-based capital ratio was added to existing
minimum capital requirements as of January 1, 2015.
(4) Based on the 35 percent U.S. federal statutory tax rate. The tax-equivalent basis is considered a non-GAAP financial measure and should be considered
in addition to, not as a substitute for a or superior to, financial measures determined in accordance with GAAP. This ratio is a metric used by
management to evaluate the impact of tax-exempt assets on the Bank's yield on interest-earning assets and net interest margin.
54
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read 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 “Private Securities
Litigation Reform Act Safe Harbor Statement.”
Overview
We have grown to $39.05 billion in assets, $31.86 billion in deposits, $29.04 billion in loans, $3.61 billion in equity
capital and $3.35 billion in other assets under management as of December 31, 2016.
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 expenses, which has contributed to our low efficiency ratio of 31.7% for
the year ended December 31, 2016.
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 490 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 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 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 to 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.
See Note 2(e) and Note 2(h) for our accounting policies related to Valuation and Impairment of Investment
Securities and the ALLL, respectively.
New Accounting Standards
See Note 2(t) for discussion regarding new accounting standards recently adopted and those expected to be
adopted in the future.
55
Results of Operations
The following is a discussion and analysis of our results of operations for the year ended December 31, 2016
compared to the year ended December 31, 2015 and for the year ended December 31, 2015 compared to the
year ended December 31, 2014.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Income
Net income for the year ended December 31, 2016 was $396.3 million, or $7.37 diluted earnings per share,
compared to $373.1 million, or $7.27 diluted earnings per share, for the year ended December 31, 2015. The
increase in net income was driven by increased net interest income, fueled by strong deposit and loan growth,
partially offset by an increase in the provision for loan losses, an increase in non-interest expense, as well as a
decrease in loan prepayment penalty income. The returns on average shareholders’ equity and average total
assets for the year ended December 31, 2016 were 12.19% and 1.09%, compared to 13.85% and 1.23% for the
year ended December 31, 2015.
(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:
Net impairment losses on securities recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Years ended December 31,
2016
$
1,317,151
169,909
1,147,242
155,774
(427)
42,750
376,771
261,123
396,324
$
2015
1,106,948
129,847
977,101
44,914
(963)
37,104
341,214
255,012
373,065
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, 2016 and 2015:
Years ended December 31,
2016
2015
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
2,456
267,406
1,032,829
11,235
4,572
1,318,498
0.50%
3.08%
3.94%
3.78%
1.50%
3.66%
403,403
8,530,863
20,376,793
327,113
324,048
1,013
262,268
827,273
12,509
3,885
29,962,220 1,106,948
$
493,646
8,695,632
26,212,811
297,478
305,391
36,004,958
410,764
36,415,722
$
16,573
94,294
12,418
-
123,285
10,202
36,422
169,909
0.46%
0.61%
0.97%
-
0.41%
5.66%
1.31%
0.52%
$
3,591,984
15,399,825
1,286,775
9,469,240
29,747,824
180,120
2,781,305
32,709,249
3,706,473
36,415,722
$
366,592
30,328,812
2,208,678
14,109,742
969,556
8,005,589
25,293,565
-
2,109,763
27,403,328
2,925,484
30,328,812
8,961
83,314
10,630
-
102,905
-
26,942
129,847
0.25%
3.07%
4.06%
3.82%
1.20%
3.69%
0.41%
0.59%
1.10%
-
0.41%
-
1.28%
0.47%
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1)(2)
Residential mortgages and consumer loans (1)
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
Subordinated debt
Borrowings
Total deposits and borrowings
Other non-interest-bearing liabilities
and shareholders' equity
Total liabilities and shareholders' equity
OTHER DATA
Net interest income / interest rate spread (2)
Tax-equivalent adjustment
Net interest income, as reported
Net interest margin
Tax-equivalent effect
Net interest margin on a fully tax-equivalent basis (2)
Ratio of average interest-earnings assets
to average interest-bearing liabilities
1,148,589
(1,347)
1,147,242
3.14%
977,101
3.22%
-
977,101
3.19%
-
3.19%
110.08%
3.26%
-
3.26%
109.34%
(1) Average loan balances include non-accrual loans along with deferred fees and costs.
(2) Presented on a tax equivalent, non-GAAP, basis using the U.S. federal statutory tax rate of 35 percent for municipal leasing and financing
transactions.
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 nonperforming assets is included in the change due to rate.
(in thousands)
INTEREST INCOME
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1)
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
Subordinated debt
Borrowings
Total interest expense
Net interest income
Year ended December 31,
2016 vs. 2015
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
1,216
72
(31,379)
(141)
911
(29,321)
227
5,066
236,935
(1,133)
(224)
240,871
1,443
5,138
205,556
(1,274)
687
211,550
2,000
3,362
(1,690)
3,672
10,202
904
14,778
(44,099)
$
5,612
7,618
3,478
16,708
-
8,576
25,284
215,587
7,612
10,980
1,788
20,380
10,202
9,480
40,062
171,488
(1) Presented on a tax equivalent, non-GAAP, basis using the U.S. federal statutory tax rate of 35
percent for municipal leasing and financing transactions.
Net interest income for the year ended December 31, 2016 was $1.15 billion, an increase of $170.1 million, or
17.4%, over the year ended December 31, 2015. The increase in net interest income for 2016 was largely driven
by increases in average interest-earning assets and average deposits, which increased $6.04 billion and $4.45
billion, respectively, compared to the previous year. Net interest income was also positively impacted by lower
rates paid on NOW and interest-bearing demand and money market deposits. However, this increase was offset
by the 2016 subordinated debt issuance, a reduction in prepayment penalty income, as well as the negative
effects of the ongoing low interest rate environment on asset yields, particularly in our commercial loan and
mortgage portfolios, as well as our investment portfolio. Our net interest margin on a tax-equivalent basis for the
year ended December 31, 2016 decreased to 3.19%, compared to 3.26% for the previous year, primarily due to
the continued effect of the prolonged low interest rate environment, the 2016 subordinated debt issuance and a
reduction in prepayment penalty income.
Total investment securities averaged $8.70 billion for the year ended December 31, 2016, compared to $8.53
billion for the year ended December 31, 2015. The overall yield on the securities portfolio for the year ended
December 31, 2016 was 3.08%, virtually flat when compared to the previous year. 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
58
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, 2016, the baseline average duration of our
investment securities portfolio was approximately 3.71 years, compared to 3.37 years at December 31, 2015.
Total commercial loans, mortgages and leases averaged $26.21 billion for the year ended December 31, 2016, an
increase of $5.84 billion or 28.6% over the year ended December 31, 2015. The average yield on this portfolio
decreased 12 basis points to 3.94% when compared to the year ended December 31, 2015. The decrease in
average yield reflects the impact of the low prevailing interest rate environment on recent loan originations and
refinancings along with a $1.7 million decrease in prepayment penalty income when compared to the same period
last year. Prepayment penalty income was $32.1 million for the year ended December 31, 2016, compared to
$33.8 million for the same period last year. 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. 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 period-to-period fluctuations in average balances of loans held for sale, which averaged $305.4 million
and $324.0 million for the years ended December 31, 2016 and 2015, respectively.
Average total deposits and borrowings increased $5.31 billion, or 19.4%, to $32.71 billion during the year ended
December 31, 2016, compared to $27.40 billion for the previous year. Overall cost of funding was 0.52% during
2016, increasing five basis points from 0.47% in 2015, primarily due to the 2016 issuance of subordinated debt.
For the year ended December 31, 2016, average non-interest-bearing demand deposits were $9.47 billion,
compared to $8.01 billion for the year ended December 31, 2015, an increase of $1.46 billion, or 18.3%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
33.0% of all deposits at December 31, 2016. Additionally, average NOW and interest-bearing demand and money
market accounts totaled $18.99 billion for the year ended December 31, 2016, an increase of $2.67 billion, or
16.4%, over the year ended December 31, 2015. Core deposits have provided us with a source of stable and
relatively low cost funding, which has positively affected our net interest margin and income. Additionally, short-
term escrow deposits continue to provide us with an additional low cost funding alternative. As a result of the
current competitive environment, our funding cost for money market accounts increased to 0.61% for the year
ended December 31, 2016 compared to 0.59% for the prior year. Our funding cost for NOW and interest-bearing
demand accounts was 0.46% for the year ended December 31, 2016 compared to 0.41% for the year ended
December 31, 2015.
Average time deposits, which are relatively short-term in nature, totaled $1.3 billion for the year ended December
31, 2016 and carried an average cost of 0.97% in 2016, down 13 basis points from 1.10% in 2015. 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, 2016, average total borrowings were $2.96 billion, compared to $2.11 billion for
the previous year, an increase of $851.7 million, or 40.4%. The increase in average total borrowings, when
compared to the previous year, reflects funding needs as a result of our continued loan growth, including the
issuance of subordinated debt in the second quarter of 2016. At December 31, 2016, total borrowings represent
approximately 9.1% of all funding liabilities, compared to 11.7% at December 31, 2015. The average cost of our
total borrowings was 1.57% for 2016, up 29 basis points from 1.28% in 2015. The increase in the average cost of
borrowings reflects the issuance of subordinated debt, as well as the increase in other borrowings.
59
Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $155.8 million for the year ended December 31, 2016, compared to
$44.9 million for the prior year, an increase of $110.9 million, or over 100%. Our ALLL increased $18.5 million to
$213.5 million at December 31, 2016 from $195.0 million at December 31, 2015. The increases in both the
provision for loan and lease losses and ALLL were primarily driven by an increase in reserves for taxi medallion
loans due to a decrease in the value of Chicago and New York City taxi medallions.
During 2016, the Bank significantly reduced its exposure within its Chicago taxi portfolio by reserving for or writing
down each Chicago taxi medallion loan utilizing a value of approximately $60,000, net of selling costs. Chicago
and New York City taxi medallion values declined from 2015 primarily due to the decrease in the average value of
recent market transfers for which additional information could not be obtained to conclude whether or not the
transactions were orderly. As a result, management derived each medallion value using both recent medallion
transfers and the valuation obtained from a discounted cash flow model. For each medallion type, the respective
valuation outputs were each ascribed a weighting to derive the estimated medallion value. The value declines
resulted in $129.2 million in taxi medallion charge-offs for the year, $108.6 million of which related to the Chicago
taxi medallion portfolio.
The remaining Chicago taxi medallion portfolio balance is $55.2 million with an associated allowance for loan and
lease losses of $12.2 million for a net exposure of $43.1 million, or approximately $60,000 per medallion. In New
York, the remaining taxi medallion portfolio balance is $567.9 million with an associated allowance for loan and
lease losses of $44.3 million for a net exposure of $523.6 million, or approximately $542,000 per medallion.
For additional information about the provision for loan and lease losses and ALLL, see the discussion of asset
quality and the Allowance for Loan and Lease Losses later in this report, as well as in Note 8 to our Consolidated
Financial Statements.
The following table allocates our ALLL based on our judgment of inherent losses in each respective portfolio
category 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
New York City taxi medallions
Chicago taxi medallions
Philadelphia taxi medallions
Consumer
Total
2016
2015
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
$
14,366,520
7,994,707
535,338
148,094
485,309
4,851,824
567,925
55,216
4,258
10,268
29,019,459
$
71,053
40,801
2,117
3,182
2,514
35,363
44,319
12,152
1,797
197
213,495
0.49%
0.51%
0.40%
2.15%
0.52%
0.73%
7.80%
22.01%
42.20%
1.92%
0.74%
11,823,073
6,372,851
539,526
163,191
75,958
3,995,023
617,854
168,008
7,837
9,714
23,773,035
82,382
45,497
3,598
4,931
558
34,551
14,536
8,107
522
341
195,023
0.70%
0.71%
0.67%
3.02%
0.73%
0.86%
2.35%
4.83%
6.66%
3.51%
0.82%
For additional information about our provision and ALLL, see the related discussions of asset quality later in this
report.
60
Non-Interest Income
For the year ended December 31, 2016, non-interest income was $42.8 million, an increase of $5.6 million, or
15.2%, when compared with 2015. The increase in non-interest income was driven by a $6.5 million increase in
net gains on sales of securities, which was due to the sale of SBA interest-only strips, as well as the sale of certain
shorter term positions and mortgage-backed securities with high prepayment speed risk to capitalize on current
market conditions. Further contributing to this increase is a $1.3 million increase in bank-owned life insurance
related income. This increase was partially offset by a $2.3 million increase in amortization of low income housing
tax credit investments.
Non-Interest Expense
Non-interest expense increased $35.6 million, or 10.4%, to $376.8 million for the year ended December 31, 2016
from $341.2 million for the year ended December 31, 2015. This increase was primarily driven by a $16.3 million
increase in salaries and benefits mostly attributable to the addition of three private client banking teams, our
continued hiring for the expansion of existing locations, along with increased compensation costs driven by the
growth of our business. The increase also reflects a $5.4 million rise in FDIC assessment fees driven by our
deposit growth and a $5.4 million increase in other general and administrative expenses, reflecting $2.7 million in
repossessed asset fair value adjustments, as well as increased expenses from additional client activity as a result
of our growth. Further contributing to the increase is a $3.1 million increase in occupancy and equipment
expenses resulting from the expansion of existing offices.
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 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, 2016, our total unrecognized compensation cost related to unvested restricted shares was
$69.8 million, which is expected to be recognized over a weighted-average period of 1.88 years. During the years
ended December 31, 2016 and 2015, we recognized compensation expense of $41.7 million and $34.7 million,
respectively, for restricted shares. The total fair value of restricted shares that vested during the years ended
December 31, 2016 and 2015 was $58.5 million and $54.3 million, respectively.
Income Taxes
We recognized income tax expense for the year ended December 31, 2016 of $261.1 million reflecting an effective
tax rate of 39.7%, compared to $255.0 million for the year ended December 31, 2015 reflecting an effective tax
rate of 40.6%.
The increase in income tax expense for the year ended December 31, 2016, when compared to the previous year,
was primarily driven by an increase in our pre-tax income.
On April 13, 2015, the final version of the 2015-2016 New York State budget legislation was signed, which
included substantial revisions to the New York City tax regime, as well as technical clarifications and expansion of
the sweeping New York State tax reform legislation passed in 2014.
As noted, our effective tax rate for the year ended December 31, 2016 was 39.7%, compared to 40.6% for the
year ended December 31, 2015, primarily as a result of these legislative changes.
61
Segment Results
On an annual basis, we reevaluate our segment reporting conclusions. Based on our our internal operating
structure and the relative significance of the specialty finance business, we determined our operations are
organized into two reportable segments representing our core businesses – Commercial Banking and Specialty
Finance.
Commercial Banking principally consists of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities, while Specialty Finance principally consists of financing and leasing
products, including equipment, transportation, taxi medallion, commercial marine, municipal and national franchise
financing and/or leasing. The primary factors considered in determining these reportable segments include the
nature of the underlying products and services offered, how products and services are provided to our clients, and
our internal operating structure.
The segment information reported uses a “management approach” based on how management organizes its
segments for purposes of making operating decisions and assessing performance. The Bank’s segment results
are intended to reflect each segment as if it were a stand-alone business. Management’s accounting process uses
various estimates and allocation methodologies to measure the performance of the segments. To determine
financial performance for each segment, the Company allocates funding costs and certain non-interest expenses
to each segment, as applicable. Management does not consider income tax expense when assessing segment
profitability and, therefore, it is not disclosed in the tables below. Instead, the Bank’s income tax expense is
calculated and evaluated at a consolidated level.
The following table presents the financial data for each reportable segment for the periods presented:
(in thousands)
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
(1) Eliminations related to intercompany funding
(in thousands)
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
(1) Eliminations related to intercompany funding
Year ended December 31, 2016
Commercial
Banking
Specialty
Finance
Eliminations (1)
Consolidated
$
1,065,872
(20,174)
39,293
353,481
771,858
39,081,992
$
81,370
175,948
3,491
23,324
(114,411)
3,440,329
-
-
(34)
(34)
-
(3,474,710)
1,147,242
155,774
42,750
376,771
657,447
39,047,611
Year ended December 31, 2015
Commercial
Banking
Specialty
Finance
Eliminations (1)
Consolidated
$
895,741
15,783
34,405
317,296
597,067
33,401,329
$
81,360
29,131
2,699
23,918
31,010
3,173,198
-
-
-
-
-
(3,123,982)
977,101
44,914
37,104
341,214
628,077
33,450,545
62
Commercial Banking
Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities in the New York Metropolitan area.
(in thousands)
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
Years ended December 31,
2016
2015
$
1,065,872
(20,174)
39,293
353,481
771,858
39,081,992
$
895,741
15,783
34,405
317,296
597,067
33,401,329
Commercial Banking net interest income was $1.07 billion for the year ended December 31, 2016, an increase of
$170.1 million, or 19.0%, when compared to $895.7 million in the prior year. The increases were primarily due to
strong loan and deposit growth, as well as the positive impact of lower rates paid on NOW and interest-bearing
demand and money market deposits. These increases were partially offset by the effects of the ongoing low
interest rate environment on asset yields and the subordinated debt issuance in 2016, and a decline in
prepayment penalty income.
The provision for loan and lease losses decreased $36.0 million, or over 100%, to a $20.2 million reserve release
for the year ended December 31, 2016, compared to a $15.8 million reserve build for the year ended December
31, 2015. The decrease was primarily attributable to a change in estimate in the commercial real estate portfolio
related to the update of the portfolio’s ALLL general reserve loss factors during 2016, partially offset by growth in
the CRE portfolio. For additional information about this change in estimate, see the discussion of ALLL later in this
report, as well as Note 8 to our Consolidated Financial Statements.
Non-interest expense was $353.5 million for the year ended December 31, 2016, an increase of $36.2 million, or
11.4%, when compared to $317.3 million in the prior year. The increase was primarily attributable to an increase in
salaries and benefits expense due to the addition of three private client banking teams and an increase in
compensation costs due to the continued growth of our business. Further contributing is an increase in occupancy
and equipment expense, data processing costs, and FDIC assessment fees which was also attributable to the
continued growth of our business.
The increase of $5.68 billion in total assets, or 17.0%, from $33.40 billion as of December 31, 2015 to $39.08
billion as of December 31, 2016 was primarily attributable to growth in our commercial real estate loan portfolio.
63
Specialty Finance
Specialty Finance consists principally of financing and leasing products, including equipment, transportation, taxi
medallion, commercial marine, municipal and national franchise financing and/or leasing. Specialty Finance’s
clients are located throughout the United States.
Years ended December 31,
(in thousands)
2016
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
$
81,370
175,948
3,491
23,324
(114,411)
3,440,329
$
2015
81,360
29,131
2,699
23,918
31,010
3,173,198
Specialty Finance net interest income was $81.4 million for the year ended December 31, 2016, flat when
compared to $81.4 million in the prior year. The stable trend was primarily attributable to the decline in interest
income as a result of an increase in nonaccrual loans, primarily taxi medallion loans, offset by an increase in
interest income due to loan and lease growth in the business’s other portfolios.
The provision for loan and lease losses increased $146.8 million, or over 100%, to $175.9 million for the year
ended December 31, 2016 from $29.1 million for the year ended December 31, 2015. The increase was primarily
due to the Chicago taxi medallion portfolio. The increase was primarily due to a decrease in the value of Chicago
and New York City taxi medallions, which impacted specific reserves and charge-offs related to the portfolio. For
additional information about the taxi medallion valuation impact to the provision for loan and lease losses, see the
discussion of ALLL later in this report, as well as Note 8 to our Consolidated Financial Statements.
Non-interest expense was $23.3 million for the year ended December 31, 2016, a decrease of $594,000, or 2.5%,
when compared to $23.9 million in the prior year. The decrease is due to a decrease in incentive compensation,
partially offset by $2.7 million in repossessed asset fair value adjustments during the year and increased other
expenses due to the continued growth of the equipment leasing portfolios.
The increase of $267.1 million in total assets, or 8.4%, from $3.17 billion as of December 31, 2015 to $3.44 billion
as of December 31, 2016 was primarily attributable to growth in our equipment leasing portfolios, partially offset by
taxi medallion charge-offs.
64
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net Income
Net income for the year ended December 31, 2015 was $373.1 million, or $7.27 diluted earnings per share,
compared to $296.7 million, or $5.95 diluted earnings per share, for the year ended December 31, 2014. The
increase in net income was driven by increased net interest income. The returns on average shareholders’ equity
and average total assets for the year ended December 31, 2015 were 13.85% and 1.23%, compared to 13.81%
and 1.20% for the year ended December 31, 2014.
(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:
Net impairment losses on securities recognized in earnings
Total non-interest income
Non-interest expense
Income tax expense
Net income
Years ended December 31,
2015
2014
$
1,106,948
129,847
977,101
44,914
(963)
37,104
341,214
255,012
373,065
$
924,273
123,122
801,151
31,110
(1,724)
34,982
293,244
215,075
296,704
65
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, 2015 and 2014:
Years ended December 31,
(dollars in thousands)
INTEREST-EARNING ASSETS
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1) (2)
Residential mortgages and consumer loans (1)
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
Balance
$
403,403
8,530,863
20,376,793
327,113
324,048
29,962,220
366,592
30,328,812
$
$
2,208,678
14,109,742
969,556
8,005,589
25,293,565
2,109,764
27,403,329
2015
Income/
1,013
262,268
827,273
12,509
3,885
1,106,948
8,961
83,314
10,630
-
102,905
26,942
129,847
and shareholders' equity
Total liabilities and shareholders' equity
2,925,483
30,328,812
$
OTHER DATA
Net interest income / interest rate spread (2)
Tax-equivalent adjustment
Net interest income, as reported
Net interest margin
Tax-equivalent effect
Net interest margin on a fully tax-equivalent basis (2)
Ratio of average interest-earnings assets
to average interest-bearing liabilities
Yield/
Balance
2014
Income/
Yield/
928
267,722
639,014
13,271
3,338
924,273
4,900
75,974
12,620
-
93,494
29,628
123,122
0.24%
3.27%
4.24%
3.85%
0.98%
3.80%
0.38%
0.66%
1.09%
-
0.47%
1.21%
0.55%
0.25%
3.07%
4.06%
3.82%
1.20%
3.69%
0.41%
0.59%
1.10%
-
0.41%
1.28%
0.47%
387,213
8,198,481
15,069,896
344,356
340,809
24,340,755
365,143
24,705,898
1,276,342
11,592,917
1,155,702
5,906,454
19,931,415
2,443,596
22,375,011
2,330,887
24,705,898
977,101
3.22%
801,151
3.25%
-
977,101
-
801,151
3.26%
-
3.26%
109.34%
3.29%
-
3.29%
108.45%
(1) Average loan balances include non-accrual loans along with deferred fees and costs.
(2) Presented on a tax equivalent, non-GAAP, basis using the U.S. federal statutory tax rate of 35 percent for municipal leasing and financing
transactions.
66
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 nonperforming assets is included in the change due to rate.
(in thousands)
INTEREST INCOME
Short-term investments
Investment securities
Commercial loans, mortgages and leases (1)
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,
2015 vs. 2014
Change
Due to Rate
Change
Due to
Volume
Total
Change
$
46
(16,308)
(36,771)
(97)
711
39
10,854
225,030
(665)
(164)
85
(5,454)
188,259
(762)
547
(52,419)
235,094
182,675
482
(9,154)
43
(8,629)
1,362
(7,267)
(45,152)
$
3,579
16,494
(2,033)
18,040
(4,048)
13,992
221,102
4,061
7,340
(1,990)
9,411
(2,686)
6,725
175,950
(1) Presented on a tax equivalent, non-GAAP, basis using the U.S. federal statutory tax rate of 35 percent for
municipal leasing and financing transactions.
Net interest income for the year ended December 31, 2015 was $977.1 million, an increase of $176.0 million, or
21.96%, over the year ended December 31, 2014. The increase in net interest income for 2015 was largely driven
by increases in average interest-earning assets and average deposits, which increased $5.62 billion and $5.36
billion, respectively, compared to the previous year. Although net interest income for 2015 was positively
impacted by lower rates paid on money market deposits, the impact of lower deposit rates was offset by the
negative effects of the ongoing low interest rate environment on asset yields, particularly in our commercial loan
and mortgage portfolios, as well as our investment portfolio. Our net interest margin for the year ended December
31, 2015 decreased to 3.26%, compared to 3.29% for the previous year, primarily due to the continued effect of
the prolonged low interest rate environment.
Total investment securities averaged $8.53 billion for the year ended December 31, 2015, compared to $8.20
billion for the year ended December 31, 2014. The overall yield on the securities portfolio for the year ended
December 31, 2015 was 3.07%, down 20 basis points from the previous year. The decrease in yield was
predominantly due to lower reinvestment yields and an increase in premium amortization. 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
67
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, 2015, the baseline average duration of our
investment securities portfolio was approximately 3.37 years, compared to 3.17 years at December 31, 2014.
Total commercial loans, mortgages and leases averaged $20.38 billion for the year ended December 31, 2015, an
increase of $5.31 billion or 35.2% over the year ended December 31, 2014. The average yield on this portfolio
decreased 18 basis points to 4.06% when compared to the year ended December 31, 2014. The decrease in
average yield reflects the impact of the low prevailing interest rate environment on recent loan originations and
refinancings along with a heightened competitive environment, which were partially offset by a $6.6 million
increase in prepayment penalty income when compared to 2014. Prepayment penalty income was $33.8 million
for the year ended December 31, 2015, compared to $27.2 million for the same period last year.
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 period-to-period fluctuations in average balances of loans held for sale, which averaged $324.0 million
and $340.8 million for the years ended December 31, 2015 and 2014, respectively.
Average total deposits and borrowings increased $5.02 billion, or 22.5%, to $27.40 billion during the year ended
December 31, 2015, compared to $22.38 billion for the previous year. Overall cost of funding was 0.47% during
2015, decreasing eight basis points from 0.55% in 2014.
For the year ended December 31, 2015, average non-interest-bearing demand deposits were $8.01 billion,
compared to $5.91 billion for the year ended December 31, 2014, an increase of $2.10 billion, or 35.5%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
31.7% of all deposits at December 31, 2015. Additionally, average NOW and interest-bearing demand and money
market accounts totaled $16.32 billion for the year ended December 31, 2015, an increase of $3.45 billion, or
26.8%, over the year ended December 31, 2014. Core deposits have provided us with a source of stable and
relatively 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 decreased to 0.59% for the year ended December
31, 2015 compared to 0.66% for the prior year. Our funding cost for NOW and interest-bearing demand accounts
was 0.41% for the year ended December 31, 2015 compared to 0.38% for the year ended December 31, 2014.
Average time deposits, which are relatively short-term in nature, totaled $970 million for the year ended December
31, 2015 and carried an average cost of 1.10% in 2015, up one basis point from 1.09% in 2014. 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, 2015, average total borrowings were $2.11 billion, compared to $2.44 billion for
the previous year, a decrease of $333.8 million, or 13.7%. The decrease in average total borrowings, when
compared to the previous year, was driven by average deposit growth. At December 31, 2015, total borrowings
represent approximately 11.7% of all funding liabilities, compared to 8.3% at December 31, 2014. The average
cost of our total borrowings was 1.28% for 2015, up seven basis points from 1.21% in 2014. The increase in the
average cost of borrowings reflects the short-term, low-cost nature of borrowings repaid in 2015.
Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $44.9 million for the year ended December 31, 2015, compared to
$31.1 million for the prior year, an increase of $13.8 million, or 44.4%. Our ALLL increased $30.6 million to $195.0
million at December 31, 2015 from $164.4 million at December 31, 2014. The increases in both the provision for
loan and lease losses and ALLL were primarily driven by additional reserves for taxi medallion loans.
For additional information about the provision for loan and lease losses and ALLL, see the discussion of asset
quality and the Allowance for Loan and Lease Losses later in this report, as well as in Note 8 to our Consolidated
Financial Statements.
68
The following table allocates our ALLL based on our judgment of inherent losses in each respective portfolio
category 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
New York City taxi medallions
Chicago taxi medallions
Philadelphia taxi medallions
Consumer
Total
2015
2014
December 31,
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
Loan
Amount
Allowance
Amount
Allowance
as a % of
Loan Amount
$
11,823,073
6,372,851
539,526
163,191
75,958
3,995,023
617,854
168,008
7,837
9,714
23,773,035
$
82,382
45,497
3,598
4,931
558
34,551
14,536
8,107
522
341
195,023
0.70%
0.71%
0.67%
3.02%
0.73%
0.86%
2.33%
4.83%
6.66%
3.51%
0.82%
8,607,989
4,288,084
463,420
160,890
64,824
3,431,396
628,316
175,085
7,967
10,245
17,838,216
63,091
32,910
7,178
3,522
477
48,371
3,841
4,502
42
458
164,392
0.73%
0.77%
1.55%
2.19%
0.74%
1.41%
0.61%
2.57%
0.53%
4.47%
0.92%
For additional information about our provision and ALLL, see the related discussions of asset quality later in this
report.
Non-Interest Income
For the year ended December 31, 2015, non-interest income was $37.1 million, an increase of $2.1 million, or
6.1%, when compared with 2014. The increase in non-interest income was primarily driven by an increase in fees
and service charges, an increase in commissions, as well as an increase in net gains on sales of loans, partially
offset by a reduction in the amount of net gains on sales of securities. The increase in non-interest income also
reflects a decrease in net other-than-temporary impairment losses on securities recognized through earnings.
Fees and service charges increased $2.2 million, or 11.8%, to $21.5 million for the year ended December 31,
2015, compared to $19.3 million for 2014. Additionally, commissions increased $769,000, or 7.2%, to $11.4
million for the year ended December 31, 2015 from $10.6 million for 2014. The increases in both commissions
and fees and service charges were driven by increased client activity as a result of our growth.
Net gains on sales of loans increased $1.8 million, or 32.2%, to $7.1 million for the year ended December 31,
2015, compared to $5.3 million during the prior year predominantly from our SBA pool assembly business.
We also recognized through earnings net other-than-temporary impairment losses on securities totaling $1.0
million during the year ended December 31, 2015, compared to $1.7 million for the prior year. For further
discussion of our other-than-temporary impairment losses, see Note 4 to our Consolidated Financial Statements.
Additionally, the total increase discussed above was partially offset by net gains on sales of securities which
decreased $4.1 million, or 77.1% to $1.2 million for the year ended December 31, 2015 compared to $5.3 million
for the prior year.
Non-Interest Expense
Non-interest expense increased $48.0 million, or 16.4%, to $341.2 million for the year ended December 31, 2015
from $293.2 million for the year ended December 31, 2014. This increase was primarily driven by a $33.4 million
increase in salaries and benefits mostly attributable to the addition of three private client banking teams and our
continued hiring for the expansion of existing locations, along with increased incentive-based compensation costs
driven by the growth of our business. The increase also reflects a $3.4 million increase in FDIC assessment fees
69
driven by our deposit growth, as well as a $3.5 million increase in occupancy and equipment expenses resulting
from the expansion of existing offices. Further contributing to the increase is a $3.8 million increase in other
general and administrative expenses, reflecting increased expenses mostly 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 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, 2015, our total unrecognized compensation cost related to unvested restricted shares was
$61.7 million, which is expected to be recognized over a weighted-average period of 2.06 years. During the years
ended December 31, 2015 and 2014, we recognized compensation expense of $34.7 million and $27.7 million,
respectively, for restricted shares. The total fair value of restricted shares that vested during the years ended
December 31, 2015 and 2014 was $54.3 million and $45.6 million, respectively.
Income Taxes
We recognized income tax expense for the year ended December 31, 2015 of $255.0 million reflecting an effective
tax rate of 40.6%, compared to $215.1 million for the year ended December 31, 2014 reflecting an effective tax
rate of 42.0%.
The increase in income tax expense for the year ended December 31, 2015, when compared to the previous year,
was primarily driven by an increase in our pre-tax income, partially offset by the impact of New York City tax
legislation changes that went into effect during April 2015, as well as the impact of New York State corporate
income tax reform that became effective at the beginning of 2015.
The New York State corporate income tax reform, which was enacted on March 31, 2014, included several
changes to existing tax legislation that became effective for tax years beginning January 1, 2015 (except as
noted), the most pertinent of which are as follows:
• Merges the Article 32 Bank Franchise Tax into the Article 9-A Corporate Franchise Tax;
•
Implements a single receipts apportionment factor using customer-based sourcing rules. The new rules
include sourcing a fixed 8 percent of income for mortgage-backed securities to New York State. Also
special rules apply to the sourcing of receipts from “qualified financial instruments” which are defined as
instruments that are marked to market under IRC sections 475 or 1256. An annual irrevocable election
can be made to source a fixed 8 percent of income from all qualified financial instruments to New York
State in place of customer-based sourcing;
• Lowers the business income tax base rate from 7.1% to 6.5% for tax years beginning on or after January
1, 2016; and
• Streamlines the computation of the Metropolitan Transportation Authority (“MTA”) Surcharge, makes it
permanent, and increases the rate from 17% to 25.6% of the corporate income tax rate.
On April 13, 2015, Governor Andrew Cuomo signed the final version of the 2015-2016 New York State budget
legislation, which includes substantial revisions to the New York City tax regime, as well as technical clarifications
and expansion of the sweeping New York State tax reform legislation passed last year.
New York City has adopted most of the state’s changes relating to banking corporations formerly taxable under
Article 32. Banks formerly subject to the New York City Bank Tax are, as of January 1, 2015, subject to the
General Corporation Tax. Additionally, the city has adopted receipts sourcing rules equivalent to the state’s rules
for the sourcing of income from loans and financial instruments.
70
As noted, our effective tax rate for the year ended December 31, 2015 was 40.6%, compared to 42.0% for the
year ended December 31, 2014, primarily as a result of these legislative changes.
Segment Results
Commercial Banking principally consists of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities, while Specialty Finance principally consists of financing and leasing
products, including equipment, transportation, taxi medallion, commercial marine, commercial vehicle, municipal
and national franchise financing and/or leasing. The primary factors considered in determining these reportable
segments include the nature of the underlying products and services offered, how products and services are
provided to our clients, and our internal operating structure.
The segment information reported uses a “management approach” based on how management organizes its
segments for purposes of making operating decisions and assessing performance. The Bank’s segment results
are intended to reflect each segment as if it were a stand-alone business. Management’s accounting process uses
various estimates and allocation methodologies to measure the performance of the segments. To determine
financial performance for each segment, the Company allocates funding costs and certain non-interest expenses
to each segment, as applicable. Management does not consider income tax expense when assessing segment
profitability and, therefore, it is not disclosed in the tables below. Instead, the Bank’s income tax expense is
calculated and evaluated at a consolidated level.
The following table presents the financial data for each reportable segment for the periods presented:
(in thousands)
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
(1) Eliminations related to intercompany funding
(in thousands)
Net interest income
Provision for (recovery of) loan and lease losses
Total non-interest income
Total non-interest expense
Income (loss) before income taxes
Total assets
(1) Eliminations related to intercompany funding
Year ended December 31, 2015
Commercial
Banking
Specialty
Finance
Eliminations (1)
Consolidated
$
895,741
15,783
34,405
317,296
597,067
33,401,329
$
81,360
29,131
2,699
23,918
31,010
3,173,198
-
-
-
-
-
(3,123,982)
977,101
44,914
37,104
341,214
628,077
33,450,545
Year ended December 31, 2014
Commercial
Banking
Specialty
Finance
Eliminations (1)
Consolidated
$
736,444
17,989
32,688
274,305
476,838
27,243,405
$
64,707
13,121
2,294
18,939
34,941
2,637,116
-
-
-
-
-
(2,561,881)
801,151
31,110
34,982
293,244
511,779
27,318,640
71
Commercial Banking
Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities in the New York Metropolitan area.
Commercial Banking
(in thousands)
Net interest income
Provision for loan and lease losses
Total non-interest income
Total non-interest expense
Income before income taxes
Years ended December 31,
2015
2014
$
895,741
15,783
34,405
317,296
597,067
736,444
17,989
32,688
274,305
476,838
Commercial Banking net interest income was $895.7 million for the year ended December 31, 2015, an increase
of $159.3 million, or 21.6%, when compared to $736.4 million in the prior year. The increase was primarily due to
loan and deposit growth, as well as a positive impact due to lower rates paid on money market deposits. The
impact of lower deposit rates was offset by the negative effects of the ongoing low interest rate environment on
asset yields, particularly in our commercial and mortgage portfolios, as well as our investment portfolio. The
provision for loan and lease losses decreased $2.2 million, or 12.3%, to $15.8 million for the year ended
December 31, 2015 from $18.0 million for the year ended December 31, 2014. The decrease was due to overall
credit improvement in the loan portfolio partially offset by continued growth in our commercial real estate loan
portfolio.
Non-interest expense was $317.3 million for the year ended December 31, 2015, an increase of $43.0 million, or
15.7%, when compared to $274.3 million in the prior year. The increase was primarily attributable to an increase in
salaries and benefits expense due to the addition of three private client banking teams and an increase in
incentive-based costs due to the continued growth of our business. The increase also reflects an increase in FDIC
assessment fees driven by our deposit growth, in addition to an increase in occupancy and equipment expense
resulting from the expansion of existing offices.
The increase of $6.16 billion in total assets, or 22.6%, from $27.24 billion as of December 31, 2014 to $33.40
billion as of December 31, 2015 was primarily attributable to growth in our commercial real estate loan portfolio.
Specialty Finance
Specialty Finance consists principally of financing and leasing products, including equipment, transportation, taxi
medallion, commercial marine, and national franchise financing and/or leasing. This segment also offers a range
of municipal finance and tax-exempt lending and leasing products to government entities. Specialty Finance’s
clients are located throughout the United States.
Specialty Finance
(in thousands)
Net interest income
Provision for loan and lease losses
Total non-interest income
Total non-interest expense
Income before income taxes
Years ended December 31,
2015
2014
$
81,360
29,131
2,699
23,918
31,010
64,707
13,121
2,294
18,939
34,941
72
Specialty Finance net interest income was $81.4 million for the year ended December 31, 2015, an increase of
$16.7 million, or 25.7%, when compared to $64.7 million in the prior year. The increase was primarily due to loan
and lease growth. The provision for loan and lease losses increased $16.0 million, or 122.0%, to $29.1 million for
the year ended December 31, 2015 from $13.1 million for the year ended December 31, 2014. The increase was
primarily attributable to loan and lease growth combined with an increase in reserves for taxi medallion loans.
Non-interest expense was $23.9 million for the year ended December 31, 2015, an increase of $5.0 million, or
26.3%, when compared to $18.9 million in the prior year. The increase was primarily attributable to an increase in
salaries and benefits expense due to the addition of two new business lines in 2015 – Municipal and Commercial
Vehicle Finance – and a corresponding increase in headcount. Further contributing to this increase was an
increase in professional, data processing, and other general and administrative expenses due to growth of the
business.
The increase of $536.1 million in total assets, or 20.3%, from $2.64 billion as of December 31, 2014 to $3.17
billion as of December 31, 2015 was primarily attributable growth in the equipment and vehicle portfolios.
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 (loss), 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 (loss). Amortization of
premiums and accretion of discounts on mortgage-backed securities are periodically adjusted for estimated
prepayments.
At December 31, 2016, our total securities portfolio was $8.37 billion and primarily consisted of mortgage-backed
securities (“MBSs”) and collateralized mortgage obligations (“CMOs”) issued by U.S. Government agencies
($600.9 million), government-sponsored enterprises ($6.47 billion) and private issuers ($387.4 million). As of
December 31, 2016, 91.2% of our securities portfolio had a AAA credit rating, 96.0% had a credit rating of A or
better, and 98.6% 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 3.71 years and a weighted average life of 5.27 years as of December 31, 2016. For further discussion
of our investment securities and the related determination of fair value, see Notes 3 and 4 to our Consolidated
Financial Statements.
The agency MBS portfolio primarily consists of adjustable rate hybrid securities, fixed rate balloon, and seasoned
15-year structures. The agency CMO portion of our portfolio primarily consists of short duration planned
amortization and sequential structures, collateralized by conforming first lien residential mortgages. The private
CMO portfolio consists of prime borrowers with seasoned underlying mortgages and supportive credit
enhancement. 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, 2016, the net unrealized loss on securities, net of tax effect, was $54.7 million as reflected in
accumulated other comprehensive loss, compared to a net unrealized loss of $9.5 million at December 31, 2015.
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, (vi) changing home prices, (vii) market liquidity for such obligations, and (viii) uncertainties 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.”
73
On December 10, 2013, federal regulators issued a final rule implementing the “Volcker Rule” enacted as part of
the Dodd-Frank Act. The Volcker Rule prohibits banking organizations and their affiliates from investing in or
sponsoring certain types of funds, including a range of asset securitization structures, that do not meet the
exemptive criteria for continued ownership (defined as “Covered Funds”). The Federal Reserve has exercised its
authority to extend the divestiture period for such pre-2014 investments to July 21, 2017. The Bank has limited
activities that are impacted by the Volcker Rule, and the only prohibited activity relates to our holding of certain
AFS securities that meet the definition of Covered Funds and, therefore, must be divested within the divestiture
period. These securities, which are predominantly collateralized mortgage obligations, had a total fair value and
amortized cost of $33.9 million and $35.3 million, respectively, as of December 31, 2016. We continue to actively
monitor the Covered Funds held in our investment portfolio, and we currently anticipate that a substantial portion
will be paid down through principal remittances within the divestiture period. In the interim, we expect to sell
certain securities when appropriate to take advantage of market conditions. Two Covered Fund securities were
sold during 2016 for a total gain of $5,000. There were two sales of Covered Fund securities during 2015 for a net
gain of $3,000.
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.
With the exception of those securities that are Covered Funds under the Volcker Rule, 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.
74
The following table summarizes the components of our securities portfolios as of 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
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
Other debt securities:
2016
December 31,
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
2,000
1,999
2,000
1,990
500
501
14,443
1,352,441
14,893
1,350,423
19,515
1,385,222
20,163
1,404,696
24,830
1,427,438
26,018
1,464,606
332,886
3,451,257
389,722
332,042
3,403,766
383,798
430,327
3,086,799
430,091
432,977
3,088,027
425,110
543,752
2,708,345
431,961
549,757
2,713,168
430,888
8,556
8,349
9,915
9,835
-
-
Commercial mortgage-backed securities
149,862
151,201
208,118
207,603
278,517
282,819
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:
403,668
25,315
4,457
250,689
21,731
6,407,027
$
402,888
17,084
5,541
242,696
20,667
6,335,347
384,585
25,408
4,511
229,475
16,212
6,232,178
387,500
18,497
5,227
223,628
15,508
6,240,761
387,308
26,034
4,511
173,426
15,802
6,022,424
395,216
19,927
4,541
170,723
15,295
6,073,459
$
5,286
416,415
5,213
416,196
6,797
435,284
6,797
438,751
8,610
468,218
8,759
477,579
248,699
1,295,413
3,652
246,943
1,284,240
3,357
297,252
1,322,331
4,418
298,456
1,320,660
4,093
327,253
1,328,435
5,616
331,043
1,324,998
4,942
Commercial mortgage-backed securities
17,994
18,739
18,051
19,036
18,152
19,351
Single issuer trust preferred & corporate
debt securities
Collateralized debt obligations
Other
Total held-to-maturity
48,800
-
1,866
2,038,125
$
50,813
-
1,892
2,027,393
45,589
-
3,422
2,133,144
46,672
-
3,448
2,137,913
45,862
-
6,405
2,208,551
49,104
-
6,401
2,222,177
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
The following table presents the credit rating distribution of our securities portfolio as of December 31, 2016:
Credit Rating
AAA
AA
A
BBB
Below BBB
Total
Percentage of
Portfolio
91.24%
1.14%
3.62%
2.58%
1.42%
100.00%
75
The following table provides the estimated change in fair value of our debt securities for various interest rate
shocks as of December 31, 2016:
Interest Rate Shock
+100 basis points
+200 basis points
+300 basis points
+400 basis points
Estimated Fair
Value Change
(3.57%)
(8.85%)
(14.12%)
(19.23%)
The following table presents the contractual maturity distribution and the weighted average yields of our combined
AFS and HTM securities portfolios as of December 31, 2016. 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
Mortgage-backed securities
Collateralized mortgage obligations
Other securities
Total
10 years and longer
Mortgage-backed securities
Collateralized mortgage obligations
Securities of U.S. states and political subdivisions
Other securities
Total
All maturities
U.S. Treasury securities
Mortgage-backed securities
Collateralized mortgage obligations
Securities of U.S. states and political subdivisions
Other securities (1)
Total
(1) Excludes equity securities, which do not have maturities.
Amortized Cost
Fair Value
Average Yield
-
10
288
41,278
41,576
1,999
1,122
5,861
191,246
200,228
6,436
172,665
266,291
445,392
1,779,157
5,475,332
8,349
392,039
7,654,877
1,999
1,786,725
5,654,146
8,349
890,854
8,342,073
0.00%
5.50%
5.92%
4.39%
4.41%
1.05%
5.39%
4.43%
3.14%
3.17%
3.39%
2.92%
3.31%
3.16%
2.94%
2.82%
3.25%
5.95%
3.01%
1.05%
2.94%
2.83%
3.25%
4.51%
3.03%
$
-
10
288
41,060
41,358
$
$
$
$
$
$
$
$
2,000
1,092
5,847
188,302
197,241
6,203
170,178
268,535
444,916
1,781,280
5,545,316
8,556
404,754
7,739,906
2,000
1,788,585
5,721,629
8,556
902,651
8,423,421
$
76
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:
2016
2015
December 31,
2014
2013
2012
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Multi-family residential property
$
14,366,520
48.67%
11,823,073
48.91%
6,637,353
47.81%
6,637,353
47.81%
4,380,453
43.38%
Commercial property
7,994,707
27.08%
6,372,851
26.36%
3,132,252
22.56%
3,132,252
22.56%
2,506,539
24.81%
1-4 family residential property
Home equity lines of credit
Construction and land
535,338
148,094
485,309
1.81%
0.50%
1.64%
539,526
163,191
75,958
2.23%
0.68%
0.31%
346,795
170,441
125,334
2.50%
1.23%
0.90%
346,795
170,441
125,334
2.50%
1.23%
0.90%
307,158
190,782
99,475
3.04%
1.89%
0.98%
Other loans:
Commercial and industrial
5,479,223
18.56%
4,788,722
19.81%
3,084,302
22.22%
3,084,302
22.22%
2,274,035
22.51%
Commercial - SBA
guaranteed portion
Consumer
Sub-total / Total
Premiums, deferred
fees and costs
Total
502,240
10,268
1.70%
0.04%
401,084
9,714
1.66%
0.04%
375,501
11,479
2.70%
0.08%
375,501
11,479
2.70%
0.08%
332,430
10,291
3.29%
0.10%
29,521,699
100.00%
24,174,119
100.00%
13,883,457
100.00%
13,883,457
100.00%
10,101,163
100.00%
80,994
$
29,602,693
74,803
24,248,922
56,773
13,940,230
56,773
13,940,230
40,075
10,141,238
Total loans increased by $5.35 billion to $29.60 billion at December 31, 2016 from $24.25 billion at December 31,
2015. Our total loan-to-deposit ratio, excluding loans held for sale, increased to 91.2% at December 31, 2016
from 88.9% at December 31, 2015.
In 2015, to better conform with our underwriting processes and industry practice, loans secured, in part, by owner-
occupied commercial properties were reclassified from commercial property loans to commercial and industrial
loans, as the primary collateral for these loans consists of cash flow from the borrower’s business. The amounts
reclassified were $619.9 million, $545.0 million, $519.3 million, and $413.2 million as of December 31, 2015, 2014,
2013, and 2012, respectively.
Substantially all of the collateral for our loans secured by real estate 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.
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, 2016, loans fully secured by cash and marketable securities represented 0.4% of outstanding
loan balances. The SBA portfolio, consisting only of the guaranteed portion of the SBA loans, represented 1.6%
of outstanding loan balances. Our fully unsecured loan portfolio represented 1.0% of our total outstanding loan
portfolio at December 31, 2016. 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 loan portfolio is
secured by real estate, company assets, personal assets and other forms of collateral.
In order to manage 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) history of the borrower’s payment performance.
77
The following table summarizes our portfolio of commercial loans by credit rating as of the dates indicated:
(in thousands)
December 31, 2016
Commercial loans secured by real estate:
Pass
Rating 1-6
Special
Mention
Rating 7
Substandard
Rating 8
Doubtful
Rating 9
Non-rated
Total
Multi-family residential property
$
14,213,937
123,510
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2015
7,963,472
1,040
415,848
467,103
5,083,430
28,143,790
$
-
18,206
86,967
229,723
Commercial loans secured by real estate:
Multi-family residential property
$
11,816,657
6,363,086
397,707
75,958
-
-
-
-
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
28,113
30,195
-
-
260,634
318,942
5,258
9,765
4,070
-
-
-
-
-
-
-
43
-
153
153
48,039
48,082
-
-
-
-
-
-
119
-
4,423,168
23,076,576
$
201,813
201,813
119,432
138,525
1,213
1,213
43,096
43,215
14,365,560
7,994,707
415,891
485,309
5,479,223
28,740,690
11,821,915
6,372,851
401,896
75,958
4,788,722
23,461,342
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. Effective January 2016,
we no longer originate personal residential mortgages, though we continue to service the existing portfolio. A
consumer loan is considered nonperforming 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 our portfolio of consumer loans by performance status as of the dates indicated:
(in thousands)
December 31, 2016
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2015
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
118,358
142,761
10,264
271,383
136,845
159,131
9,704
305,680
2,049
5,333
4
7,386
1,943
4,060
10
6,013
120,407
148,094
10,268
278,769
138,788
163,191
9,714
311,693
78
The following table presents commercial and industrial loans and construction and land loans by maturity for the
period indicated:
(in thousands)
Loan Type
Commercial and industrial
Construction and land
Total
As of December 31, 2016
Within One
Year
One to Five
Years
After Five
Years
Total
$
$
1,584,190
241,806
1,825,996
2,897,116
105,697
3,002,813
997,917
137,806
1,135,723
5,479,223
485,309
5,964,532
The following table presents commercial and industrial loans and construction and land loans at fixed and variable
rates contractually maturing after December 31, 2017:
Maturing After December 31, 2017
Variable
Fixed
Total
$
$
3,252,079
194,574
3,446,653
642,954
48,929
691,883
3,895,033
243,503
4,138,536
(in thousands)
Loan Type
Commercial and industrial
Construction and land
Total
Asset Quality
Nonperforming Assets
Nonperforming assets include nonaccrual loans and investment securities as well as other real estate owned and
other repossessed assets. Loans are generally placed on nonaccrual 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 nonaccrual 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 nonaccrual 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 nonaccrual does not necessarily indicate that the principal of the loan is uncollectible in
whole or in part.
79
The following table summarizes our nonperforming assets, accruing troubled debt restructured loans, loans that
were 90 days past due as to principal or interest, other impaired loans, and certain asset quality indicators as of
the dates indicated:
(dollars in thousands)
Nonaccrual assets:
Loans
Troubled debt restructured loans
Investment securities, at fair value
Other real estate owned
Other repossessed assets
Total nonperforming assets
Accruing troubled debt restructured loans
Other loans past due 90 days or more:
Loans (1)
Loans held for sale (2)
Other taxi medallion loans 30-89 days past due maturity (3)
Asset Quality Ratios:
Total nonaccrual loans to total loans
Total nonperforming assets to total assets
ALLL to nonaccrual loans
2016
2015
December 31,
2014
2013
2012
$
100,443
57,135
662
-
19,633
177,873
$
46,406
25,499
629
-
2,326
74,860
$
88,158
160,899
$
55,951
$
795
$
24,564
0.54%
0.46%
3,525
2,436
4,939
0.30%
0.22%
13,843
7,165
948
-
245
22,201
36,125
1,839
1,407
-
0.12%
0.08%
21,414
9,928
4,778
-
800
36,920
33,098
1,288
1,151
-
0.23%
0.16%
24,001
3,189
5,927
-
-
33,117
52,554
27,176
1,579
-
0.28%
0.19%
135.49%
271.22%
782.52%
430.96%
395.12%
(1)
(2)
Includes $45.3 million of taxi medallion loans past due maturity of 90 days or more that were considered impaired as of December 31, 2016.
Accruing loans held for sale past due 90 days or more are comprised of U.S. Government guaranteed SBA loans.
(3) Considered impaired in 2016.
Significant nonaccrual loans at December 31, 2016 consisted of 403 taxi medallion loans (commercial and
industrial loans), comprised of 304 relationships, totaling $135.4 million, five home equity lines of credit totaling
$3.3 million, and 12 other commercial and industrial loans totaling $11.4 million. During 2016, our two largest
Chicago taxi medallion fleet relationships, comprised of 74 loans, were placed on nonaccrual. These loans were
also charged down to collateral value, net of selling costs and currently represent $20.1 million in nonaccrual
loans. Each nonaccrual loan is being actively managed by the Bank, and the ALLL includes a specific allocation
for each such loan, when appropriate.
Nonaccrual investment securities at December 31, 2016 consisted of one collateralized debt obligation and one
bank-collateralized pooled trust preferred security totaling $662,000. These securities were classified as
nonperforming because of delinquent payments as a result of payment deferrals.
At December 31, 2016, loans past due 90 days or more included three commercial and industrial loans totaling
$1.5 million that are well secured and in process of collection, nine taxi medallion loans totaling $5.4 million for
which we are awaiting additional information from certain third party servicers, as well as 75 taxi medallion loans
totaling $45.3 million and one commercial real estate loan totaling $2.7 million that have matured, continue to
make monthly payments and are in the normal course of renewal. All taxi medallion loans that are past due
maturity with respect to their contractual maturity continue to pay and are reported as impaired. This includes
loans past due 90 days or more, as well as those 30 to 89 days past due. At December 31, 2015, loans past due
90 days or more were primarily comprised of commercial and industrial loans that are well secured and in process
of collection. The Bank’s policy is to recognize interest income on certain loans past due 90 days or more on an
accrual basis. For taxi medallion loans that are past due maturity, the difference between cash basis and accrual
basis recognition is inconsequential.
Accruing loans held for sale past due 90 days or more at December 31, 2016 and 2015 are comprised of U.S.
Government guaranteed SBA loans of $795,000 and $2.4 million, respectively.
Additionally, the decrease in TDR loans was primarily driven by $78.1 million of Chicago taxi medallion charge-offs
during 2016. Furthering this decrease was the foreclosure of 16 taxi medallions totaling $8.1 million, as well as a
reduction of $2.0 million due to the full payoff of one home equity line of credit, $13.5 million from the full payoff of
10 commercial and industrial loans, and $3.4 million from the payoff of one commercial real estate loan. The
80
decrease was partially offset by the restructure of 110 commercial and industrial loans amounting to $70.2 million,
including taxi medallion loans totaling $53.7 million.
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.
Our repossessed assets as of December 31, 2016 and December 31, 2015 totaled $19.6 million and $2.3 million,
respectively. The increase was primarily driven by the repossession of 85 taxi medallions with a fair value of
$31.0 million, partially offset by fair value adjustments of $2.7 million in 2016, as well as the sale of 21
repossessed taxi medallions during the year.
Allowance for Loan and Lease Losses
Our 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, 2016, 2015, and 2014, our ALLL totaled $213.5 million, $195.0 million, and $164.4 million, respectively, which
represents 0.74%, 0.82%, and 0.92% of total loans and leases (excluding loans held for sale) 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, 2016, 2015, and 2014, we recorded provisions of $155.8 million, $44.9 million, and
$31.1 million, respectively. These provisions were made to reflect management’s assessment of the inherent and
specific risk of losses relative to the growth of the portfolio.
The increases in the provision for the year ended December 31, 2016, when compared to the same period last
year, were primarily due to updated taxi medallion asset valuations, particularly the Chicago taxi medallion, and
the corresponding impact on specific reserves and charge-offs.
In recent months, the volume of taxi medallion transfers has declined and risk premiums increased. Additionally,
there is no market for new issues due to the absence of new financing. Due to these factors, amongst others, in
2016, management determined the need for an alternative valuation methodology. An independent third party was
engaged to perform an asset valuation using the discounted cash flow approach to establish a fair value range
using both the discounted cash flow approach and market transactions, as applicable.
In the latter half of 2016, management observed certain new market transfers for which additional information
could not be obtained to conclude whether or not the transactions were orderly. Due to the lack of transparency
into the transaction details, as well as consistent market prices noted, we incorporated the market transfers into
the valuation. Specifically, both recent transfer prices and the discounted cash flow model valuation output were
weighted to derive medallion values. The value declines resulted in an increase in related specific reserves, as
well as total taxi medallion portfolio charge-offs of $129.2 million in 2016, including $108.6 million of the Chicago
portfolio.
For the year ended December 31, 2016, offsetting this increase was a reserve release of $25.7 million in the
commercial real estate portfolio allowance due to an update of the portfolio’s ALLL general reserve loss factors
during the year. Annually, we analyze our ALLL methodology to assess whether updates are necessary based on
various considerations including current market conditions, portfolio trends and industry information. Historically,
proxy loss factors based on current industry studies were utilized in the commercial real estate portfolio’s general
reserve calculation. During 2016, based on our most recent stress testing results, continued credit metric
81
comparison to our portfolio’s history, as well as credit metric comparison to our peers, we used the Bank’s own
loss history to derive the portfolio’s loss factors.
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, 2016
ALLL:
Credit-rated loans
Non-rated loans
Commercial Real
Estate
1-4 Family
Residential Property
Commercial &
Industrial
Commercial
Residential
Mortgages
Consumer
Total
Individually evaluated for impairment
$
24
Collectively evaluated for impairment
114,343
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
As of December 31, 2015
ALLL:
10,548
22,835,028
Individually evaluated for impairment
$
977
Collectively evaluated for impairment
127,453
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
14,300
18,256,423
-
637
-
415,848
6
1,676
4,071
397,707
34,695
57,729
299,683
5,131,501
13,215
43,071
205,407
4,540,219
101
1,126
202
47,880
127
1,331
254
42,961
3,382
1,261
8,137
260,364
4,226
2,600
8,761
293,218
2
195
38,204
175,291
4
318,574
10,264
28,700,885
5
336
11
9,703
18,556
176,467
232,804
23,540,231
The following table allocates our ALLL to the respective portfolio categories and includes the percentage of loans
in each category to total loans at the dates indicated:
(dollars in thousands)
Mortgage Loans:
2016
2015
2014
2013
2012
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
December 31,
Multi-family residential property
$
71,053
49.51%
82,382
49.73%
63,091
48.26%
47,814
49.14%
31,292
44.84%
Commercial property
40,801
27.55%
45,497
26.81%
32,910
24.04%
27,943
23.19%
23,087
25.66%
1-4 family residential property
Home equity lines of credit
Construction and land
Other loans:
2,117
3,182
2,514
1.84%
0.51%
1.67%
3,598
4,931
558
2.27%
0.69%
0.32%
7,178
3,522
477
2.60%
0.90%
0.36%
3,600
1,406
1,323
2.57%
1.26%
0.93%
4,794
1,099
1,127
3.14%
1.95%
1.02%
Commercial and industrial
35,363
16.72%
34,551
16.80%
48,371
19.24%
49,465
18.68%
42,518
18.69%
New York City taxi medallions
Chicago tax medallions
Philadelphia tax medallions
Consumer
Total
44,319
12,152
1,797
197
1.96%
0.19%
0.01%
0.04%
14,536
8,107
522
341
2.60%
0.71%
0.03%
0.04%
3,841
4,502
42
458
3.52%
0.98%
0.04%
0.06%
1,907
808
37
768
2.89%
1.20%
0.06%
0.08%
2,024
789
50
653
3.24%
1.27%
0.08%
0.11%
$
213,495
100.00%
195,023
100.00%
164,392
100.00%
135,071
100.00%
107,433
100.00%
82
Summary of Loan Loss Experience
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:
(dollars in thousands)
Beginning balance - ALLL
Charge-offs:
Credit-rated commercial loans
Non-rated commercial loans
Residential mortgages
Consumer loans
Total charge-offs
Recoveries:
Credit-rated commercial loans
Non-rated commercial loans
Residential mortgages
Consumer loans
Total recoveries
Net charge-offs
Provision
Ending balance - ALLL
Ratios:
ALLL to total loans
Net charge-offs to average loans
Years ended December 31,
2016
2015
2014
2013
2012
$
195,023
164,392
135,071
107,433
86,162
(141,981)
(1,041)
(151)
(195)
(19,732)
(1,209)
(1,103)
(186)
(143,368)
(22,230)
5,152
812
21
81
6,066
(137,302)
155,774
$
213,495
0.74%
0.52%
5,950
1,171
656
170
7,947
(14,283)
44,914
195,023
0.82%
0.07%
(4,586)
(1,297)
(1,597)
(380)
(7,860)
4,764
701
460
146
6,071
(1,789)
31,110
164,392
0.92%
0.01%
(14,137)
(1,384)
(753)
(407)
(18,657)
(2,439)
(635)
(425)
(16,681)
(22,156)
1,309
1,166
33
168
2,676
(14,005)
41,643
135,071
1.00%
0.12%
262
1,540
4
194
2,000
(20,156)
41,427
107,433
1.10%
0.25%
Our net charge-offs during 2016 increased to $137.3 million compared to $14.3 million for the prior year.
Significant charge-offs during 2016 consisted of 383 taxi medallion loans, related to 288 taxi medallion
relationships, totaling $129.2 million. These charge-offs principally related to the Chicago taxi medallion portfolio.
Other significant charge-offs include six commercial and industrial loans totaling $5.9 million.
Net Deferred Tax Asset
At December 31, 2016, 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 prospectively,
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.
83
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 and lease losses
Income on leased assets
Write-down for other-than-temporary impairment of securities
Unearned compensation - restricted stock
Non-accrual interest
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 - leased assets
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,
2016
2015
$
88,541
55,038
11,605
14,621
923
3,417
174,145
29,727
9,042
212,914
138,244
1,098
13,372
152,714
-
152,714
60,200
$
80,876
32,689
17,876
12,751
1,583
402
146,177
-
10,293
156,470
103,696
752
11,586
116,034
3,559
119,593
36,877
In accordance with GAAP, as of December 31, 2015, we revalued our New York City deferred tax assets and
liabilities in consideration of the New York City tax legislation changes that went into effect during April 2015. The
revaluation resulted in an immaterial decrease to our net deferred tax asset. For more information, refer to the
income taxes discussion under Results of Operations for the year ended December 31, 2015.
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
Core deposits, which excludes time deposits, increased $4.70 billion to $30.52 billion as of December 31, 2016
from $25.82 billion as of December 31, 2015. The increase is due to the addition of new private client banking
teams, as well as additional deposits raised by our existing private client banking teams.
84
The following table presents the composition of our deposit accounts as of the dates indicated:
(dollars in thousands)
Amount
Percentage
Amount
Percentage
December 31,
2016
2015
Personal demand deposit accounts (1)
Business demand deposit accounts (1)
Brokered demand deposit accounts (1)
Rent security
Personal NOW
Business NOW
Personal money market accounts
Business money market accounts
Brokered money market accounts
Personal time deposits
Business time deposits
Brokered time deposits
Total
Demand deposit accounts (1)
NOW
Money market accounts
Time deposits
Brokered deposits (2)
Total
Personal
Business
Brokered deposits (2)
Total
$
826,382
9,642,408
51,739
199,243
51,167
3,857,269
4,073,418
11,677,906
137,871
298,742
620,607
424,508
31,861,260
10,468,790
3,908,436
15,950,567
919,349
614,118
31,861,260
5,249,709
25,997,433
614,118
31,861,260
$
$
$
$
$
2.59%
30.26%
0.16%
0.63%
0.16%
12.11%
12.78%
36.66%
0.43%
0.94%
1.95%
1.33%
100.00%
32.85%
12.27%
50.07%
2.89%
1.92%
100.00%
16.47%
81.61%
1.92%
100.00%
693,297
7,801,557
72,446
164,014
46,650
2,687,552
3,625,105
10,541,963
187,254
328,031
430,016
196,038
26,773,923
8,494,854
2,734,202
14,331,082
758,047
455,738
26,773,923
4,693,083
21,625,102
455,738
26,773,923
2.59%
29.14%
0.27%
0.61%
0.17%
10.04%
13.54%
39.37%
0.70%
1.23%
1.61%
0.73%
100.00%
31.73%
10.21%
53.52%
2.84%
1.70%
100.00%
17.53%
80.77%
1.70%
100.00%
(1) Non-interest bearing.
(2)
Includes non-interest bearing deposits of $51.7 million and $72.4 million as of December 31, 2016 and December 31,
2015, respectively.
The following table presents our average deposits and average interest rates accrued for the periods indicated:
Years ended December 31,
(dollars in thousands)
NOW and interest-bearing demand
Money market
Time deposits
Non-interest-bearing demand deposits
Total deposits
2016
Average
Balance
Average
Rate
$
3,591,984
15,399,825
1,286,775
9,469,240
29,747,824
$
0.46%
0.61%
0.97%
-
0.41%
2015
Average
Balance
Average
Rate
2,208,678
14,109,742
969,556
8,005,589
25,293,565
0.41%
0.59%
1.10%
-
0.41%
85
The following table presents time deposits of $100,000 or more by their maturity:
(in thousands)
Three months or less
Over three months through six months
Over six months through one year
Over one year
Total (1)
(1) Includes brokered time deposits of $401.3 million.
$
December 31, 2016
345,252
369,016
234,828
295,625
1,244,721
$
Borrowings
The following table presents information regarding our borrowings:
At or for the year ended December 31,
2016
2015
2014
(dollars in thousands)
Amount
Weighted
Average
Rate
Weighted
Average
Rate
Weighted
Average
Rate
Amount
Amount
Federal Home Loan Bank advances
Federal Home Loan Bank repurchase
agreements
Repurchase agreements
Federal funds purchased
Subordinated debt (1)
Total borrowings
Maximum total outstanding at any
month-end
Average balance
Average rate
$
1,975,900
1.17%
2,270,163
0.93%
515,163
0.92%
1.98%
2.76%
0.79%
5.30%
1.63%
75,000
350,000
543,000
260,000
$
3,203,900
$
3,722,000
$
2,961,425
1.11%
2.63%
0.54%
0.00%
1.11%
450,000
420,000
397,000
-
3,537,163
3,537,163
2,109,763
0.89%
2.48%
0.26%
0.00%
1.35%
820,000
620,000
95,000
-
2,050,163
2,815,313
2,443,596
1.57%
1.28%
1.21%
(1) Excludes $3.4 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the
Consolidated Statements of Financial Condition.
At December 31, 2016, our borrowings were $3.20 billion, or 9.1% of our funding liabilities, compared to $3.54
billion, or 11.7% of our funding liabilities, at December 31, 2015. The decrease in our borrowings, when compared
to December 31, 2015, reflects the impact of the 2016 common stock offering which was used to meet funding
needs as a result of our continued loan growth, instead of short-term borrowings. These borrowings, excluding
our issued subordinated debt, are collateralized by mortgage-backed and collateralized mortgage obligation
securities, along with commercial real estate loans. We also hold $132.6 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 and loans available for pledging, we estimate our available
consolidated capacity for additional borrowings to be approximately $8.49 billion at December 31, 2016.
86
The following table presents the maturity or re-pricing of our borrowings at December 31, 2016:
Maturity or repricing period (in thousands)
3 months or less
3 - 12 months
1 - 3 years
Over 3 years (1)
Total
$
1,158,000
1,145,900
610,000
290,000
3,203,900
(1) Excludes $3.4 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount
in the
Fair Value of Financial Instruments
Our AFS securities, which represent $6.34 billion of our total assets at December 31, 2016, are carried at fair
value. Held-for-sale loans totaling $559.5 million at December 31, 2016, are carried at the lower of cost or fair
value.
U.S. GAAP establishes a three-level fair value hierarchy that prioritizes techniques used to measure the fair value
of assets and liabilities, based on the transparency and reliability of inputs to valuation methodologies. An
instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. Therefore, for assets classified in Levels 1 and 2 of the hierarchy where inputs are principally
based on observable market data, there is less judgment applied in arriving at a fair value measurement. For
instruments classified within Level 3 of the hierarchy, judgments are more significant.
Where available, 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 price discrepancy greater than thresholds established
by management, between 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, the valuations are determined based upon 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
participants 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.
87
Contractual Obligations
The following table presents our significant contractual obligations as of December 31, 2016:
(in thousands)
Borrowings (1)
Operating leases
Investments in qualified affordable housing projects
Information technology contract
Total contractual cash obligations
Less than
1 year
$
2,303,900
21,091
22,164
14,944
2,362,099
$
Payments due by period
1 - 3
years
610,000
44,418
53,432
25,004
732,854
3 - 5
years
More than
5 years
30,000
40,390
12,399
20,604
103,393
260,000
103,908
23,856
1,080
388,844
Total
3,203,900
209,807
111,851
61,632
3,587,190
(1) Excludes $3.4 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the Consolidated Statements of
Financial Condition.
On April 19, 2016, the Bank issued $260 million aggregate principal amount of Variable Rate Subordinated Notes
due April 19, 2026 to institutional investors. The Notes accrue interest at a fixed rate of 5.30% for the first five
years until April 2021. After this date and for the remaining five years of the Notes’ term, interest will accrue at a
variable rate of LIBOR plus 3.92%. Additionally, during the variable interest rate period and at the Bank’s option,
the Notes can be prepaid by the Bank. Net proceeds from this offering were used for general corporate purposes
and to facilitate our continued growth.
Off-Balance Sheet Arrangements
In the normal course of business, we have various outstanding commitments and contingent liabilities 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.
88
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,
2016
2015
$
1,310,736
376,660
17,801
1,482
1,706,679
$
935,083
285,187
27,055
1,342
1,248,667
For further discussion of our commitments and contingent liabilities, see Note 19 to our Consolidated Financial
Statements.
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.
Basel III Requirements
On July 9, 2013, the FDIC approved final rules that substantially amended the regulatory risk-based capital rules
applicable to Signature Bank, effective beginning January 1, 2015. The FDIC’s final capital rules include new risk-
based capital and leverage ratios, which are being phased in from 2015 to 2019, and 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 represented the following changes to the bank’s capital
adequacy requirements: (i) a new common equity Tier 1 risk-based capital ratio; (ii) an increase in the Tier 1 risk-
based capital ratio minimum requirement from 4.0% to 6.0%; and (iii) a Tier 1 leverage ratio minimum requirement
of 4.0% for all institutions, where prior to January 1, 2015, banks that received the highest rating of five categories
used by regulators to rate banks and were not anticipating or experiencing any significant growth were required to
maintain a leverage capital ratio of at least 3.0%. The final rules also established a “capital conservation buffer”
above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1
capital, to be phased over several years. The phase-in of the capital conservation buffer began on January 1,
2016, at a level of 0.625% of risk-weighted assets for 2016 and increased to 1.250% for 2017. The minimum
buffer then will be 1.875% for 2018 and 2.500% for 2019 and thereafter, resulting in the following effective
minimum capital 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 set forth certain changes for the calculation of risk-weighted assets, which we have been required
to utilize since 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
89
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 are in compliance
with the requirements as set forth in the final rules as they are presently in effect.
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 (“PCA”) provisions: “well capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” As of
December 31, 2016, the capital ratios of Signature Bank exceeded the minimum ratios established for a “well
capitalized” institution.
As of January 1, 2015, the definitions of these capital categories changed in accordance with the federal banking
agencies’ final rule to implement Basel III and new minimum leverage and risk-based capital requirements. Under
the revised PCA capital category definitions, we will be categorized as “well capitalized” if we (i) have a total risk-
based capital ratio of 10.0% or greater; (ii) have a Tier 1 risk-based capital ratio of 8.0% or greater; (iii) have a
common equity Tier 1 risk-based capital ratio of 6.5% or greater; (iv) have a leverage ratio of 5.0% or greater; and
(v) are not subject to any written agreement, order, capital directive, or PCA directive issued by the FDIC to meet
and maintain a specific capital level.
We will be categorized as “adequately capitalized” if we have (i) a total risk-based capital ratio of 8.0% or greater;
(ii) a Tier 1 risk-based capital ratio of 6.0% or greater; (iii) a common equity Tier 1 capital ratio of 4.5% or greater;
and (iv) a leverage ratio of 4.0% or greater (3.0% if we are rated in the highest supervisory category).
We will be categorized as “undercapitalized” if we have (i) a total risk-based capital ratio that is less than 8.0%;
(ii) a Tier 1 risk-based capital ratio that is less than 6.0%; (iii) a common equity Tier 1 capital ratio that is less than
4.5%; or (iv) a leverage ratio that is less than 4.0%.
We will be categorized as “significantly undercapitalized” if we have (i) a total risk-based capital ratio that is less
than 6.0%; (ii) a Tier 1 risk-based capital ratio that is less than 4.0%; (iii) a common equity Tier 1 capital ratio that
is less than 3.0%; or (iv) a leverage ratio that is less than 3.0%.
We will 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.
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2016:
Required for Capital
Adequacy Purposes
Ratio
Amount
2,459,612
1,844,709
1,383,532
1,526,537
8.00%
6.00%
4.50%
4.00%
Required to be
Well Capitalized
Amount
3,074,515
2,459,612
1,998,434
1,908,171
Ratio
10.00%
8.00%
6.50%
5.00%
(dollars in thousands)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
$
Amount
4,137,271
3,665,855
3,665,885
3,665,855
Ratio
13.46%
11.92%
11.92%
9.61%
90
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2015:
(dollars in thousands)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
$
Amount
3,096,303
2,900,632
2,900,632
2,900,632
Ratio
12.10%
11.33%
11.33%
8.87%
Amount
2,047,502
1,535,626
1,151,720
1,307,379
Required for Capital
Adequacy Purposes
Ratio
Required to be
Well Capitalized
Amount
2,559,377
2,047,502
1,663,595
1,634,224
Ratio
10.00%
8.00%
6.50%
5.00%
8.00%
6.00%
4.50%
4.00%
During the first quarter of 2016, we raised $296.1 million in net proceeds in a common stock offering further
strengthening our overall capital position. Additionally, on April 19, 2016, the Bank issued $260 million of
subordinated debt to institutional investors further strengthening our Tier 2 capital position.
Stress Testing
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.
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.
On March 31, 2015, we submitted stress testing results using data as of September 30, 2014, which we publicly
disclosed on June 18, 2015. In 2016, we submitted our stress testing results on July 28th based on data as of
December 31, 2015, which we publicly disclosed on October 24, 2016. The stress testing results affirm the
adequacy of the Bank’s capital, even under severe economic conditions.
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,
2016, 2015 and 2014, while we raised capital in common stock offerings in 2014 and 2016, and issued $260.0
million in subordinated debt to institutional investors in 2016 to facilitate continued growth, 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. We also opportunistically access
capital markets from time to time to obtain additional capital to support our growth as evidenced by the January
and February 2016 common stock offering, as well as the April 2016 subordinated debt offering. See the Recent
Highlights section earlier in this report for additional information regarding these offerings.
91
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, 2016, our FHLB borrowings totaled $2.05 billion with an average rate of
1.20% that mature by December 2019. Included in this total is $75.0 million of securities sold under repurchase
agreements to the FHLB.
We also have repurchase agreement lines with several leading financial institutions totaling $2.23 billion. At
December 31, 2016, we had $350.0 million of securities sold under repurchase agreements to four of these
institutions. These borrowings have an average rate of 2.76% and mature by November 2020.
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 and loans available for pledging, we estimate our available
consolidated capacity for additional borrowings to be approximately $8.49 billion as of December 31, 2016.
The federal banking agencies in September 2014 issued a final rule that implements a new “liquidity coverage
ratio” (“LCR Rule”) based upon Basel III requirements that for the first time regulate bank liquidity in detail. The
LCR Rule does not apply to depository institutions, including Signature Bank, with less than $50 billion in
consolidated assets. Based on our anticipated rate of growth, we do not expect that the LCR rule will impact our
operations or financial condition over the next year.
92
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, 2016, 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.
93
The following table indicates the sensitivity of projected annualized net interest income to the interest rate
movements described above at December 31, 2016:
(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
$
$
1,198,005
1,172,794
1,147,622
1,121,226
1,094,049
1,198,005
1,163,174
1,129,970
1,093,500
1,055,824
-
(2.1)%
(4.2)%
(6.4)%
(8.7)%
-
(2.9)%
(5.7)%
(8.7)%
(11.9)%
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, 2016,
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, 2016 to the interest rate
movements described above (base case market value of equity is $5.91 billion):
(dollars in thousands)
Up 100 basis points
Up 200 basis points
Up 300 basis points
Up 400 basis points
$
Sensitivity
(37,205)
(293,397)
(694,003)
(1,141,024)
Change
from Base
(0.6)%
(5.0)%
(11.7)%
(19.3)%
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.
94
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For our Consolidated Financial Statements, see index on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s principal executive officer and principal
financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
‘‘Exchange Act’’)) as of the end of the period covered by this report. Based on such evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the
Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act, including this report, is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding the required disclosure.
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, 2016, management evaluated the effectiveness of internal control over financial reporting
based on the framework in Internal Control—Integrated Framework (2013) 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, 2016 is effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2016 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, 2016. The report of KPMG LLP on the effectiveness of the
Company’s internal control over financial reporting is included below.
95
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Signature Bank:
We have audited Signature Bank and subsidiaries’ (the “Company”) internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) 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, 2016, based on criteria established in Internal Control – Integrated Framework (2013) 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, 2016 and
2015, 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, 2016, and our report
dated March 1, 2017 expressed an unqualified opinion on those consolidated financial statements.
New York, New York
March 1, 2017
96
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 20, 2017.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 20, 2017.
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 20, 2017.
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 20, 2017.
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 20, 2017.
97
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-54. 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
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.)
10.15 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 Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
98
Exhibit No.
Exhibit
31.2
Certification of the Principal 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
99
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: March 1, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
March 1, 2017 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)
Director
/s/ Derrick D. Cephas
(Derrick D. Cephas)
Director
/s/ ALFONSE M. D’AMATO
(Alfonse M. D’Amato)
Director
/s/ BARNEY FRANK
(Barney Frank)
Director
/s/ JUDITH A. HUNTINGTON
(Judith A. Huntington)
Director
/s/ JEFFREY W. MESHEL
(Jeffrey W. Meshel)
Director
100
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
Consolidated Statements of Financial Condition as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . .
F-3
Consolidated Statements of Income for the years ended December 31, 2016, 2015, and 2014 . . . . . . . . . . F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015, and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016,
2015, and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015, and 2014 . . . . . .
F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-8
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Signature Bank:
We have audited the accompanying consolidated statements of financial condition of Signature Bank
and subsidiaries (the “Company”) as of December 31, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2016, 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, 2016, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 1, 2017 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
New York, New York
March 1, 2017
F-2
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except shares and per share amounts)
ASSETS
Cash and due from banks
Short-term investments
Total cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity (fair value $2,027,393 at December 31, 2016
and $2,137,913 at December 31, 2015)
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 borrowings
Subordinated debt
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Preferred stock, par value $.01 per share; 61,000,000 shares authorized;
none issued at December 31, 2016 and December 31, 2015
Common stock, par value $.01 per share; 64,000,000 shares authorized;
54,610,593 shares issued and outstanding at December 31, 2016;
51,929,064 shares issued and outstanding at December 31, 2015;
Additional paid-in capital
Retained earnings
Treasury stock, none at December 31, 2016 and 41,087 shares at December 31, 2015
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
December 31,
2016
2015
$
499,856
39,095
538,951
6,335,347
2,038,125
132,629
559,528
28,829,670
50,698
102,963
459,700
39,047,611
$
311,254
30,292
341,546
6,240,761
2,133,144
154,405
456,358
23,597,541
44,161
94,006
388,623
33,450,545
$
10,520,529
21,340,731
31,861,260
8,567,300
18,206,623
26,773,923
893,000
2,050,900
256,588
373,599
35,435,347
817,000
2,720,163
-
247,625
30,558,711
-
-
546
1,763,100
1,903,332
-
(54,714)
3,612,264
39,047,611
$
509
1,399,501
1,507,011
(5,684)
(9,503)
2,891,834
33,450,545
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 borrowings
Subordinated debt
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
Other losses
Total non-interest income
NON-INTEREST EXPENSE
Salaries and benefits
Occupancy and equipment
Data processing
FDIC assessment fees
Professional fees
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,
2015
2016
2014
$
4,572
1,042,717
198,001
62,834
9,027
1,317,151
3,885
839,782
191,661
66,633
4,987
1,106,948
3,338
652,285
193,629
69,762
5,259
924,273
123,285
102,905
93,494
11,857
24,565
10,202
169,909
1,147,242
155,774
991,468
11,474
21,846
7,711
6,750
(986)
559
(427)
(4,604)
42,750
246,406
29,140
20,343
21,265
9,671
49,946
376,771
657,447
261,123
396,324
$
13,885
13,057
-
129,847
977,101
44,914
932,187
11,418
21,515
1,209
7,107
(2,264)
1,301
(963)
(3,182)
37,104
230,081
26,024
16,649
15,885
9,460
43,115
341,214
628,077
255,012
373,065
16,965
12,663
-
123,122
801,151
31,110
770,041
10,649
19,250
5,272
5,377
(3,930)
2,206
(1,724)
(3,842)
34,982
196,679
22,490
15,012
12,449
8,192
38,422
293,244
511,779
215,075
296,704
$
$
7.42
7.37
7.35
7.27
6.05
5.95
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 unrealized gains (losses) on securities
Tax effect
Net of tax
At or for the years ended December 31,
2016
2015
2014
$
396,324
373,065
296,704
(72,418)
30,032
(42,386)
(40,020)
16,248
(23,772)
114,166
(47,984)
66,182
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 losses on securities related to noncredit factors
Tax effect
Net of tax
Reclassification adjustment for other-than-temporary impairment losses on
securities related to credit factors included in net income
Tax effect
Net of tax
(7,711)
3,198
(4,513)
3,015
(1,250)
1,765
(559)
232
(327)
427
(177)
250
(1,209)
493
(716)
3,468
(1,408)
2,060
(1,301)
532
(769)
963
(393)
570
Total other comprehensive income (loss), net of tax
Comprehensive income, net of tax
(45,211)
351,113
$
(22,627)
350,438
(5,272)
2,227
(3,045)
3,357
(1,412)
1,945
(2,206)
936
(1,270)
1,724
(728)
996
64,808
361,512
See accompanying notes to Consolidated Financial Statements.
F-5
SIGNATURE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Additional
paid-in
capital
Retained
earnings
Treasury
stock
(in thousands)
Balance at December 31, 2013
Common stock issued
Stock options activity, net
Restricted stock activity, net
Stock warrant activity, net
Other
Net income
Other comprehensive income, net of tax
Common stock
$
473
24
3
3
-
-
-
-
1,013,900
295,893
380
28,774
9,714
-
-
-
837,250
-
-
-
-
(4)
296,704
-
Balance at December 31, 2014
$
503
1,348,661
1,133,950
Common stock issued
Stock options activity, net
Restricted stock activity, net
Stock warrant activity, net
Other
Net income
Other comprehensive loss, net of tax
4
2
-
-
-
-
-
37
751
44,118
5,934
-
-
-
-
-
-
-
(4)
373,065
-
Balance at December 31, 2015
$
509
1,399,501
1,507,011
(5,684)
Common stock issued
Stock options activity, net
Restricted stock activity, net
Stock warrant activity, net
Other
Net income
Other comprehensive loss, net of tax
24
-
13
-
-
-
-
318,764
-
44,744
91
-
-
-
-
-
-
-
(3)
396,324
-
Balance at December 31, 2016
$
546
1,763,100
1,903,332
-
-
5,775
(91)
-
-
-
-
-
-
-
9,717
(9,717)
-
-
-
-
-
30
222
(5,936)
-
-
-
Accumulated
other
comprehensive
income (loss)
(51,684)
-
-
-
-
-
-
64,808
13,124
-
-
-
-
-
-
(22,627)
(9,503)
-
-
-
-
-
-
(45,211)
(54,714)
Total
shareholders'
equity
1,799,939
295,917
380
38,494
-
(4)
296,704
64,808
2,496,238
37
781
44,344
-
(4)
373,065
(22,627)
2,891,834
318,788
-
50,532
-
(3)
396,324
(45,211)
3,612,264
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 on securities and borrowings
Stock-based compensation expense
Net gains on sales of securities and loans
Purchases of loans held for sale
Proceeds from sales and principal repayments of loans held for sale
Net increase in accrued interest and dividends receivable
Deferred income tax expense
Net (increase) decrease 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
Maturities, redemptions, calls and principal repayments on securities AFS
Purchases of securities held-to-maturity ("HTM")
Maturities, redemptions, calls and principal repayments on securities HTM
Purchases of Federal Home Loan Bank stock
Proceeds from redemptions 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 borrowings
Repayment of Federal Home Loan Bank borrowings
Proceeds from the issuance of other borrowings
Repayment of other borrowings
Proceeds from the issuance of subordinated debt, net
Tax benefit from stock-based compensation
Issuance of common stock and exercise of options
Other
Net cash provided by financing activities
Net increase 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:
Years ended December 31,
2015
2016
2014
$
396,324
373,065
296,704
10,086
155,774
427
106,257
41,656
(14,461)
9,044
44,914
963
103,519
34,674
(8,316)
8,904
31,110
1,724
94,355
27,690
(10,649)
(1,894,896)
(1,462,091)
(1,321,745)
1,660,081
1,469,648
1,256,077
(8,957)
8,712
(14,319)
1,326
(47,752)
(84,766)
125,975
539,226
95,660
563,321
(8,019)
36,600
5,473
2,650
420,874
(1,632,908)
(1,401,685)
(1,450,961)
204,668
80,302
1,308,463
1,116,972
191,730
797,027
(171,129)
(112,625)
(168,576)
252,383
173,161
122,608
(322,441)
(68,067)
344,217
-
-
44,447
(5,386,218)
(5,947,834)
(4,338,604)
(16,623)
(12,209)
(13,569)
(5,419,588)
(6,171,985)
(4,815,898)
1,953,229
1,502,341
1,673,476
3,134,108
2,651,307
3,889,702
1,225,000
1,935,000
620,000
(1,894,263)
(550,000)
(1,590,150)
568,000
397,000
220,000
(492,000)
(295,000)
(570,000)
256,032
8,878
318,786
(3)
-
10,145
343
(4)
-
11,067
296,034
(4)
5,077,767
5,651,132
4,550,125
197,405
341,546
538,951
$
42,468
299,078
341,546
$
158,838
$
265,781
129,882
229,952
155,101
143,977
299,078
123,817
189,314
Transfer of loans to repossessed assets, at fair value
$
19,061
2,388
245
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 30 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 their senior managers.
The Bank operates Signature Financial LLC (“Signature Financial”), a specialty finance subsidiary focused on
equipment finance and leasing, transportation, taxi medallion, commercial marine, and national franchise financing
and/or leasing. Additionally, through our Signature Public Funding Corporation (“Signature Public Funding”)
subsidiary, the Bank provides a range of municipal finance and tax-exempt lending and leasing products to
government entities throughout the country, including state and local governments, school districts, fire and police
and other municipal entities. The Bank also operates Signature Securities Group Corporation (“Signature
Securities”), 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 of the Bank have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”) and practices within the banking industry. 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. Certain reclassifications have been made to prior period
financial statements to conform to the current period’s presentation.
(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 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.
During 2016, there was a change in estimate related to the commercial real estate portfolios general reserve loss
factors. See Note 8 to our Consolidated Financial Statements for further discussion.
(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 may consist of federal funds sold, interest-bearing deposits with banks and money
market mutual funds.
F-8
Cash and cash equivalents at December 31, 2016 consisted of cash and due from banks of $499.9 million,
interest-bearing deposits with banks of $6.7 million and money market mutual funds of $32.4 million. Cash and
cash equivalents at December 31, 2015 consisted of cash and due from banks of $311.3 million, interest-bearing
deposits with banks of $3.3 million and money market mutual funds of $27.0 million.
We are required by the Federal Reserve System to maintain non-interest bearing cash reserves equal to a
percentage of certain deposits. The reserve requirement amounted to $388.3 million and $314.5 million for the
periods that included December 31, 2016 and 2015, 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.
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 (loss).
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
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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, which are not quoted on an exchange and not considered to be readily
marketable are recorded at cost, less impairment (if any).
(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/amortized 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. Additionally, an accruing loan that is modified as a troubled debt restructuring (“TDR”) may remain in
accrual status if, based on a credit analysis, collection of principal and interest in accordance with the modified
terms is reasonably assured, and the borrower demonstrated sustained historical repayment performance for a
reasonable period prior to modification. In all cases, loans are placed on nonaccrual status or charged-off at an
earlier date if collection of principal or interest is considered doubtful.
Once a loan is placed on nonaccrual status, our accounting policies are applied consistently, regardless of loan
type. All interest previously accrued but not collected for loans that are placed on nonaccrual status is reversed
against interest income. Payments received on nonaccrual 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 nonaccrual loans, TDRs and certain matured past due loans. Loans classified as TDRs
include those loans where a borrower experiences financial difficulty and the Bank made 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 and environmental conditions affecting the portfolio. This estimation is inherently subjective as it
requires measures that are susceptible to significant revision as more information becomes available.
Our methodology to calculate the general reserve portion of the ALLL consists of several components: First, we
determine an ALLL based on quantitative loss factors for loans evaluated collectively for impairment. The
quantitative loss factors are based primarily on historical loss rates, after considering loan type, historical loss and
delinquency experience, and loss emergence periods. The quantitative loss factors applied in the methodology are
periodically re-evaluated and adjusted to reflect changes in historical loss levels, loss emergence periods, or other
risks. Lastly, we allocate an ALLL based on qualitative loss factors. These qualitative loss factors are designed to
account for losses that may not be provided for by the quantitative loss component due to other factors evaluated
by management.
More specifically, to determine the general reserve portion of our ALLL, we segment the loan portfolio into various
components and apply various loss factors to estimate the amount of probable losses. The largest segment of our
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loan portfolio is comprised of credit-rated commercial loans, comprising 98.9% of our total loan portfolio, excluding
loans held for sale, as of December 31, 2016. Our credit-rated commercial loans are further segmented by
portfolio including commercial real estate loans, commercial and industrial loans, and commercial loans secured
by 1-4 family residential property. Certain commercial and industrial loans are analyzed on a more granular level
such as specialty finance loans and taxi medallion loans. For each loan portfolio 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) history of the borrower’s 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 of 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 within each loan portfolio segment are aggregated by
credit rating, and we estimate the allowance for losses for each credit rating within each portfolio using loss factors
based on the portfolio’s historical loss experience. We supplement our historical loss experience by considering
qualitative factors that may cause estimated losses to differ from our historical losses. These qualitative factors
are intended to address developing external and environmental trends, and include adjustments for items such as
changes in current economic and business conditions, changes in the nature and volume of the loan portfolio, the
existence and effects of credit concentrations, the trend and severity of our problem loans, along with other
external factors such as competition and legal and regulatory requirements. These qualitative adjustments reflect
the imprecision that is inherent in the estimation of probable loan losses, and are intended to ensure adequacy of
the overall allowance amount.
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 include those loans
with higher-risk attributes, such as loan facilities with delinquencies, and generally cover, in aggregate, between
30-40% of the commercial loan portfolio, including a large sample of commercial loans over $500,000 with
adverse credit ratings, as well as pass/watch 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 assess
qualitative factors by segment to estimate the required allowance. Non-rated loans comprise 1.1% of our total
loan portfolio, excluding loans held for sale, as of December 31, 2016.
Finally, we allocate an ALLL based on qualitative loss factors dependent on both economic and portfolio-specific
data that correlates with loan losses. These qualitative loss factors are designed to account for losses that may not
be provided for by the quantitative loss component due to other factors evaluated by management, which include,
but are not limited to:
• Changes in lending policies and procedures, including changes in underwriting standards and
collection, and charge-off and recovery practices;
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• Changes in economic and business conditions and developments that affect the collectability of the
portfolio, including the condition of various market segments;
• Changes in the nature and volume of the portfolio and in the terms of loans;
• Changes in the volume and severity of past-due loans, the volume of nonaccrual loans, and the volume
and severity of adversely classified or graded loans;
• Changes in the quality of our loan review system;
• Changes in the value of underlying collateral;
• The existence and effect of any concentrations of credit, and changes in the level of such
concentrations;
• Changes in the experience, ability, and depth of lending management and other relevant staff; and
• The effect of other external factors, such as competition and legal and regulatory requirements.
We also assess the need for a specific allowance on impaired loans. A loan is considered impaired when, based
on current information and events, it is probable that we will be unable to collect all amounts due in accordance
with the original contractual terms of the loan agreement, including scheduled principal and interest payments. We
consider all nonaccrual 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. We
charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible.
For collateral-dependent impaired loans in excess of $500,000, 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 $500,000, 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. In
developing the estimated cash flows (or expected future receipt of principal and interest payments), weight is
given to the evidence consistent with the extent to which it can be verified objectively. In addition, all information is
considered, including environmental factors, such as existing industry, geographical, economic and political
factors. 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 impaired.
Due to the low volume of market transfer activity and an increase in risk premiums in recent quarters, the taxi
medallion collateral fair value is derived for each medallion type using both recent market transfer activity, to the
extent available, as well as a third-party developed discounted cash flow model. Recent market transfers
published by the city are averaged to derive the market activity data point. In analyzing transfer activity,
Management does not consider transaction outliers in the average calculation nor transactions which are
confirmed through third party sources to not be orderly (e.g., non-arms-length). For the discounted cash flow
model data point, significant inputs include the discount rate, fare/lease revenue and associated expenses such as
vehicle costs, fuel, credit card processing fees, repair costs, and insurance premiums. At period end, the two
valuation data points create the fair value range. To determine the final fair value within the established range for
each medallion type, a weight is ascribed to each valuation output dependent on recent market transfer activity.
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. Management is primarily responsible for
assessing the overall adequacy of the allowance on a quarterly basis. In addition, reserve adequacy is also
assessed by an internal Loan Quality Review Committee, which includes members of senior management,
accounting, credit and risk management, and is presented to our Board of Directors for their review and
consideration on a quarterly basis. Reserve adequacy is also assessed by our independent risk management
function, which performs independent credit reviews and a validation of the allowance model employed.
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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, if appropriate. 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.
Additionally, an accruing loan that is modified as a TDR may remain in accrual status if, based on a credit
analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the
borrower demonstrated sustained historical repayment performance for a reasonable period prior to modification.
A nonaccrual 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 TDR loans,
however, 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, cash-flow
models, 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, and Loan Origination Costs
Loan origination and commitment fees, and certain loan origination costs, 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 or
costs 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. In addition, when sold, the SBA loans are removed from our Consolidated
Statements of Financial Condition. Additionally, 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
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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 depreciated over seven years and equipment, computer
hardware, and computer software are normally amortized over three 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.
(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 $63.8 million
at December 31, 2016, and $65.2 million at December 31, 2015. There was no deferred acquisition cost as of
December 31, 2016 and 2015. Our investment in BOLI generated income of $2.9 million, $1.6 million, and $1.7
million for the years ended December 31, 2016, 2015, and 2014, 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 included in Other assets in the Consolidated Statements of Financial Condition and are carried at fair value,
less estimated selling costs at the date of acquisition. Any valuation adjustments at the date of acquisition are
recorded to the ALLL. Following foreclosure, management periodically performs a valuation of the property, and
the asset is carried at the lower of the carrying amount or fair value, less estimated selling costs. 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 general and administrative
expense and other losses, as appropriate. As of December 31, 2016 and 2015, our repossessed assets totaled
$19.6 million and $2.3 million, respectively, and consisted primarily of taxi medallions.
(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, 2016. 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 for federal purposes. Additionally, there are state and local tax returns filed in various other
jurisdictions on both a consolidated basis as well as a separate company 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
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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.
Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of
income tax expense in the Consolidated Statements of Income. During the years ended December 31, 2016,
2015, and 2014, we did not recognize any income tax expense attributable to interest and penalties.
(q) Stock-Based Compensation
For equity awards in exchange for employee services received, we recognize compensation expense for all stock-
based compensation awards over the requisite service period with a corresponding credit to additional paid-in capital.
For awards which have performance-based vesting conditions, recognition of stock-based compensation expense
begins when the achievement of the performance conditions is probable. As of December 31, 2016, 2015, and 2014,
we did not have awards which would vest on performance-based conditions. Compensation expense is measured
based on grant date fair value and is included in Salaries and benefits in our Consolidated Statements of Income.
(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 and warrants outstanding, and the unvested portions of restricted stock
awards. The dilutive effect is calculated using the treasury stock method.
(s) Segment Reporting
The Bank is organized into two reportable segments representing our core businesses – Commercial Banking and
Specialty Finance. To identify our reportable segments, management considers the financial information reviewed
by the Chief Operating Decision Maker (CODM), our executive compensation structure, the Bank’s internal
operating structure, nature of products and services offered, how products and services are provided to our
clients, and the nature of the regulatory environment, among other aspects pursuant to the relevant accounting
guidance. The primary determinants of our reportable segments include our internal operating structure, the nature
of products and services offered, and how products and services are provided to our clients.
(t) New Accounting Standards
(i) Not Yet Adopted
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash
Payments—Statement of Cash Flows (Topic 230), which addresses several classification issues related to
statement of cash flows presentation. The cash flow types impacted are: debt prepayment or debt extinguishment
costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination,
proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance
policies, including bank-owned life insurance policies, distributions received from equity method investees, and
beneficial interests in securitization transactions. The guidance also discusses separately identifiable cash flows
and the application of the predominance principle for cash flows with multiple class types. The amendment is
effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted and the
retrospective adoption method must be applied for each period presented upon adoption. An entity that elects
early adoption must also adopt all of the amendments in the same period. The Company is currently evaluating
the impact to its Consolidated Financial Statements, however, the impact is not expected to be material.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, which employs a new accounting model, referred to as the current
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expected credit losses (CECL) model. The standard is intended to require earlier recognition of credit losses, while
also providing additional financial reporting transparency about credit risk.
The new CECL model utilizes an “expected credit loss” measurement objective for the recognition of credit losses
for loans, loan commitments and held-to-maturity securities at the time the asset is originated or acquired. The
estimate is then adjusted each period for changes in expected credit losses. For available-for-sale debt securities
where fair value is less than cost, credit-related impairment would be recognized in an allowance for credit losses
and adjusted each period for changes in credit risk. This would replace the multiple existing impairment models in
GAAP, which generally require that a loss be incurred before it is recognized.
The standard also expands the disclosure requirements regarding an entity’s assumptions, models, and methods
for estimating the ALLL. Notably, public entities will also need to disclose the amortized cost balance for each
class of financial asset by credit quality indicator, disaggregated by the year of origination (i.e., by vintage year).
The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years and requires a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is effective. A prospective transition approach is required for debt securities
for which an other-than-temporary impairment had been recognized before the effective date. Early adoption is
permitted as of the fiscal years beginning after December 15, 2018. The CECL model represents a significant
departure from current GAAP, and may result in material changes to the Company’s accounting for financial
instruments. The Company is currently evaluating the impact to its Consolidated Financial Statements.
In April 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, which will simplify various aspects related to how share-based
payments are accounted for and presented in the financial statements. Excess tax benefits and certain tax
deficiencies for share-based payments will be recorded as income tax expense or benefit within the Consolidated
Statements of Income, rather than within Additional paid-in capital, prospectively upon adoption. Other
amendments include changes to the tax rate an employer can withhold for income taxes on vested awards without
triggering application of liability accounting, accounting for forfeitures and certain changes to presentation in the
statement of cash flows. The amendments are effective for interim and annual periods beginning after December
15, 2016. Early adoption is permitted. Certain provisions will be applied prospectively, while others will be applied
retrospectively or on a modified retrospective basis. The Company will adopt this standard in the first quarter of
2017. We evaluated the impact to our Consolidated Financial Statements and do not expect to record an opening
retained earnings adjustment. Assuming we continue to be in an excess tax benefit position, the adoption
will result in a reduction to tax expense due to the recognition of excess tax benefits as an income tax benefit
rather than in Additional paid-in capital. This will introduce volatility in income tax expense throughout the year as
restricted stock vests occur dependent on the vesting prices.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize
most leases on-balance sheet. Lessor accounting will remain substantially the same, but the ASU contains
changes intended to align lessor accounting with the lessee accounting model. The ASU will replace most existing
lease accounting guidance and require expanded quantitative and qualitative disclosures for both lessees and
lessors when it becomes effective for annual and interim periods in fiscal years beginning after December 31,
2018. Early adoption is permitted immediately and the standard requires the use of the modified retrospective
transition method. The Company is currently evaluating the impact to its Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. As it relates to the Bank, it will require equity
investments (except those accounted for under the equity method of accounting or those that result in
consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income,
thus eliminating eligibility for the current available-for-sale category. However, Federal Reserve Bank and Federal
Home Loan Bank stock are not in scope of the ASU and will continue to be presented at cost. The guidance is
effective beginning on January 1, 2018. The impact to our Consolidated Financial Statements is not expected to
be material.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an
entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
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services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it
becomes effective on January 1, 2018. Early application is permitted for annual periods beginning after December
15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company is currently evaluating the impact to its Consolidated Financial Statements.
(ii) Recently Adopted
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs, to conform the presentation of debt issuance costs to that of debt discounts
and premiums. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the
Consolidated Statements of Financial Condition as a direct reduction from the carrying amount of that debt liability.
The guidance was effective January 1, 2016. As a result of the Bank’s issuance of subordinated debt in April
2016, the associated debt issuance cost of $4.0 million was reported as a direct reduction to the debt carrying
amount in the Consolidated Financial Statements. Since issuance, the original balance has amortized and,
therefore, reduced.
In August 2014, the FASB issued ASU 2014-14, Receivables -Troubled Debt Restructurings by Creditors
(Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure, which
requires that, upon foreclosure, a guaranteed mortgage loan be derecognized and a separate other receivable be
recognized when specific criteria are met. ASU 2014-14 is effective for public business entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2014. We adopted the applicable
requirements for ASU 2014-14 on January 1, 2015 with no impact to our Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-based Payments When the Terms of an
Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires a
reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite
service period as a performance condition. Therefore, an entity would not record compensation expense related
to an award for which transfer to the employee is contingent on the entity’s satisfaction of a performance target
until it becomes probable that the performance target will be met. No new disclosures are required under the ASU.
For all entities, ASU 2014-12 is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be adopted either
prospectively for share-based payment awards granted or modified on or after the effective date, or
retrospectively, using a modified retrospective approach. The modified retrospective approach would apply to
share-based payment awards outstanding as of the beginning of the earliest annual period presented in the
financial statements on adoption, and to all new or modified awards thereafter. We adopted the applicable
requirements for ASU 2014-12 on January 1, 2015 with no impact to our Consolidated Financial Statements.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (ASC 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. The new standard amends the accounting guidance for
“repo-to-maturity” transactions and repurchase agreements executed as repurchase financings. In addition, the
new standard requires a transferor to disclose more information about certain transactions, including those in
which it retains substantially all of the exposure to the economic returns of the underlying transferred asset over
the transaction’s term. We adopted the applicable requirements for ASU 2014-11 on January 1, 2015 with no
impact to our financial condition or results of operations. Since our repurchase agreements are accounted for as
secured borrowings, the required enhanced disclosures are included in Notes 12 and 13 to our Consolidated
Financial Statements.
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure, which clarifies when banks and similar institutions (creditors)
should reclassify mortgage loans collateralized by residential real estate properties from the loan portfolio to other
real estate owned (“OREO”). The ASU also requires certain interim and annual disclosures. ASU 2014-04 was
effective for public business entities for annual periods, and interim periods within those annual periods, beginning
after December 15, 2014. An entity could elect either a modified retrospective or a prospective transition method,
and early adoption was permitted. We adopted the applicable requirements for ASU 2014-04 in the first quarter of
2015, elected the prospective transition method, and have provided the related disclosures as required.
F-17
In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing
Projects, to revise the accounting for investments in qualified affordable housing projects, allowing 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. We adopted the
amended guidance on January 1, 2015 and elected not to apply the proportional amortization method for
investments in qualified affordable housing projects. Therefore, the adoption did not have an impact on the Bank’s
results of operations or financial condition. Our investments in qualified affordable housing projects are reflected
in our Consolidated Statements of Financial Condition in Other assets at the amount of total commitments to fund
qualified affordable housing projects less any amortization recognized, and the future funding commitments are
reported in Accrued expenses and other liabilities. As of December, 2016, the carrying value of such investments
was $182.1 million and our future commitments to these projects totaled $111.9 million, which we expect to make
through 2031. During the year ended December 31, 2016, we recognized amortization expense of $8.6 million in
pre-tax income, and $12.6 million of income tax credits associated with these investments.
(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. Treasury 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 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-18
We utilize independent third-party pricing sources to value most of our investment securities. 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 price discrepancy greater than thresholds established by management between two
pricing sources for an individual security, we utilize industry market spread data to assist in determining the most
appropriate valuation. 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 (loss). The securities are valued using Level 3 inputs and had fair values of $130.4 million at December
31, 2016 and $132.3 million at December 31, 2015. Since the cash flows of the SBA interest-only strip securities
are guaranteed by the U.S. Government, there is limited credit risk involved. 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 15%. 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 $17.1 million at December 31,
2016 and $18.5 million at December 31, 2015. 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 $11.6 million at December 31, 2016 and $11.1 million at
December 31, 2015. 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 10%.
F-19
Financial Instruments Measured at Fair Value on a Recurring Basis
The following tables present the assets and liabilities measured at fair value on a recurring basis as of December
31, 2016 and 2015, classified according to the three-level valuation hierarchy:
(in thousands)
December 31, 2016
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
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
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, 2015
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
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
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
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
$
1,999
-
-
-
-
-
-
-
-
-
-
-
-
-
1,999
$
-
1,999
$
-
$
-
14,893
1,350,423
332,042
3,403,766
372,215
8,349
151,201
402,888
-
-
112,324
20,667
6,168,768
2,238
6,171,006
2,350
2,350
$
1,990
-
-
-
-
-
-
-
-
-
-
-
-
-
1,990
$
-
1,990
$
-
$
-
20,163
1,404,696
432,977
3,088,027
414,009
9,835
207,603
387,500
-
-
91,360
15,508
6,071,678
2,286
6,073,964
2,474
2,474
-
-
-
-
-
11,583
-
-
-
17,084
5,541
130,372
-
164,580
-
164,580
69
69
-
-
-
-
-
11,101
-
-
-
18,497
5,227
132,268
-
167,093
-
167,093
135
135
1,999
14,893
1,350,423
332,042
3,403,766
383,798
8,349
151,201
402,888
17,084
5,541
242,696
20,667
6,335,347
2,238
6,337,585
2,419
2,419
1,990
20,163
1,404,696
432,977
3,088,027
425,110
9,835
207,603
387,500
18,497
5,227
223,628
15,508
6,240,761
2,286
6,243,047
2,609
2,609
(1) Equity securities primarily represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-20
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, 2016 and 2015. Additionally,
the following table presents information for AFS securities and derivatives 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)
Year ended December 31, 2016
Beginning balance - Level 3
Formation of SBA interest-only strip securities
Transfers into Level 3
Transfers out of Level 3
Total gains or (losses) (realized/unrealized):
Included in earnings
Non-interest income
Interest income
Included in other comprehensive income
Sale of AFS securities
Ending balance - Level 3
Year ended December 31, 2015
Beginning balance - Level 3
Formation of SBA interest-only strip securities
Purchase of risk participation agreement
Transfers into Level 3
Transfers out of Level 3
Total gains or (losses) (realized/unrealized):
Included in earnings
Non-interest income
Interest income
Included in other comprehensive income
Sale of AFS securities
Ending balance - Level 3
Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
AFS
Securities
Derivative
Liabilities
$
167,093
(135)
102,603
-
-
3,169
(20,778)
(3,798)
$
(83,709)
164,580
$
121,248
72,800
-
-
-
241
(15,230)
(2,758)
$
(9,208)
167,093
-
-
-
66
-
-
-
(69)
(93)
-
(379)
-
-
337
-
-
-
(135)
F-21
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, repossessed 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, 2016
and 2015, classified according to the three-level valuation hierarchy:
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total Carrying
Value
(in thousands)
December 31, 2016
Collateral-dependent impaired loans:
Commercial property
1-4 family residential property
Home equity lines of credit
Commercial and industrial (1)
Other repossessed assets
Total assets
December 31, 2015
Held-to-maturity securities:
$
-
-
-
-
-
$
-
Collateralized mortgage obligations - Private
$
-
Other debt securities - Home Equity Loan
Collateral-dependent impaired loans:
Multi-family residential property
Commercial property
1-4 family residential property
Home equity lines of credit
Commercial and industrial (1)
Other repossessed assets
Total assets
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
4,093
1,291
-
-
-
-
-
-
5,384
7,435
1,185
3,200
173,068
18,628
203,516
-
-
3,083
10,117
4,462
2,366
165,803
2,326
188,157
7,435
1,185
3,200
173,068
18,628
203,516
4,093
1,291
3,083
10,117
4,462
2,366
165,803
2,326
193,541
(1) Includes $162.5 million and 155.4 million of taxi medallion loans as of December 31, 2016 and 2015, respectively.
Impaired loans that are secured by collateral (“collateral-dependent loans”) are reported at the fair value of the
underlying collateral, less selling costs, as applicable. Fair value estimates for collateral-dependent loans are
determined based on individual appraisals that may be discounted by management for unobservable factors
resulting from its knowledge of the property. In the table above, the predominance of the commercial and industrial
loans are taxi medallion loans. To measure these collateral-dependent loans at fair value on a non-recurring basis,
the taxi medallion fair value is based on the weighting of both recent market transfer values and an independent
third party model. The valuation is a discounted cash flow approach with discount rates, fare/lease revenue and
associated expenses such as vehicle costs, fuel, credit card processing fees, repair costs, insurance, as the most
significant valuation inputs.
Fair value adjustments for collateral-dependent impaired loans are recorded through direct loan charge-offs and/or
through a specific allocation of the ALLL. During the years ended December 31, 2016, 2015 and 2014, we
recorded fair value adjustments totaling $91.0 million, $25.1 million and $2.7 million, respectively, on collateral-
dependent impaired loans. The current year adjustments principally related to the Chicago and New York taxi
medallion portfolios due to the associated declines in collateral values during the year. See Note 8 to our
Consolidated Financial Statements for further discussion.
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 or, for taxi medallions, a combination of recent market transfer prices and a discounted cash flow
approach. Fair value adjustments are reported through a valuation allowance against the asset. During the years
ended December 31, 2016, 2015 and 2014 we recorded a fair value adjustment of $2.7 million, zero and $128,000
F-22
on repossessed assets. The increase in repossessed assets was primarily driven by the repossession of 51 taxi
medallions with a fair value of $19.0 million, partially offset by the aforementioned 2016 fair value adjustments, as
well as the sale of several repossessed medallions to new borrowers during the year.
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.
Federal Home Loan Bank stock, which is required as part of membership, has no trading market and is
redeemable at par. Accordingly, its fair value is presented at the redemption (par) 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, is based on the discounted value of contractual cash flows
using interest rates that approximate 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, 76.5% of which mature within one year, had a carrying
value and estimated fair value of $1.34 billion at December 31, 2016. The estimated fair value is based on the
discounted value of contractual cash flows using interest rates that approximated those offered for time deposits
with similar maturities and terms.
The estimated fair value of our borrowings and subordinated debt 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.
F-23
The following table summarizes the carrying amounts and estimated fair values of our financial assets and
liabilities:
Estimated Fair Value Measurements
Carrying
Amount
Total
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
(in thousands)
December 31, 2016
FINANCIAL ASSETS
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Federal Home Loan Bank stock (1)
Loans held for sale
Loans and leases, net (2)
Derivatives
Total financial assets
FINANCIAL LIABILITIES
Deposits (3)
$
538,951
6,335,347
2,038,125
132,629
559,528
538,951
6,335,347
2,027,393
132,629
559,528
28,829,670
28,577,663
2,238
38,436,488
$
2,238
38,173,749
$
31,861,260
31,859,514
Federal Home Loan Bank borrowings (4)
2,050,900
2,050,687
Broker repurchase agreements
Federal funds purchased
Subordinated debt
Derivatives
Total financial liabilities
December 31, 2015
FINANCIAL ASSETS
Cash and cash equivalents
Securities available-for-sale
Securities held-to-maturity
Federal Home Loan Bank stock (1)
Loans held for sale
Loans and leases, net (2)
Derivatives
Total financial assets
FINANCIAL LIABILITIES
Deposits (3)
350,000
543,000
256,588
353,289
543,000
265,841
2,419
35,064,167
$
2,419
35,074,750
$
341,546
6,240,761
2,133,144
154,405
456,358
341,546
6,240,761
2,137,913
154,405
456,358
23,597,541
23,633,426
2,286
32,926,041
$
2,286
32,966,695
$
26,773,923
26,774,006
Federal Home Loan Bank borrowings (4)
2,720,163
2,720,243
Broker repurchase agreements
Federal funds purchased
Derivatives
Total financial liabilities
420,000
397,000
426,591
397,000
2,609
30,313,695
$
2,609
30,320,449
538,951
1,999
-
-
-
-
-
540,950
-
-
-
543,000
-
-
543,000
341,546
1,990
-
-
-
-
-
343,536
-
-
-
397,000
-
397,000
-
6,168,768
2,027,393
132,629
559,528
-
2,238
8,890,556
31,859,514
2,050,687
353,289
-
265,841
2,350
34,531,681
-
6,071,678
2,137,913
154,405
456,358
-
2,286
8,822,640
26,774,006
2,720,243
426,591
-
2,474
29,923,314
-
164,580
-
-
-
28,577,663
-
28,742,243
-
-
-
-
-
69
69
-
167,093
-
-
-
23,633,426
-
23,800,519
-
-
-
-
135
135
(1) FHLB stock has no trading market and is redeemable at par. As such, fair value is present at cost.
(2)
The estimated fair value measurements for loans and leases include adjustments related to market interest rates. No adjustments are made related to credit quality, liquidity, and
to reflect the related allowances for loan and lease losses.
(3) The carrying and fair values of deposits do not include the intangible fair value of core deposit relationships.
(4) The carrying and fair value of these borrowings include FHLB repurchase agreements.
(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-24
The following table summarizes the components of our securities portfolios as of the dates indicated:
2016
Gross
Gross
2015
Gross
Gross
December 31,
(in thousands)
AVAILABLE-FOR-SALE
U.S. Treasury securities
Residential mortgage-backed securities:
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Fair
Value
Amortized Unrealized Unrealized
Gains
Losses
Cost
Fair
Value
$
2,000
-
(1)
1,999
2,000
-
(10)
1,990
U.S. Government Agency
14,443
553
(103)
14,893
19,515
Government-sponsored enterprises
1,352,441
11,999
(14,017)
1,350,423
1,385,222
332,886
3,451,257
389,722
3,588
14,670
891
(4,432)
332,042
430,327
(62,161)
3,403,766
3,086,799
(6,815)
383,798
430,091
704
23,082
6,502
25,566
1,794
(56)
20,163
(3,608)
1,404,696
(3,852)
432,977
(24,338)
3,088,027
(6,775)
425,110
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Private
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
Other debt securities:
8,556
-
(207)
8,349
9,915
-
(80)
9,835
Commercial mortgage-backed securities
149,862
1,906
(567)
151,201
208,118
1,359
(1,874)
207,603
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:
403,668
25,315
4,457
250,689
21,731
6,407,027
$
$
5,286
416,415
248,699
1,295,413
3,652
4,923
-
1,084
331
-
39,945
50
4,168
1,782
10,055
-
(5,703)
(8,231)
-
402,888
17,084
5,541
(8,324)
242,696
(1,064)
(111,625)
20,667
6,335,347
384,585
25,408
4,511
229,475
16,212
6,232,178
(123)
5,213
(4,387)
416,196
6,797
435,284
(3,538)
246,943
297,252
(21,228)
1,284,240
1,322,331
(295)
3,357
4,418
7,382
-
716
366
-
67,471
48
6,403
4,053
14,398
-
(4,467)
(6,911)
-
387,500
18,497
5,227
(6,213)
223,628
(704)
(58,888)
15,508
6,240,761
(48)
6,797
(2,936)
438,751
(2,849)
298,456
(16,069)
1,320,660
(325)
4,093
Commercial mortgage-backed securities
17,994
745
-
18,739
18,051
985
-
19,036
Single issuer trust preferred & corporate
debt securities
Collateralized debt obligations
Other
Total held-to-maturity
48,800
-
1,866
2,038,125
$
2,031
-
27
18,858
(18)
-
-
50,813
45,589
-
3,422
2,133,144
1,110
-
28
27,025
(27)
-
46,672
-
(2)
(22,256)
3,448
2,137,913
(1)
(29,590)
1,892
2,027,393
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
On December 10, 2013, federal regulators issued a final rule implementing the “Volcker Rule” enacted as part of
the Dodd-Frank Act. The Volcker Rule prohibits banking organizations and their affiliates from investing in or
sponsoring certain types of funds, including a range of asset securitization structures, that do not meet the
exemptive criteria for continued ownership (defined as “Covered Funds”). The Federal Reserve has exercised its
authority to extend the divestiture period for such pre-2014 investments to July 21, 2017. The Bank has limited
activities that are impacted by the Volcker Rule, and the only prohibited activity relates to our holding of certain
AFS securities that meet the definition of Covered Funds and, therefore, must be divested within the divestiture
period. These securities, which are predominantly collateralized mortgage obligations, had a total fair value and
amortized cost of $33.9 million and $35.3 million, respectively, as of December 31, 2016. We continue to actively
monitor the Covered Funds held in our investment portfolio, and we currently anticipate that a substantial portion
will be paid down through principal remittances within the divestiture period. In the interim, we expect to sell
certain securities when appropriate to take advantage of market conditions. Two Covered Fund securities were
sold during the year ended December 31, 2016 for a total gain of $5,000. There were two sales of Covered Fund
securities during 2015 for a net gain of $3,000.
Gross realized gains on sales of AFS securities for the years ended December 31, 2016, 2015 and 2014 were
$7.7 million, $1.5 million, and $7.3 million, respectively. Gross realized losses on sales of AFS securities for the
years ended December 31, 2016, 2015 and 2014 were $31,000, $148,000, and $2.0 million, respectively.
F-25
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
borrowings from the Federal Home Loan Bank of New York. As of December 31, 2016 and 2015, the carrying
value of our pledged securities totaled $3.76 billion and $4.23 billion, respectively.
During the years ended December 31, 2016, 2015 and 2014, we recognized other-than-temporary impairment
losses on debt securities as summarized in the tables below. With the exception of those securities that are
Covered Funds under the Volcker Rule, we do not intend to sell the securities for which we have recognized
temporary impairment losses, and it is not more likely than not that we will be required to sell the securities prior to
recovery.
(in thousands)
December 31, 2016
AVAILABLE-FOR-SALE
Collateralized debt obligations
Collateralized mortgage obligations
Total other-than-temporarily impaired securities
December 31, 2015
AVAILABLE-FOR-SALE
Collateralized mortgage obligations
HELD-TO-MATURITY
Asset-backed securities
Collateralized mortgage obligations
Total other-than-temporarily impaired securities
December 31, 2014
AVAILABLE-FOR-SALE
Collateralized debt obligations
Pooled trust preferred securities
Collateralized mortgage obligations
Equity securtities
Total other-than-temporarily impaired securities
Number of
Securities
Total Other-than-
temporary
Impairment Losses
Less:
Noncredit Portion
Recognized in OCI
Net Impairment
Losses Recognized
in Earnings (1)
1
9
10
18
1
1
20
2
1
13
1
17
$
(54)
$
(932)
(986)
$
(1,664)
(38)
(562)
$
(2,264)
$
(368)
(1,378)
(2,147)
$
(37)
(3,930)
-
559
559
983
(7)
325
1,301
-
1,228
978
-
2,206
(54)
(373)
(427)
(681)
(45)
(237)
(963)
(368)
(150)
(1,169)
(37)
(1,724)
(1)
The year ended December 31, 2016 includes losses on CDOs and CMOs that meet the definition of Covered Funds under the Volcker Rule totaling $54,000 and
$27,000, respectively. The year ended December 31, 2015 includes losses on CMOs that meet the definition of Covered Funds under the Volcker Rule totaling
$321,000. The year ended December 31, 2014 includes losses totaling $368,000, $128,000, and $37,000 on CDOs, CMOs, and an equity security, respectively,
that meet the definition of Covered Funds under the Volcker Rule.
F-26
The following table presents a roll forward 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 (loss) at period-end:
(in thousands)
Year ended December 31, 2016
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, matured, and other
Cumulative credit component of other-than-temporary impairment losses
at end of period (1)
Year ended December 31, 2015
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, matured, and other
Cumulative credit component of other-than-temporary impairment losses
at end of period (2)
Year ended December 31, 2014
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, matured, and other
Cumulative credit component of other-than-temporary impairment losses
at end of period (3)
$
29,970
3
424
(2,415)
$
27,982
$
29,809
90
873
(802)
$
29,970
$
29,947
295
1,429
(1,862)
$
29,809
(1)
(2)
(3)
The cumulative credit component of other-than-temporary losses at December 31, 2016 includes $13.8 million of losses on
securities that meet the definition of Covered Funds under the Volcker Rule.
The cumulative credit component of other-than-temporary losses at December 31, 2015 includes $13.9 million of losses on
securities that meet the definition of Covered Funds under the Volcker Rule.
The cumulative credit component of other-than-temporary losses at December 31, 2014 includes $13.6 million of losses on
securities that meet the definition of Covered Funds under the Volcker Rule.
When estimating the portion of other-than-temporary impairment 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 (loss) to earnings in the period of such assessments. In our review of CDOs and CMOs
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
F-27
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, ratio of non-
performing assets to tangible common equity and loan loss reserves, capital levels, and FDIC quarterly trends.
Based on this review, we assumed that certain bank issuers on our watch list will default and others will cure in the
future. Utilizing our assumptions, we then discounted the cash flows to assess the amount of credit loss.
The following tables present 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 (loss).
(in thousands)
December 31, 2016
Temporarily-impaired securities
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
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
Other debt securities:
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
998
4,249
(1)
(57)
777,992
(12,910)
-
-
998
(1)
732
28,827
(46)
(1,107)
4,981
(103)
806,819
(14,017)
130,012
2,254,657
205,406
(2,550)
(45,735)
(2,773)
17,426
304,617
61,575
(1,882)
147,438
(15,432)
2,559,274
(1,779)
266,981
(4,432)
(61,167)
(4,552)
8,349
(207)
-
-
8,349
(207)
Commercial mortgage-backed securities
48,750
(365)
6,625
(202)
55,375
(567)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
114,909
(2,471)
119,741
-
184,920
7,574
-
(7,402)
(206)
3,508
22,299
13,093
(3,232)
(2,237)
(693)
(858)
234,650
3,508
207,219
20,667
(5,703)
(2,237)
(8,095)
(1,064)
Total temporarily-impaired securities
3,737,816
(74,677)
578,443
(27,468)
4,316,259
(102,145)
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Government-sponsored enterprises
Private
Other debt securities:
Pooled trust preferred securities
Other
Total other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
-
268
-
-
268
-
(13)
-
-
(13)
793
21,180
13,576
11,354
46,903
(994)
(2,250)
(5,994)
(229)
(9,467)
793
21,448
13,576
11,354
47,171
(994)
(2,263)
(5,994)
(229)
(9,480)
$
3,738,084
(74,690)
625,346
(36,935)
4,363,430
(111,625)
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-28
(in thousands)
December 31, 2015
Temporarily-impaired securities
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
Securities of U.S. states and political subdivisions:
Municipal Bond - Taxable
Other debt securities:
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
1,990
(10)
5,358
455,034
(56)
(3,085)
-
-
-
-
17,787
(523)
1,990
(10)
5,358
472,821
(56)
(3,608)
65,544
1,343,853
209,399
(531)
(12,844)
(2,275)
31,818
185,383
55,316
(3,321)
97,362
(10,242)
1,529,236
(1,611)
264,715
(3,852)
(23,086)
(3,886)
9,836
(80)
-
-
9,836
(80)
Commercial mortgage-backed securities
101,356
(1,314)
19,674
(560)
121,030
(1,874)
Single issuer trust preferred & corporate
debt securities
Pooled trust preferred securities
Other
Equity securities (1)
114,969
(2,477)
-
169,972
7,528
-
(3,852)
(81)
86,000
3,870
25,857
7,979
(1,990)
(2,106)
(1,034)
(623)
200,969
3,870
195,829
15,507
(4,467)
(2,106)
(4,886)
(704)
Total temporarily-impaired securities
2,484,839
(26,605)
433,684
(22,010)
2,918,523
(48,615)
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Government-sponsored enterprises
Private
Other debt securities:
Pooled trust preferred securities
Other
Total other-than-temporarily impaired securities
Total temporarily-impaired and other-than-
temporarily impaired securities
-
394
2,582
-
2,976
-
(3)
(39)
-
(42)
1,036
24,730
12,045
17,487
55,298
(1,252)
(2,886)
(4,766)
(1,327)
(10,231)
1,036
25,124
14,627
17,487
58,274
(1,252)
(2,889)
(4,805)
(1,327)
(10,273)
$
2,487,815
(26,647)
488,982
(32,241)
2,976,797
(58,888)
(1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments.
F-29
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 (loss).
(in thousands)
December 31, 2016
Temporarily-impaired securities
Mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Other debt securities:
Single issuer trust preferred & corporate
debt securities
Other
Total temporarily-impaired securities
Other-than-temporarily impaired securities
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
-
-
157,946
(3,231)
101,631
699,386
(2,485)
(13,645)
3,863
28,969
26,936
59,228
(123)
(1,156)
(1,053)
(7,583)
3,863
186,915
(123)
(4,387)
128,567
758,614
(3,538)
(21,228)
3,467
-
(18)
-
-
816
-
(1)
3,467
816
(18)
(1)
962,430
(19,379)
119,812
(9,916)
1,082,242
(29,295)
Collateralized mortgage obligations - private
Total other-than-temporarily impaired securities
-
-
-
-
3,357
3,357
(295)
(295)
3,357
3,357
(295)
(295)
Total temporarily-impaired and other-than-
temporarily impaired securities
$
962,430
(19,379)
123,169
(10,211)
1,085,599
(29,590)
December 31, 2015
Temporarily-impaired securities
Mortgage-backed securities:
U.S. Government Agency
Government-sponsored enterprises
Collateralized mortgage obligations:
U.S. Government Agency
Government-sponsored enterprises
Other debt securities:
Single issuer trust preferred & corporate
debt securities
Other
Total temporarily-impaired securities
Other-than-temporarily impaired securities
$
5,216
160,343
52,205
450,407
(48)
(2,740)
(699)
(5,401)
-
6,933
-
(196)
5,216
167,276
(48)
(2,936)
68,682
203,262
(2,150)
(10,668)
120,887
653,669
(2,849)
(16,069)
9,834
-
(27)
-
-
1,360
-
(2)
9,834
1,360
(27)
(2)
678,005
(8,915)
280,237
(13,016)
958,242
(21,931)
Collateralized mortgage obligations - private
Total other-than-temporarily impaired securities
-
-
-
-
4,093
4,093
(325)
(325)
4,093
4,093
(325)
(325)
Total temporarily-impaired and other-than-
temporarily impaired securities
$
678,005
(8,915)
284,330
(13,341)
962,335
(22,256)
The unrealized losses in our securities portfolio are primarily a result of the higher prevailing interest rates post-
2016 presidential election. In addition, the prevailing low short-end rates continue to pressure our floating rate
legacy structures purchased at inception with low relative credit spreads.
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 (loss), net of tax.
Our private CMOs and other debt securities are the securities in our portfolio that are the most exposed to
impairment losses. In performing our other-than-temporary impairment analysis for these 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
F-30
originally scheduled cash flows. Projected credit losses were compared to the current level of credit enhancement
to assess whether the security is expected to incur losses in any future period and therefore would be deemed
other-than-temporarily impaired at December 31, 2016.
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 (1)
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
December 31, 2016
Amortized Cost
Fair Value
$
41,358
178,741
354,068
5,811,129
6,385,296
$
$
-
18,500
90,848
1,928,777
2,038,125
$
41,576
180,970
352,466
5,739,668
6,314,680
-
19,258
92,926
1,915,209
2,027,393
(1) Excludes $20.7 million of equity securities reported in Securities available-for-sale in the Consolidated Statements of
Financial Condition.
(5) Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (“FHLB”) of New York, Signature Bank is required to maintain a
specified minimum investment in the FHLB’s Class B capital stock. The minimum stock investment requirement is
the sum of the membership stock purchase requirement, determined on an annual basis at the end of each
calendar year, and the activity-based stock purchase requirement, determined on a daily basis.
At December 31, 2016 and 2015, Signature Bank was in compliance with the FHLB’s minimum investment
requirement with stock investments of $132.6 million and $154.4 million, respectively, carried at cost on the
Consolidated Statements of Financial Condition. Collateral pledged for outstanding FHLB borrowings at
December 31, 2016 and 2015 included $92.3 million and $122.4 million of FHLB capital stock, respectively.
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, 2016.
F-31
(6) Loans Held for Sale
Loans held for sale at December 31, 2016 and 2015 were $559.5 million and $456.4 million, respectively. Gains
on sales associated with the securitization of pooled loans and sale of mortgage loans for the years ended
December 31, 2016, 2015 and 2014 amounted to $5.1 million, $7.1 million and $5.4 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 Signature Securities 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
Net deferred fees and costs
ALLL
Net loans
December 31,
2016
December 31,
2015
$
14,366,520
7,994,707
535,338
148,094
485,309
23,529,968
5,479,223
10,268
5,489,491
23,706
(213,495)
28,829,670
$
11,823,073
6,372,851
539,526
163,191
75,958
18,974,599
4,788,722
9,714
4,798,436
19,529
(195,023)
23,597,541
As of December 31, 2016 and 2015, commercial and industrial loans include overdrafts of commercial deposit
accounts totaling $40.6 million and $34.7 million, respectively, and other consumer loans include overdrafts of
personal deposit accounts totaling $4.0 million and $3.5 million, respectively.
In order to manage 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) history of the borrower’s payment performance. Non-rated loans
F-32
generally include commercial loans with outstanding principal balances below $100,000, overdrafts, residential
mortgages, and consumer loans.
The following table summarizes our portfolio of commercial loans by credit rating as of the dates indicated:
(in thousands)
December 31, 2016
Commercial loans secured by real estate:
Pass
Rating 1-6
Special
Mention
Rating 7
Substandard
Rating 8
Doubtful
Rating 9
Non-rated
Total
Multi-family residential property
$
14,213,937
123,510
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
December 31, 2015
7,963,472
1,040
415,848
467,103
5,083,430
28,143,790
$
-
18,206
86,967
229,723
Commercial loans secured by real estate:
Multi-family residential property
$
11,816,657
6,363,086
397,707
75,958
-
-
-
-
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans
Total commercial loans
28,113
30,195
-
-
260,634
318,942
5,258
9,765
4,070
-
-
-
-
-
-
-
43
-
153
153
48,039
48,082
-
-
-
-
-
-
119
-
4,423,168
23,076,576
$
201,813
201,813
119,432
138,525
1,213
1,213
43,096
43,215
14,365,560
7,994,707
415,891
485,309
5,479,223
28,740,690
11,821,915
6,372,851
401,896
75,958
4,788,722
23,461,342
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. Effective January 2016,
we no longer originate personal residential mortgages or home equity lines of credit, though we continue to service
the existing portfolio. A consumer loan is considered nonperforming 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 our portfolio of consumer loans by performance status as of the dates indicated:
(in thousands)
December 31, 2016
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
December 31, 2015
Residential mortgages
Home equity lines of credit
Other consumer loans
Total consumer loans
Performing
Nonperforming
Total
$
$
$
$
118,358
142,761
10,264
271,383
136,845
159,131
9,704
305,680
2,049
5,333
4
7,386
1,943
4,060
10
6,013
120,407
148,094
10,268
278,769
138,788
163,191
9,714
311,693
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 $12.8 million and $11.6 million at December 31,
2016 and 2015, respectively, and all related party loans are current as to payments.
F-33
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
(in thousands)
December 31, 2016
Commercial loans
Loans secured by real estate:
Past Due
30-89 Days
Past Due
90+ Days
Total
Past Due
Current
Total
Loans
Loans Past Due
90+ Days (1)
Non-accruing
Loans
Multi-family residential property
$
7,694
2,665
10,359
14,355,201
14,365,560
2,665
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans:
Taxi medallion loans
Other commercial and industrial loans
3,964
219
-
-
43
-
3,964
7,990,743
7,994,707
262
-
415,629
485,309
415,891
485,309
60,483
34,146
186,118
17,069
246,601
380,797
627,398
51,215
4,800,610
4,851,825
Consumer loans
Residential mortgages
Home equity lines of credit
Consumer loans
Total
December 31, 2015
Commercial loans
Loans secured by real estate:
227
422
1,740
108,895
$
2,297
5,333
4
213,529
2,524
5,755
117,883
142,339
120,407
148,094
1,744
322,424
8,524
28,697,035
10,268
29,019,459
Multi-family residential property
$
3,542
Commercial property
1-4 family residential property
Construction and land
Commercial and industrial loans:
Taxi medallion loans
Other commercial and industrial loans
Consumer loans
Residential mortgages
Home equity lines of credit
Other consumer loans
Total
205
70
-
60,234
25,893
513
300
85
90,842
$
-
245
4,119
-
51,967
13,022
2,007
4,060
10
75,430
3,542
11,818,373
11,821,915
450
6,372,401
6,372,851
4,189
-
397,707
75,958
401,896
75,958
112,201
681,497
793,698
38,915
3,956,109
3,995,024
2,520
4,360
136,268
158,831
138,788
163,191
95
166,272
9,619
23,606,763
9,714
23,773,035
-
-
-
50,751
2,287
248
-
-
55,951
-
-
-
-
2,858
603
64
-
-
3,525
-
-
43
-
135,367
14,782
2,049
5,333
4
157,578
-
245
4,119
-
49,109
12,419
1,943
4,060
10
71,905
(1) The Bank’s policy is to recognize interest income on these loans on an accrual basis. For taxi medallion loans that are past due maturity, the difference
between cash basis and accrual basis recognition is inconsequential.
Nonaccrual loans at December 31, 2016 and December 31, 2015 totaled $157.6 million and $71.9 million,
respectively. At December 31, 2016, $135.4 million of nonaccrual loans were secured by taxi medallions. The
increase in nonaccrual loans was primarily attributable to the addition of 319 taxi medallion loans, comprised of
243 relationships, totaling $109.9 million, partially offset by the transfer of 64 taxi medallion loans to repossessed
assets totaling $31.0 million as a result of foreclosure actions during 2016. There were no commitments at
December 31, 2016 to lend additional funds on nonaccrual loans. During 2016, our two largest Chicago taxi
medallion fleet relationships, comprised of 74 loans, were placed on nonaccrual. These loans were also charged
down to collateral value, net of selling costs and currently represent $20.1 million in nonaccrual loans. For further
discussion, see Note 8 to our Consolidated Financial Statements.
At December 31, 2016, loans past due 90 days or more included three commercial and industrial loans totaling
$1.5 million that are well secured and in process of collection, nine taxi medallion loans totaling $5.4 million for
which we are awaiting additional information from certain third party servicers, as well as 75 taxi medallion loans
totaling $45.3 million and one commercial real estate loan totaling $2.7 million that have matured, continue to
make monthly payments and are in the normal course of renewal. All taxi medallion loans that are past due
maturity with respect to their contractual maturity continue to pay and are reported as impaired. This includes
loans past due 90 days or more, as well as those 30 to 89 days past due. At December 31, 2015, loans past due
90 days or more were primarily comprised of commercial and industrial loans that are well secured and in process
of collection.
As of December 31, 2016 and 2015, the Bank held residential consumer mortgage loans in the process of
foreclosure totaling $8.9 million and $6.3 million, respectively. The Bank did not hold any foreclosed residential
F-34
real estate at December 31, 2016 and 2015. Other repossessed assets as of December 31, 2016 and December
31, 2015 totaled $19.6 million and $2.3 million, respectively. The December 31, 2016 repossessed asset balance
principally consists of 74 taxi medallions.
As of December 31, 2016 and December 31, 2015, the Bank had pledged $5.11 billion and $4.05 billion,
respectively, of commercial real estate loans through a blanket assignment to secure borrowings from the Federal
Home Loan Bank (“FHLB”). See Note 13 for additional discussion regarding FHLB collateral requirements.
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.
(8) Allowance for Loan and Lease Losses
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, 2016
Beginning balance - ALLL
Provision
Charge-offs
Recoveries
Ending balance - ALLL
For the year ended December 31, 2015
Beginning balance - ALLL
Provision
Charge-offs
Recoveries
Ending balance - ALLL
For the year ended December 31, 2014
Beginning balance - ALLL
Provision
Charge-offs
Recoveries
Ending balance - ALLL
Credit-rated loans
Non-rated loans
Commercial Real
Estate
1-4 Family
Residential Property
Commercial &
Industrial
Commercial
Residential
Mortgages
Consumer
Total
$
128,430
(14,194)
(170)
$
301
114,367
$
96,471
32,003
(72)
$
28
128,430
$
77,071
21,159
(1,770)
$
11
96,471
1,682
(1,014)
(91)
60
637
5,146
(1,757)
(1,707)
-
1,682
1,698
2,513
(95)
1,030
5,146
56,286
173,067
(141,720)
4,791
92,424
54,554
13,763
(17,953)
5,922
56,286
49,423
4,129
(2,721)
3,723
54,554
1,458
(2)
(1,041)
812
1,227
2,233
(737)
(1,209)
1,171
1,458
2,797
32
(1,297)
701
2,233
6,826
(2,053)
(151)
21
4,643
5,530
1,743
(1,103)
656
6,826
3,314
3,353
(1,597)
460
5,530
341
(30)
(195)
81
197
458
(101)
(186)
170
341
768
(76)
(380)
146
458
195,023
155,774
(143,368)
6,066
213,495
164,392
44,914
(22,230)
7,947
195,023
135,071
31,110
(7,860)
6,071
164,392
The increase in provision and charge-offs for the year ended December 31, 2016, was primarily due to updated
taxi medallion asset valuations, particularly the Chicago taxi medallion, and the corresponding impact on specific
reserves and charge-offs. The increase in charge-offs during 2016 was also due to our two largest Chicago taxi
medallion fleet relationships being placed on nonaccrual and the corresponding write down to collateral value.
In recent months, the volume of taxi medallion transfers has declined and risk premiums increased. Additionally,
there is no market for new issues due to the absence of new financing. Due to these factors, amongst others, in
2016, management determined the need for an alternative valuation methodology. An independent third party was
engaged to perform an asset valuation using the discounted cash flow approach to establish a fair value range
using both the discounted cash flow approach and market transactions, as applicable.
In the latter half of 2016, management observed certain new market transfers for which additional information
could not be obtained to conclude whether or not the transactions were orderly. Due to the lack of transparency
into the transaction details, as well as consistent market prices noted, we incorporated the market transfers into
the valuation. Specifically, both recent transfer prices and the discounted cash flow model valuation output were
weighted to derive medallion values. The value declines resulted in an increase in related specific provisions and
reserves, as well as total taxi medallion portfolio charge-offs of $129.2 million in 2016, including $108.6 million of
the Chicago portfolio.
F-35
For the year ended December 31, 2016, offsetting this increase was a reserve release of $25.7 million in the
commercial real estate portfolio allowance due to an update of the portfolio’s ALLL general reserve loss factors
during the year. Annually, we analyze our ALLL methodology to assess whether updates are necessary based on
various considerations including current market conditions, portfolio trends and industry information. Historically,
proxy loss factors based on current industry studies were utilized in the commercial real estate portfolio’s general
reserve calculation. During 2016, based on our most recent stress testing results, continued credit metric
comparison to our portfolio’s history, as well as credit metric comparison to our peers, we used the Bank’s own
loss history to derive the portfolio’s loss factors.
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, 2016
ALLL:
Credit-rated loans
Non-rated loans
Commercial Real
Estate
1-4 Family
Residential Property
Commercial &
Industrial
Commercial
Residential
Mortgages
Consumer
Total
Individually evaluated for impairment
$
24
Collectively evaluated for impairment
114,343
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
As of December 31, 2015
ALLL:
10,548
22,835,028
Individually evaluated for impairment
$
977
Collectively evaluated for impairment
127,453
Recorded investment in loans:
Individually evaluated for impairment
Collectively evaluated for impairment
14,300
18,256,423
-
637
-
415,848
6
1,676
4,071
397,707
34,695
57,729
299,683
5,131,501
13,215
43,071
205,407
4,540,219
101
1,126
202
47,880
127
1,331
254
42,961
3,382
1,261
8,137
260,364
4,226
2,600
8,761
293,218
2
195
38,204
175,291
4
318,574
10,264
28,700,885
5
336
11
9,703
18,556
176,467
232,804
23,540,231
A loan is considered impaired when, based on current information and events, it is probable that we will be unable
to collect all amounts due in accordance with the original contractual terms of the loan agreement, including
scheduled principal and interest payments. 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 nonaccrual status. A loan may also be
considered impaired if it is past due maturity and is not well-secured and in the process of collection. In addition, if
a loan is restructured as troubled debt, we consider the loan impaired during the year of restructuring. In
subsequent years, we do not consider the restructured loan as impaired if it was restructured at a market rate and
continues to perform in accordance with the modified terms. Other TDR loans, however, are reported as such for
as long as the loan remains outstanding.
F-36
The following table summarizes the recorded investment, unpaid principal balance, and related allowance for our
impaired loans as of the dates indicated:
December 31, 2016
December 31, 2015
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
(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
$
7,435
7,435
-
-
-
-
-
-
Commercial and industrial loans
229,591
107,564
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
-
-
-
-
-
-
-
-
-
-
3,113
43
3,113
43
Commercial and industrial loans
193,110
192,278
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
3,569
5,350
4
10,591
422,701
3,569
5,350
4
2,804
5,333
4
10,591
299,842
2,804
5,333
4
-
-
-
-
-
-
-
-
-
-
24
21
34,775
1,249
2,133
2
45
34,775
1,249
2,133
2
-
-
-
-
-
-
-
-
38,219
35,820
-
-
-
-
-
-
11,187
11,187
-
3,113
7,774
-
3,114
4,119
171,504
169,793
3,196
6,054
10
22,074
209,723
3,196
6,054
10
2,711
6,050
10
18,420
205,613
2,711
6,050
10
-
-
-
-
-
-
-
-
947
-
30
30
13,318
1,201
3,025
5
1,007
13,318
1,201
3,025
5
$
442,215
318,574
38,204
241,057
232,804
18,556
F-37
The following table summarizes the average recorded investment of impaired loans and interest income
recognized on impaired loans for the periods indicated:
2016
2015
2014
Years ended December 31,
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
(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
$
4,464
-
-
-
192
-
-
-
Commercial and industrial loans
83,147
2,712
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
-
-
-
4,434
-
3,113
860
164,158
2,827
5,488
7
12,871
247,305
2,827
5,488
7
-
-
-
130
-
107
-
3,899
24
-
-
429
6,611
24
-
-
6,068
36
2,849
4,644
20,152
-
398
-
6,825
-
3,218
866
81,167
3,014
6,566
34
24,506
101,319
3,014
6,964
34
122
-
140
24
791
-
-
-
258
-
134
-
1,437
20
80
-
678
2,228
20
80
-
3,006
7,463
740
5,861
2,616
3,114
656
813
-
11,456
432
5,067
3,004
12,136
2,580
4,000
152
36,639
15,250
3,236
4,813
152
60,090
9
-
331
27
376
-
13
-
239
-
159
-
158
21
-
-
765
534
21
13
-
1,333
$
268,498
7,064
135,837
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 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.
The following table presents loans that were classified as TDRs during the years ended December 31, 2016,
2015, and 2014. The pre-modification balances represent the recorded investment immediately prior to
modification, and the post-modification balances represent the recorded investment as of the dates indicated:
(dollars in thousands)
Commercial loans secured by real estate:
Commercial property
Construction and land
Commercial and industrial loans
Home equity lines of credit
Residential mortgages
Total
December 31, 2016
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
December 31, 2015
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
December 31, 2014
Pre-
Modification
Balance
Post-
Modification
Balance
Number
of Loans
-
-
110
1
-
$
-
-
-
-
80,425
70,244
962
-
940
-
111
$
81,387
71,184
-
-
192
-
1
193
-
-
-
-
161,686
161,512
-
495
-
486
162,181
161,998
3
1
2
1
1
8
4,504
2,140
6,982
1,990
495
5,490
183
6,189
1,990
495
16,111
14,347
F-38
The following table summarizes how the TDR loans recorded for the years ended December 2016, 2015, and
2014 were modified:
(in thousands)
December 31, 2016
Term
Extension
Term Extension with
Other Concession (1)
Deferred Principal
Amortization
Deferred Principal
Amortization
with Other
Concession (1)
Rate Reduction
Total
Commercial and industrial loans
$
1,863
Residential mortgages
Total
December 31, 2015
940
$
2,803
Commercial and industrial loans
$
9,015
Residential mortgages
Total
December 31, 2014
Commercial loans secured by real estate:
Commercial property
Construction and land
Commercial and industrial loans
Home equity lines of credit
Residential mortgages
Total
-
$
9,015
$
5,490
183
6,189
-
-
$
11,862
-
-
-
-
486
486
-
-
-
-
-
-
17,064
-
17,064
1,320
-
1,320
-
-
-
1,990
495
2,485
42,389
-
42,389
151,177
-
151,177
-
-
-
-
-
-
8,928
-
8,928
-
-
-
-
-
-
-
-
-
70,244
940
71,184
161,512
486
161,998
5,490
183
6,189
1,990
495
14,347
(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, 2016 and 2015 include TDR loans totaling $145.3 million and $186.4 million,
respectively. The decrease in TDR loans was primarily driven by $78.1 million of Chicago taxi medallion charge-
offs during the year ended December 31, 2016. Furthering this decrease was the foreclosure of 16 taxi medallions
totaling $8.1 million, as well as a reduction of $2.0 million due to the full payoff of one home equity line of credit,
$13.5 million from the full payoff of 10 commercial and industrial loans, and $3.4 million from the payoff of one
commercial real estate loan. The decrease was partially offset by the restructure of 110 commercial and industrial
loans amounting to $70.2 million, including taxi medallion loans totaling $53.7 million.
During the year of restructuring, we consider a TDR loan impaired. In subsequent years, we do not consider the
restructured loan impaired if it was restructured at a market rate and continues to perform in accordance with its
modified terms. Other TDR loans, however, 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, if appropriate.
As of December 31, 2016, we had 16 taxi medallion relationships, comprised of 16 loans, totaling $7.8 million that
were modified as a TDR within the previous 12 months that subsequently defaulted on payments. While not
modified within the last 12 months, during 2016, our two largest Chicago taxi medallion fleet relationships,
comprised of 74 loans, defaulted on payments. These relationships were modified and classified as TDRs in 2015.
As of December 31, 2015, we had two commercial and industrial loans totaling $1.4 million modified as a TDR
within the previous 12 months that subsequently defaulted on payments. As of December 31, 2014, there were no
loans that were modified as a TDR within the previous 12 months that subsequently defaulted on payments.
For the years ended December 31, 2016, 2015 and 2014, we recorded interest income on impaired loans during
the period of impairment totaling $7.1 million, $3.0 million and $1.3 million, 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 $8.3 million, $6.2 million, and $3.1 million for the years ended December 31, 2016,
2015 and 2014, respectively. Average impaired loans for the years ended December 31, 2016, 2015 and 2014
totaled $268.5 million, $135.8 million, and $60.1 million, respectively.
F-39
(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,
2016
2015
$
63,983
56,347
120,330
(69,632)
50,698
$
56,774
49,727
106,501
(62,340)
44,161
Depreciation and amortization expense totaled $10.1 million, $9.0 million and $8.9 million for the years ended
December 31, 2016, 2015 and 2014, 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 deposits (1)
Total deposits
December 31,
2016
$
10,468,790
3,908,436
15,950,567
919,349
614,118
31,861,260
$
2015
8,494,854
2,734,202
14,331,082
758,047
455,738
26,773,923
(1) Includes non-interest bearing deposits of $51.7 million and $72.4 as of December 31, 2016
and December 31, 2015, respectively.
The aggregate amounts of time deposits in denominations of $100,000 or more at December 31, 2016 and 2015
were $1.24 billion and $853.6 million, respectively. The related interest expense on these types of deposits for the
years ended December 31, 2016 and 2015 amounted to $11.4 million and $9.37 million, respectively.
At December 31, 2016, the scheduled maturities of time deposits are as follows:
(in thousands)
Amount
2017
2018
2019
2020
2021
Total time deposits (1)
$
$
1,027,756
278,995
17,823
13,475
5,808
1,343,857
(1) Includes brokered time deposits of $424.5
million as of December 31, 2016.
F-40
At December 31, 2016 and 2015, we had approximately $50.7 million and $54.3 million, respectively, in deposits
held by our directors and their related interests.
(11)
Incentive Savings Plan
We have a 401(k) program under which employees may make personal contributions by means of payroll
deductions of up to 60% of all eligible pre-tax earnings or the maximum allowable under income tax regulations.
Participants age 50 and over are permitted to make an additional “catch-up” contribution each year, subject to
limits set by the Internal Revenue Service. We match 100% of the first 3% of base compensation a participant
contributes to the plan and 50% of the next 4% of base compensation contributed. The sum of the employer
contributions and employee contributions are also limited by income tax regulations. Our contributions, included in
salaries and benefits expense, were $5.3 million, $4.8 million and $4.4 million, respectively, for the years ended
December 31, 2016, 2015 and 2014.
(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 with
brokers 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,
2016
2015
$
$
$
543,000
543,000
191,754
0.58%
0.79%
$
$
$
397,000
525,000
157,039
0.33%
0.54%
$
$
$
350,000
395,000
390,724
2.75%
2.76%
$
$
$
420,000
620,000
534,315
2.50%
2.63%
During the years ended December 31, 2016, 2015, and 2014, we recorded interest expense on federal funds
purchased and securities sold under agreements to repurchase with brokers totaling $11.9 million, $13.9 million,
and $17.0 million, respectively. The Bank also has repurchase agreements with the FHLB. For further information
regarding our repurchase agreements with the FHLB, see Note 13 to our Consolidated Financial Statements.
At December 31, 2016, securities with a fair value of $390.6 million and a carrying value of $389.8 million were
pledged to meet our collateral requirement of $372.2 million on repurchase agreements with brokers. At
December 31, 2015, securities with a fair value of $496.0 million and a carrying value of $492.6 million were
pledged to meet our collateral requirement of $441.0 million on repurchase agreements with brokers.
F-41
The federal funds purchased at December 31, 2016 were overnight transactions. The following table details the
remaining maturity of our repurchase agreements with brokers accounted for as secured borrowings by collateral
type pledged as of the years ended:
(in thousands)
December 31, 2016
Repurchase agreements with brokers (1):
Government-sponsored enterprise securities
2017
2018
2019
2020
2021
Total
Mortgage-backed securities
$
183,000
75,000
Collateralized mortgage obligations
62,000
-
Total repurchase agreements with brokers
$
245,000
75,000
-
-
-
15,000
15,000
30,000
-
-
-
273,000
77,000
350,000
(in thousands)
2016
2017
2018
2019
2020
Total
December 31, 2015
Repurchase agreements with brokers (1):
Government-sponsored enterprise securities
Total repurchase agreements with brokers
$
95,000
$
95,000
220,000
220,000
75,000
75,000
-
-
30,000
30,000
420,000
420,000
(1) Reported in Federal funds purchased and securities sold under agreements to repurchase in the Consolidated Statements of Financial Condition.
Collateral for repurchase agreements with brokers typically consist of government agency and government-
sponsored enterprise securities. Securities collateralizing these agreements are classified as Securities available-
for-sale or Securities held-to-maturity in the Consolidated Statements of Financial Condition. The amount of
excess collateral required is governed by each individual contract. The primary risk associated with these
repurchase agreements is the requirement to pledge a balance of market value based collateral in excess of the
borrowed amount. The excess collateral pledged represents an unsecured exposure to the lending counterparty.
As the market value of the collateral changes, additional collateral may need to be pledged. In accordance with
our policies, eligible counterparties are defined and monitored to minimize exposure.
(13) Federal Home Loan Bank Borrowings
As a member of the Federal Home Loan Bank (“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, 2016, we were in
compliance with this requirement.
Our FHLB borrowings include both advances and repurchase agreements. The following table provides a
summary of FHLB borrowings at or for the years ended:
(dollars in thousands)
FHLB Advances
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
FHLB Repurchase Agreements
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,
2016
2015
$
$
$
1,975,900
2,280,000
1,951,423
1.09%
1.17%
$
$
$
2,270,163
2,270,163
532,945
1.29%
0.93%
$
$
$
75,000
450,000
247,404
1.36%
1.98%
$
$
$
450,000
770,000
885,464
0.70%
1.11%
F-42
During the years ended December 31, 2016, 2015, and 2014, interest expense recorded on FHLB borrowings
totaled $24.6 million, $13.1 million, and $12.7 million, respectively.
As of December 31, 2016, securities with a fair value and carrying value of $1.17 billion, and $5.11 billion of
commercial real estate loans pledged through a blanket assignment, were available to meet collateral
requirements of approximately $2.13 billion on FHLB borrowings. As of December 31, 2015, securities with a fair
value of $1.52 billion and a carrying value of $1.51 billion, respectively, as well as $4.05 billion of commercial real
estate loans pledged through a blanket assignment, were available to meet collateral requirements of
approximately $2.15 billion on FHLB borrowings.
FHLB advances as of December 31, 2016 have contractual maturities as follows:
(in thousands)
FHLB Advances
2017
2018
2019
Total FHLB advances
Amount
$
$
1,440,900
395,000
140,000
1,975,900
Additionally, certain of our long-term FHLB advances are callable by the FHLB for redemption prior to their
scheduled maturity date. The table above includes a $25.0 million advance that is callable in March 2017, which
has an interest rate of 3.87%. The contractual maturity of this advance is September 2017.
The following table details the remaining maturity of our FHLB repurchase agreements accounted for as secured
borrowings by collateral type pledged as of the years ended:
(in thousands)
December 31, 2016
Repurchase agreements with FHLB (1):
Government-sponsored enterprise securities
2017
Mortgage-backed securities
Collateralized mortgage obligations
$
22,500
52,500
Total repurchase agreements with FHLB
$
75,000
(in thousands)
December 31, 2015
Repurchase agreements with FHLB (1):
2016
2017
Total
Government-sponsored enterprise securities
Total repurchase agreements with FHLB
$
375,000
$
375,000
75,000
75,000
450,000
450,000
(1) Reported in Federal Home Loan Bank borrowings in the Consolidated Statements of Financial Condition.
Collateral for FHLB repurchase agreements typically consist of government agency and government-sponsored
enterprise securities. Securities collateralizing these agreements are classified as Securities available-for-sale or
Securities held-to-maturity in the Consolidated Statements of Financial Condition. The amount of excess collateral
required is governed by each individual contract. The primary risk associated with these repurchase agreements is
the requirement to pledge a balance of market value based collateral in excess of the borrowed amount. The
excess collateral pledged represents an unsecured exposure to the lending counterparty. As the market value of
the collateral changes, additional collateral may need to be pledged. In accordance with our policies, eligible
counterparties are defined and monitored to minimize exposure.
F-43
(14) Subordinated Debt
On April 19, 2016, the Bank issued $260 million aggregate principal amount of Variable Rate Subordinated Notes
due April 19, 2026 (the “Notes”) to institutional investors. The Notes accrue interest at a fixed rate of 5.30% for the
first five years until April 2021. After this date and for the remaining five years of the Notes’ term, interest will
accrue at a variable rate of LIBOR plus 3.92%. Additionally, during the variable interest rate period and at the
Bank’s option, the Notes can be prepaid by the Bank. Net proceeds from this offering were used for general
corporate purposes and to facilitate our continued growth.
Subordinated debt is reported in the Consolidated Statements of Financial Condition net of deferred issuance
costs of $3.4 million.
(15)
Income Taxes
Provision for 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
Total state and local
TOTAL
Current expense
Deferred income tax expense
Total
Years ended December 31,
2016
2015
2014
$
$
186,213
7,328
193,541
$
$
66,198
1,384
67,582
$
$
252,411
8,712
261,123
188,024
(1,889)
186,135
117,994
27,545
145,539
65,662
3,215
68,877
253,686
1,326
255,012
60,481
9,055
69,536
178,475
36,600
215,075
The increase in income tax expense for the year ended December 31, 2016, when compared to the previous year,
was primarily driven by an increase in our pre-tax income.
On April 13, 2015, the final version of the 2015-2016 New York State budget legislation was signed, which
included substantial revisions to the New York City tax regime, as well as technical clarifications and expansion of
the sweeping New York State tax reform legislation passed in 2014.
F-44
Deferred Tax Assets and Liabilities
The following table presents the significant components of our net deferred tax asset as of the dates indicated:
(in thousands)
DEFERRED TAX ASSETS
Allowance for loan and lease losses
Income on leased assets
Write-down for other-than-temporary impairment of securities
Unearned compensation - restricted stock
Non-accrual interest
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 - leased assets
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,
2016
2015
$
88,541
55,038
11,605
14,621
923
3,417
174,145
29,727
9,042
212,914
138,244
1,098
13,372
152,714
-
152,714
60,200
$
80,876
32,689
17,876
12,751
1,583
402
146,177
-
10,293
156,470
103,696
752
11,586
116,034
3,559
119,593
36,877
At December 31, 2016, 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 prospectively,
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.
In accordance with GAAP, as of December 31, 2015, we revalued our New York City deferred tax assets and
liabilities in consideration of the New York City tax legislation changes that went into effect during April 2015. The
revaluation resulted in an immaterial decrease to our net deferred tax asset.
F-45
Effective Tax Rate
The following table presents a reconciliation of statutory federal income tax expense to Bank’s combined effective
income tax expense for the periods indicated:
(dollars in thousands)
Years ended December 31,
2016
2015
2014
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Expense
(Benefit)
Rate
Statutory federal income tax expense
$
230,107
35%
219,828
35%
179,122
35%
State and local income taxes, net of
federal income tax benefit
Low income housing federal tax credits
Tax exempt income
Other items, net
Effective income tax expense
* - Less than 1%.
Unrecognized Tax Benefits
43,928
(12,622)
(1,470)
1,180
261,123
$
7%
(2%)
*
*
40%
44,769
(10,873)
(347)
1,635
255,012
7%
(2%)
*
(1)%
41%
45,198
(9,241)
(378)
374
215,075
9%
(2%)
*
*
43%
We have not recognized any liabilities for unrecognized tax benefits related to uncertain tax positions. Our policy
is to recognize interest and penalties on income taxes in income tax expense. We file U.S. federal and various
state and local income tax returns. For our federal and most state and local income tax returns, we remain subject
to examination for tax years 2013 and after.
(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,
2016 and 2015 is summarized as follows:
Shares available for future awards at beginning of the year
Options
Years ended December 31,
2016
1,887,772
2015
2,017,708
Granted
Forfeited or expired
Shares sold to cover minimum tax withholding and/or option price upon exercise
- -
- -
- 5,812
Restricted stock
Granted
Forfeited
Shares sold to cover minimum tax withholding upon vesting
Shares available for future awards at end of the year
(356,666) (329,212)
5,115
3,240
188,349
228,680
1,763,026
1,887,772
F-46
Restricted Stock
The following table summarizes information regarding outstanding grants of restricted stock for the years ended
December 31, 2016 and 2015:
Years ended December 31,
2016
2015
Shares
986,569
356,666
(413,872)
(3,240)
926,123
Weighted
Average
Grant Price
Shares
$ 93.61
140.61
89.76
115.74
$ 113.35
1,081,076
329,212
(418,604)
(5,115)
986,569
Weighted
Average
Grant Price
$ 75.34
129.95
74.63
123.73
$ 93.61
Outstanding at beginning of the year
Granted
Vested
Forfeited
Outstanding at end of the year
As of December 31, 2016, our total unrecognized compensation cost related to unvested restricted shares was
$69.8 million, which is expected to be recognized over a weighted-average period of 1.88 years. During the years
ended December 31, 2016, 2015, and 2014, we recognized compensation expense of $41.7 million, $34.7 million,
and $27.7 million, respectively, for restricted shares. The total fair value of restricted shares that vested during the
years ended December 31, 2016, 2015 and 2014 were $58.5 million, $54.3 million, and $45.6 million, respectively.
(17) Accumulated Other Comprehensive Loss
The following table presents information regarding items reclassified out of Accumulated Other Comprehensive Loss
(“AOCL”) for the years ended December 31, 2016 and 2015:
(in thousands)
Details About AOCI
Years ended December 31,
2016
Amount
Reclassified
Out of AOCL
2015
Amount
Reclassified
Out of AOCL
Affected Line Item in the
Consolidated Statement of Income
Net unrealized gains on AFS securities
$ 7,711
1,209
Net gains on sales of securities
Total reclassifications, before tax
Total reclassifications, net of tax
(427)
7,284
(3,021)
$
4,263
(963)
246
(100)
146
Net impairment losses on securities
recognized in earnings
Income tax expense
F-47
The following table presents changes in AOCL, net of tax, for the years ended December 31, 2016 and 2015:
(in thousands)
For the year ended December 31, 2016
Balance at December 31, 2015
Net change in unrealized gains and losses
Amortization of net unrealized loss on securities transferred to HTM
Amounts reclassified out of AOCL
Net current period other comprehensive loss
Balance at December 31, 2016
For the year ended December 31, 2015
Balance at December 31, 2014
Net change in unrealized gains and losses
Amortization of net unrealized loss on securities transferred to HTM
Amounts reclassified out of AOCL
Net current period other comprehensive income (loss)
Balance at December 31, 2015
(18) Earnings Per Share
AFS
Securities
HTM Securities
Transferred
from AFS
Total
$
$
$
4,169
(42,713)
-
(4,263)
(46,976)
(42,807)
28,856
(24,541)
-
(146)
(24,687)
4,169
$
(13,672)
-
1,765
-
1,765
(11,907)
(15,732)
-
2,060
-
2,060
(13,672)
(9,503)
(42,713)
1,765
(4,263)
(45,211)
(54,714)
13,124
(24,541)
2,060
(146)
(22,627)
(9,503)
The following table shows the computation of basic and diluted earnings per common and common equivalent
share for the years indicated:
(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,
2015
373,065
2016
396,324
2014
296,704
$
53,406
405
53,811
7.42
7.37
$
$
50,739
563
51,302
7.35
7.27
49,066
804
49,870
6.05
5.95
For the years ended December 31, 2016, 2015 and 2014, there were no anti-dilutive options or warrants excluded
from the computation of diluted earnings per share as their exercise price did not exceed the average market price
of the Company’s common shares.
(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 non-cancelable operating lease agreements for premises and equipment with expiration
dates through the year 2034. Our premises are used principally for private client offices and administrative
operations. Rental expense for our premises for the years ended December 31, 2016, 2015, and 2014 totaled
$25.1 million, $21.9 million and $18.6 million, respectively.
The required minimum rental payments under the terms of the non-cancelable leases at December 31, 2016 are
summarized as follows:
F-48
(in thousands)
Amount
2017
2018
2019
2020
2021
Thereafter
Total
$
21,091
21,951
22,467
21,073
19,317
103,908
209,807
$
(b) Information Technology Services Contract
On May 20, 2016, 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 in May 2016, and during the years ended December 31, 2016, 2015, and
2014, we incurred contractual costs of $7.8 million, $3.4 million, and $3.3 million, respectively. During 2016, the
contractual term of the Agreement was extended to December 2022 and now incorporates other costs for services
that were not included in the Agreement in prior years. 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, 2016 are as follows:
(in thousands)
Amount
2017
2018
2019
2020
2021
Thereafter
Total
$
14,944
12,502
12,502
10,302
10,302
1,080
61,632
$
(c) Financial Instruments with Off-Balance Sheet Risks
In the normal course of business, we have various outstanding commitments and contingent liabilities 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.
F-49
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,
2016
2015
$
1,310,736
376,660
17,801
1,482
1,706,679
$
935,083
285,187
27,055
1,342
1,248,667
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, real estate, accounts receivable, property, plant and equipment and
inventory. At December 31, 2016 and 2015, our reserves for losses on unused commitments to extend credit
totaled $1.1 million and $513,000, 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, 2016 and
December 31, 2015, we had deferred revenue for commitment fees paid for the issuance of standby letters of
credit in the amounts of $1.3 million and $1.1 million, respectively.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of our clients’
obligations 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 a reserve for credit losses on standby letters
of credit totaling $199,000 and $134,000 at December 31, 2016 and 2015, respectively. We recorded provisions
for losses related to standby letters of credit totaling $64,000, $10,000 and $(6,000) for the years ended December
31, 2016, 2015 and 2014, respectively. During the years ended December 31, 2016 and 2015, there were no
charge-offs recorded on standby letters of credit.
At December 31, 2016 and 2015, we had commitments to sell loans totaling $3.4 million and $58.8 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.
(20) Regulatory Capital
As a New York 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.
F-50
As of December 31, 2016 and 2015, we met all capital adequacy requirements to which we were subject.
Additionally, 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.
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2016:
(dollars in thousands)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
$
Amount
4,137,271
3,665,855
3,665,885
3,665,855
Ratio
13.46%
11.92%
11.92%
9.61%
Amount
2,459,612
1,844,709
1,383,532
1,526,537
Required for Capital
Adequacy Purposes
Ratio
Required to be
Well Capitalized
Amount
3,074,515
2,459,612
1,998,434
1,908,171
Ratio
10.00%
8.00%
6.50%
5.00%
8.00%
6.00%
4.50%
4.00%
The capital amounts and ratios presented in the following table demonstrate we were “well capitalized” as of
December 31, 2015:
(dollars in thousands)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Actual
$
Amount
3,096,303
2,900,632
2,900,632
2,900,632
Ratio
12.10%
11.33%
11.33%
8.87%
Amount
2,047,502
1,535,626
1,151,720
1,307,379
Required for Capital
Adequacy Purposes
Ratio
Required to be
Well Capitalized
Amount
2,559,377
2,047,502
1,663,595
1,634,224
Ratio
10.00%
8.00%
6.50%
5.00%
8.00%
6.00%
4.50%
4.00%
During the first quarter of 2016, we raised $296.1 million in net proceeds in a common stock offering further
strengthening our overall capital position. Additionally, on April 19, 2016, the Bank issued $260 million of
subordinated debt to institutional investors further strengthening our Tier 2 capital position.
See “Regulation and Supervision—Capital and Related Requirements”, “Regulation and Supervision—Prompt
Corrective Action and Enforcement Powers” and Capital Resources earlier in this report for additional information
regarding regulatory capital.
Dividends
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.
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend
to retain any earnings to finance our operations and the expansion of our business, and we do not anticipate
paying any cash dividends on our common stock. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will be dependent upon then-existing conditions, including our financial
condition and results of operations, capital requirements, contractual restrictions, business prospects and other
factors that the Board of Directors considers relevant.
F-51
(21) Segment Reporting
On an annual basis, we reevaluate our segment reporting conclusions. Based on our internal operating structure
and the relative significance of the specialty finance business, we determined our operations are organized into
two reportable segments representing our core businesses – Commercial Banking and Specialty Finance.
Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities.
Specialty Finance consists principally of financing and leasing products, including equipment, transportation, taxi
medallion, commercial marine, municipal and national franchise financing and/or leasing.
Public companies are required to report certain financial and descriptive information about reportable segments.
Segment information is reported using a “management approach” that is based on the way management
organizes the segments for purposes of making operating decisions and assessing performance.
Management’s accounting process uses various estimates and allocation methodologies to measure the
performance of the segments. To determine financial performance for each segment, the Company allocates
funding costs and certain non-interest expenses to each segment, as applicable. Management does not consider
income tax expense when evaluating segment profitability and, therefore, it is not disclosed in the tables below.
Instead, the Bank’s income tax expense is calculated and evaluated at a consolidated level.
The following table presents financial data of our reportable segments (intersegment assets have not been
eliminated):
(in thousands)
Commercial Banking
Interest income
Interest expense
Provision for (recovery of) loan and lease losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Total assets
Specialty Finance
Interest income
Interest expense
Provision for (recovery of) loan and lease losses
Non-interest income
Non-interest expense
Income (loss) before income taxes
Total assets
At or for the years ended December 31,
2016
2015
2014
1,025,588
129,847
15,783
34,405
317,296
597,067
33,401,329
103,626
22,266
29,131
2,699
23,918
31,010
3,173,198
859,566
123,122
17,989
32,688
274,305
476,838
27,243,405
77,751
13,044
13,121
2,294
18,939
34,941
2,637,116
$
1,235,781
169,909
(20,174)
39,293
353,481
771,858
39,081,992
$
$
109,578
28,208
175,948
3,491
23,324
(114,411)
3,440,329
$
F-52
The following table provides reconciliations of net interest income, provision for loan and lease losses, non-interest
income, non-interest expense, income before income taxes, and total assets for our reportable segments to the
Consolidated Financial Statement totals:
At or for the years ended December 31,
2016
2014
2015
$
1,065,872
81,370
$
1,147,242
$
$
(20,174)
175,948
155,774
$
$
$
39,293
3,491
(34)
42,750
353,481
23,324
(34)
376,771
$
$
$
771,858
(114,411)
657,447
$
$
39,081,992
3,440,329
(3,474,710)
39,047,611
895,741
81,360
977,101
15,783
29,131
44,914
736,444
64,707
801,151
17,989
13,121
31,110
34,405
2,699
-
37,104
$
32,688
2,294
-
34,982
$
317,296
23,918
-
274,305
18,939
-
$
341,214
$
293,244
597,067
31,010
628,077
476,838
34,941
511,779
33,401,329
3,173,198
(3,123,982)
33,450,545
27,243,405
2,637,116
(2,561,881)
27,318,640
(in thousands)
Net interest income:
Commercial Banking
Specialty Finance
Consolidated
Provision for (recovery of) loan and lease losses:
Commercial Banking
Specialty Finance
Consolidated
Non-interest income:
Commercial Banking
Specialty Finance
Eliminations
Consolidated
Non-interest expense:
Commercial Banking
Specialty Finance
Eliminations
Consolidated
Income (loss) before income taxes:
Commercial Banking
Specialty Finance
Consolidated
Total assets:
Commercial Banking
Specialty Finance
Eliminations (1)
Consolidated
(1) Eliminations related to intercompany funding
F-53
(22) Quarterly Data (unaudited)
(dollars in thousands, except per share amounts)
March 31
June 30
September 30 December 31
2016 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
2015 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
$
315,773
37,463
278,310
19,812
258,498
8,464
323,961
42,313
281,648
33,268
248,380
13,143
335,127
44,659
290,468
80,460
210,008
11,067
342,290
45,474
296,816
22,234
274,582
10,076
(55)
(63)
(171)
(138)
8,519
92,325
174,637
70,602
$
104,035
$
$
1.98
1.97
$
253,962
31,466
222,496
7,887
214,609
10,150
13,206
92,310
169,213
66,971
102,242
1.91
1.90
267,594
31,295
236,299
8,957
227,342
9,755
11,238
96,217
124,858
48,748
76,110
1.42
1.41
282,994
33,027
249,967
11,384
238,583
7,854
10,214
95,919
188,739
74,802
113,937
2.12
2.11
302,398
34,059
268,339
16,686
251,653
9,345
(341)
(221)
(120)
(281)
10,489
81,698
143,061
59,671
$
83,390
$
$
1.66
1.64
9,977
84,912
152,185
61,723
90,462
1.78
1.77
7,975
86,173
160,264
64,039
96,225
1.89
1.88
9,626
88,431
172,567
69,579
102,988
2.02
2.01
F-54
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.
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.)
10.15 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 Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2
Certification of the Principal 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 March 1, 2017, Signature Bank has the following significant subsidiaries:
SUBSIDIARIES OF SIGNATURE BANK
Subsidiary
Signature Preferred Capital, Inc.
Signature Financial, LLC
State or Jurisdiction
Under Which Organized
New York
New York
EXHIBIT 31.1
I, Joseph J. DePaolo, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended December 31,
2016;
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;
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;
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: March 1, 2017
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
CERTIFICATION
EXHIBIT 31.2
I, Vito Susca, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended December 31,
2016;
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;
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;
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: March 1, 2017
/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, 2016 (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: March 1, 2017
Dated: March 1, 2017
/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.)
C O M P A 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 30 private client offi ces located throughout the New York metropolitan
area. The 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 nancing and leasing.
F I N A N C I A L H I G H L I G H T S
(in thousands)
2012
2013
2014
2015
2016
Total assets
Total loans
Total deposits
$ 17,456,057
22,376,663
27,318,640
33,450,545
39,047,611
9,771,770
13,519,471
17,857,708
23,792,564
29,043,165
14,082,652
17,057,097
22,620,275
26,773,923
31,861,260
Shareholders’ equity
1,650,327
1,799,939
2,496,238
2,891,834
3,612,264
Net interest income after provision
for loan and lease losses
508,379
606,700
770,041
932,187
991,468
Non-interest income
36,239
32,011
34,982
37,104
42,750
Non-interest expense
218,243
247,177
293,244
341,214
376,771
Income before income taxes
326,375
391,534
511,779
628,077
657,447
Net income
$ 185,483
228,744
296,704
373,065
396,324
BOARD OF DIRECTORS
LOCATIONS
STOCKHOLDER INFORMATION
Scott A. Shay
Co-founder & Chairman of the Board
Signature Bank
Kathryn A. Byrne, CPA
Partner
WeiserMazars LLP
Derrick D. Cephas
Partner
Weil, Gotshal & Manges LLP
Alfonse M. D’Amato
Managing Director
Park Strategies, LLC
Former U.S. Senator
Joseph J. DePaolo
Co-founder, President &
Chief Executive Offi cer
Signature Bank
Barney Frank
Former U.S. Congressman
Judith A. Huntington
Private Investor
Jeff rey W. Meshel
Founder, President &
Chief Executive Offi cer
Paradigm Capital Corp.
John Tamberlane
Co-founder & Vice Chairman
Signature Bank
SENIOR MANAGEMENT
Scott A. Shay
Co-founder & Chairman of the Board
of Directors
Joseph J. DePaolo
Co-founder, President &
Chief Executive Offi cer
John Tamberlane
Co-founder & 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
Manhattan
261 Madison Avenue
485 Madison Avenue
71 Broadway
565 Fifth Avenue
950 Third Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
Brooklyn
26 Court Street
6321 New Utrecht Avenue
97 Broadway
9003 3rd Avenue
84 Broadway
(Accommodation Offi ce)
Queens
36-36 33rd Street, Long Island City
78-27 37th Avenue, Jackson Heights
89-36 Sutphin Boulevard, Jamaica
118-35 Queens Boulevard, Forest Hills
Bronx
421 Hunts Point Avenue
Staten Island
2066 Hylan Boulevard
1688 Victory Boulevard
Westchester
1C Quaker Ridge Road, New Rochelle
360 Hamilton Avenue, White Plains
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
The Bank’s common stock is traded on the
NASDAQ Global Select Market under the
symbol SBNY.
Annual Meeting
The annual meeting of stockholders will be
held on April 20, 2017, 9:00 AM local time, at:
The Roosevelt Hotel
45 East 45th Street
New York, NY 10017
212-661-9600
Form 10-K
A copy of Signature Bank’s Annual Report
on Form 10-K fi led with the FDIC is available
without charge by download from www.sig-
natureny.com, or by written request to:
Long Island
1225 Franklin Avenue, Garden City
53 North Park Avenue, Rockville Centre
Signature Bank
Attention: Investor Relations
565 Fifth Avenue
New York, NY 10017
68 South Service Road, Melville
923 Broadway, Woodmere
40 Cuttermill Road, Great Neck
100 Jericho Quadrangle, Jericho
360 Motor Parkway, Hauppauge
58 South Service Road, Melville
(Accommodation Offi ce)
Connecticut
75 Holly Hill Lane, Greenwich
Signature Securities Group
Institutional Trading
9 Greenway Plaza, Houston, TX 77046
(Services limited to institutional clients)
Signature Financial LLC
225 Broadhollow Road, Suite 132W
Melville, NY 11747
Signature Public Funding Corp.
600 Washington Avenue, Suite 305
Towson, MD 21204
Certain statements in this Annual Report, and
certain oral statements made from time to
time by representatives of the Bank, that are
not historical facts may 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 suscep-
tible to a number of risks, uncertainties and
other factors. The Bank’s actual results, per-
formance and achievements may diff er mate-
rially from any future results, performance or
achievements expressed or implied by such
forward-looking statements. For those state-
ments, the Bank claims the protection of the
safe harbor for forward-looking statements
contained in the Reform Act. See “Private
Securities 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 Decem-
ber 31, 2016, included herein.
565 Fifth Avenue
866-SIG-LINE (866-744-5463)
New York, NY 10017
www.signatureny.com
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