565 Fift h Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com
2 0 18 A N N U A L R E P O R T
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LO C AT IONS
Manhattan
261 Madison Avenue
485 Madison Avenue
71 Broadway
565 Fift h Avenue
950 Th ird Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
6321 New Utrecht Avenue
Brooklyn
26 Court Street
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
Long Island
900 Stewart Avenue, Garden City
53 North Park Avenue, Roczkville Centre
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
California
201 Mission Street, San Francisco
SBA Institutional Trading & Sales
9 Greenway Plaza, Suite 3120
Houston, TX 77046
Signature Securities Group
1177 Avenue of the Americas
New York, NY 10036
Signature Financial LLC
225 Broadhollow Road, Suite 132W
Melville, NY 11747
Seattle National Originations Offi ce
12100 NE 195th Street, Suite 135
Bothell, WA 98011
Signature Public Funding Corp.
600 Washington Avenue, Suite 305
Towson, MD 21204
C O M P A N Y P R O F I L E
C O R P O R A T E I N F O R M A T 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. In 2018,
the Bank expanded its footprint on the West Coast with the opening of its fi rst full-service
private client banking offi ce in San Francisco. Th e Bank primarily serves privately owned
businesses, their owners and senior managers. Signature Bank off ers a broad range of
business and personal banking products and services as well as investment, brokerage, asset
management and insurance products and services through its subsidiary, Signature Securities
Group Corporation, a licensed broker-dealer, investment adviser and member FINRA/SIPC.
In addition, Signature Bank’s wholly owned specialty fi nance subsidiary, Signature Financial
LLC, provides equipment fi nancing and leasing.
In December 2018, Signature Bank unveiled its revolutionary digital payments platform,
Signet™, designed to enable real-time payments for its commercial clients. Th e Signet Platform,
which leverages blockchain technology, allows Signature Bank’s commercial clients to make
payments in U.S. dollars, 24 hours a day, seven days a week, 365 days a year. Transactions
made on the Signet Platform settle in real time, are safe and secure, and incur no transaction
fees. Signature Bank is the fi rst FDIC-insured bank to launch a blockchain-based digital
payments platform. Signet is the fi rst such platform to be approved for use by the New York
State Department of Financial Services.
F I N A N C I A L H I G H L I G H T S
(in thousands)
Total assets
Total loans
Total deposits
2014
2015
2016
2017
2018
$ 27,318,640
33,450,545
39,047,611
43,117,720
47,364,816
17,857,708
23,792,564
29,043,165
32,612,539
36,423,127
22,620,275
26,773,923
31,861,260
33,439,827
36,378,773
Total average deposits
19,931,415
25,293,565
29,747,824
33,158,234
35,143,194
Shareholders’ equity
2,496,238
2,891,834
3,612,264
4,031,691
4,407,140
Net interest income aft er provision
for loan and lease losses
770,041
932,187
991,468
974,289
1,136,463
Non-interest income
34,982
37,104
42,750
36,041
23,278
Non-interest expense
293,244
341,214
376,771
435,066
486,278
Income before income taxes
511,779
628,077
657,447
Net income
$ 296,704
373,065
396,324
575,264
387,209
673,463
505,342
BOA R D O F D I R E C T O R S
S T O C K H O L D E R I N F O R M AT I O N
Scott A. Shay
Co-founder & Chairman of
the Board of Directors
Signature Bank
Kathryn A. Byrne, CPA
Partner
MAZARS USA 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
President
Pegasus Financial Concierge
Jeffrey W. Meshel
Co-founder
Paradigm Capital Corp.
John Tamberlane
Co-founder & Vice Chairman
Signature Bank
S E N I O R M A N AG E M E N T
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
Eric R. Howell
Executive Vice President -
Corporate & Business Development
Peter S. Quinlan
Executive Vice President &
Treasurer
Vito Susca
Executive Vice President &
Chief Financial Offi cer
Thomas Kasulka
Executive Vice President &
Chief Lending Offi cer
Michael Sharkey
Senior Vice President &
Chief Technology Offi cer
Brian Twomey
Senior Vice President &
Chief Credit Offi cer
Paul, Weiss, Rifk ind, Wharton & Garrison LLP
Signature Bank
565 Fift h Avenue
New York, NY 10017
646-822-1500
866-SIG-LINE (866-744-5463)
www.signatureny.com
Counsel
285 Avenue of the Americas
New York, NY 10019
212-373-3000
Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154-0102
212-758-9700
Stock Transfer Agent & Registrar
American Stock Transfer
6201 15th Avenue
Brooklyn, NY 11219
718-921-8200
Stock Trading Information
Th e Bank’s common stock is traded on
the Nasdaq Global Select Market under
the symbol SBNY.
Annual Meeting
Th e annual meeting of stockholders will be
held on April 18, 2019, 9:00 AM local time, at:
Th e Roosevelt Hotel
45 East 45th Street
New York, NY 10017
212-661-9600
Form 10-K
A copy of Signature Bank’s Annual Report
on Form 10-K fi led with the FDIC is
available without charge by download from
www.signatureny.com, or by written request to:
Signature Bank
Attention: Investor Relations
565 Fift h Avenue
New York, NY 10017
Certain statements in this Annual Report, and certain oral state-
ments 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 Litiga-
tion 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. Th e
Bank’s actual results, performance and achievements may diff er
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. For
those statements, 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
December 31, 2018, included herein.
T O O U R S H A R E H O L D E R S
Signature Bank Co-founders
(pictured from left to right):
Joseph J. DePaolo, President and Chief Executive Officer;
Scott A. Shay, Chairman of the Board; and,
John Tamberlane, Vice Chairman
The vision for Signature Bank
was borne from a determina-
tion to fill a void in relation-
ship banking. We envisioned
building a better model, one
where experienced banking
professionals would lead
teams of bankers, serving as
a single point of contact for
meeting clients’ needs. Our
core focus would be on catering to privately owned busi-
nesses, a niche underserved by the dominant megabanks.
This distinctive model became the backbone of our busi-
ness and culture as well as the strength of our enterprise.
Over nearly 18 years, we’ve built a reputation on our hall-
mark of service and client care.
Sticking to this credo has allowed Signature Bank to
emerge as one of the top 40 largest banks in the U.S., based
on deposits, according to S&P Global Market Intelligence.
Despite the volatile times the banking industry has faced
of late, our vision to create the premier relationship-
based bank has been a key driving force in our execution.
In 2018, we not only persevered but also continued to
perform, with growth in deposits reaching nearly $3
billion year-over-year, amid the most challenging deposit
environment we have ever witnessed. We are determined
to stay with our founding mission to remain a leader in
serving privately owned businesses, their owners and
senior managers and ended the year among the leading
dominant deposit franchises in the country.
Determined to Execute Our Vision
Our single-point-of-contact approach to private client
banking has long distinguished Signature Bank in the
commercial banking marketplace. It is the structure of our
model that allows us to successfully compete with various
types of commercial banks, especially the megabanks.
Since we founded the institution in 2001, our determina-
tion and consistent execution of our model has become our
competitive advantage in the commercial banking arena.
We are dedicated to attract-
ing and retaining teams
of talented banking profes-
sionals. These Private Client
Banking Teams, led by Group
Directors, are comprised of
experienced banking profes-
sionals, capable of meeting all
client needs. Unlike at larger
megabanks, here at Signature
Bank, clients rely on their designated bankers and teams
to handle all their needs. We grow our network as we iden-
tify relevant bankers and expand our physical footprint
only once seasoned teams are identified.
To this end, during 2018, Signature Bank continued to
demonstrate pure organic growth through team expan-
sion. We added eight Private Client Banking Teams, and as
a result, obtained more core clients, which led to increased
core deposit growth. We also expanded our franchise on
the West Coast, with the opening of a financial center in
downtown San Francisco, staffed with three teams. While
we have been serving clients on the West Coast for some
time, we deemed it the right time to formally make our
entry with an official private client banking office.
During 2018, we created a new business line with the
establishment of our Fund Banking Division. To lead
this endeavor, we appointed a team well-known in this
area, which focuses on providing financing and banking
services to the private equity industry. Signature Bank’s
Fund Banking Division, based in Midtown Manhattan,
offers subscription lines of credit, management company
lines of credit and general partner loans, specifically
targeted to private equity firms. A top priority for the
Bank is to position the Fund Banking Division for strong
growth, which will eventually span a much larger portion
of our business.
The efforts of our Fund Banking Division are expected to
contribute to transforming our balance sheet over time.
2 0 1 8 A N N U A L R E P O R T
1
2
Given that our loan portfolio is primarily fixed in nature, adding floating rate assets is complementary and provides balance as we evolve our asset mix over the long term. The addition of floating rate assets will help to alleviate pres-sures should interest rates continue to increase. Over time, this will allow us to reduce interest rate risk.Of key importance during 2018 was the passage of Senate Bill 2155. This moved the threshold for a Systemically Important Financial Institution (SIFI) from $50 billion to $250 billion. This is a very positive development for Signature Bank as we will not be subject to the same regu-lations as the megabanks.Investing in the FutureAt the end of 2018, Signature Bank unveiled its revolu-tionary digital payments platform, Signet™. The Signet Platform, which leverages blockchain technology, allows Signature Bank’s commercial clients to make payments in U.S. dollars, 24 hours a day, seven days a week, 365 days a year. Transactions made on the Signet Platform settle in real time, are safe and secure, and incur no transaction fees. Signature Bank is the first FDIC-insured bank to launch a blockchain-based digital payments platform. Typically, in the case of real-time payments, funds are transferred between two different institutions. With Signet, funds are transferred in real time between commercial clients of Signature Bank, eliminating any dependence on a third party. The Signet Platform was the first solution of its kind approved by the New York State Department of Financial Services, marking an important and groundbreaking industrywide bank-ing advancement. Signature Bank partnered with trueDigital Holdings LLC, a New York blockchain-based infrastructure, exchange and settlement technology company providing solutions for traditional and emerg-ing financial markets, to facilitate Signet’s functionality. Soon after introducing Signet, the Bank announced the platform was selected by an independent power supply company that provides retail and wholesale electric supply services throughout the U.S. They plan to use Signet to facilitate real-time payments within the renew-able energy sector, signifying the first time this energy segment adopted a blockchain-based platform to conduct transactions involving the transfer of payments for power. Our relationship with the power supply company is just one example of many ecosystems and applications perti-nent to the Signet Platform.Furthermore, in 2018, capital management initiatives were introduced, aimed at increasing shareholder value. On July 18, 2018, Signature Bank declared its inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0 million, which was paid on August 15, 2018, to our common shareholders of record at the close of business on August 1, 2018. Following the new dividend program, in October 2018, stockholders approved the repurchase of Common Stock from the Bank’s shareholders in open market transactions in the aggregate purchase amount of up to $500.0 million. During the fourth quarter, the Bank repurchased 358,492 shares of Common Stock for a total of $41.8 million. Lastly, during 2018, we continued to make noteworthy investments that will positively impact the Bank and its clients. These investments include those in our loan systems, payments architecture platform and new foreign exchange system. The advancements we are making to our systems are improving operations and enhancing functionality. Our focus, initiatives and proven capabilities have differ-entiated this institution, while our vision and strong foundation have enabled preparedness for addressing various challenges presented in our path. Our strategic execution across all these notable initiatives continues to complement our core model and position the Bank for future growth. Net Income
(in millions)
505.3
396.3
373.1
387.2
296.7
14
15
17
18
16
YEAR
Loans
(in billions)
36.4
32.6
29.0
23.8
17.9
14
15
17
18
16
YEAR
Average
Deposits
(in billions)
35.1
33.2
29.7
25.3
19.9
14
15
17
18
16
YEAR
2 0 1 8 A N N U A L R E P O R T
3
A Solid Year of Financial Performance During 2018, we adapted to external market factors but stuck to our core principles. We are proud to have delivered another year of strong performance across all key metrics, based on our ability to continually execute, despite our first quarter reserve for our taxi medallion portfolio. For the year ended December 31, 2018, net income rose 30.5 percent, or $118.1 million, to $505.3 million, or $9.23 diluted earnings per share, versus $387.2 million, or $7.12 diluted earnings per share, in 2017. The increase in net income for 2018 is mainly the result of growth in net interest income, fueled by strong average deposit and loan growth as well as a rise in prepayment penalty income. A decrease in the provision for loan losses also proved benefi-cial. All these factors were partially offset by an increase in non-interest expenses.The Bank’s loan portfolio expanded in 2018 by $3.81 billion, or 11.7 percent, to $36.42 billion, versus loans of $32.61 billion at the end of 2017. The 2018 loan increase is mostly attributable to growth in commercial and indus-trial loans, including specialty finance. Non-accrual loans at December 31, 2018 were $108.7 million, representing 0.30 percent of total loans and 0.23 percent of total assets, versus non-accrual loans of $326.9 million, or 1.00 percent of total loans, at December 31, 2017. Excluding non-accru-ing loans secured by taxi medallions of $88.5 million, non-accrual loans for the remainder of the portfolio are $20.1 million, or merely six basis points of total loans. At December 31, 2018, the ratio of allowance for loan and lease losses to total loans was 0.63 percent, versus 0.60 percent, at December 31, 2017.Our deposit growth demonstrates our strong leadership position as a depositor-focused institution. Overall deposit growth during 2018 was $2.94 billion, or 8.8 percent, with deposits reaching $36.38 billion at year end. Average total deposits in 2018 were $35.14 billion, growing $1.98 billion, or 6.0 percent, when compared with average total deposits of $33.16 billion for 2017. Additionally, non-interest-bear-ing deposits grew $663.2 million, or 5.8 percent. Our ability to grow non-interest-bearing deposits, which are mostly the operating accounts of our clients, demonstrates the strength of our franchise, especially given the difficult deposit environment we currently face.The Bank’s capital position was once again strong in 2018. Our capital ratios were all well in excess of regulatory requirements. The Bank’s Tier 1 leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios were 9.70 percent, 12.11 percent, 12.11 percent and 13.41 percent, respectively, as of December 31, 2018. The Bank’s risk-based capital ratios continue to reflect the relatively low risk profile of our balance sheet. The tangible common equity ratio, which we define as the ratio of total tangible common shareholders’ equity to total tangible assets, remained strong at 9.21 percent. In 2018, our financial position and balance sheet remained extremely stable. We continue to increase loans as a percentage of the balance sheet and shift our commercial real estate concentration of the past to a commercial and industrial emphasis in the future. With depositor safety and security our prior-ity, Signature Bank earned high investment grade ratings again in 2018 for the fourth consecutive year from Kroll Bond Rating Agency (KBRA), a full-service rating agency. According to KBRA, Signature Bank’s ratings were supported by our solid fundamentals, including a sustainable and strong earn-ings track record; the ability to remain profitable and deliver peer-leading returns, especially during economic downturns; disciplined underwriting practices; ongoing healthy liquidity; a deep core deposit base; consistently superior efficiency ratios; strong asset-quality metrics; sound capital ratios; and, a highly experienced management team. These exceptional ratings speak volumes to our declared pledge to our depositors. Built to Last
Throughout the nearly 18 years since our founding, we
have closely and carefully listened to our clients. We
have always strived to deliver unparalleled client care,
along with a diverse product and service offering and
advanced solutions, all of which result in an easy, seam-
less and cohesive banking experience.
Intently listening to our clients led to the development
of Signet. We recognize how our crucial investments in
technology today will impact our clients tomorrow.
We also are committed to serving the communities in
which we operate. Some 2018 highlights of further deep-
ening this commitment to the community include:
• Awarding Recoverable Grants totaling $500,000 to five
community-based, not-for-profit housing developers
and managers as part of the Signature Bank Building
Improvement Initiative. This initiative is designed
to provide needed capital to not-for-profit owner
operators to facilitate and expedite improvements for
tenants in their respective buildings. Each recipient
received a $100,000 Recoverable Grant to make capital
improvements to affordable housing properties in their
portfolios;
• Further demonstrating our commitment to best prac-
tices for multi-family lending throughout New York
City by creating a new community liaison specialist
position to directly interface with community-based
organizations and tenants;
• Offering investment workshops through the Bank’s
First Time Investors Program, which involves our own
colleagues educating low-moderate income (LMI)
individuals or veterans on money management and
prudent ways of investing;
• Supporting education and youth through Signature
Scholars, a customized college access and advising
Signature Bank program for 80 LMI students in the
Bronx and Stamford, Conn.; and,
• Strengthening our partnership with Cents Ability, a
non-profit organization championing financial liter-
acy, by training 20 Signature Bank colleagues who
now volunteer to teach financial literacy to New York
City LMI high school students.
Our client focus and community initiatives resulted in
many accolades during 2018:
• Signature Bank was named the Best Business Bank,
Best Private Bank and Best Attorney Escrow Services
4
provider by the New York Law Journal in its ninth
annual “Best of” survey of the New York legal commu-
nity. 2018 also marks the ninth straight year the
Bank earned a top three position in one or more of
these same categories, earning it a place in the New
York Law Journal’s Hall of Fame. The Hall of Fame is
awarded only to companies that have placed in “Best
of” for at least three of the past four years;
• Nationally, Signature Bank ranked second in the Best
Business Bank, Best Private Banking Services and Best
Attorney Escrow Services categories of National Law
Journal’s “Best of” 2019 survey, based on votes cast in
2018 by the legal community throughout the country.
To be nationally recognized in the company of trillion-
dollar megabanks is an absolutely amazing honor; and,
• Signature Bank was named among the Best Banks in
America for the eighth consecutive year by Forbes in
2018.
As we close 2018 and look ahead, we reflect on the
positive influence all constituents engaged in our busi-
ness have had on Signature Bank’s leadership position,
making our vision and notable success possible. First,
we extend our deepest thanks to our 1,400+ colleagues
for their devotion to our clients. Our colleagues make
our reputation as a leading commercial bank. We are
grateful for our growing client base and their loyalty,
our Board of Directors for its ongoing guidance, and our
shareholders for their faith in our growing institution.
As the economy, technology and banking landscape
continue to rapidly change, Signature Bank is playing
a key role in shaping the future of the industry. We
are determined to continue to remain a leading force
in the commercial banking landscape. Maintaining
our founding principles and vision while adapting to
the evolving landscape enforces our pledge to ensure
financial strength, depositor safety, unequaled relation-
ship-based banking and consistent shareholder value.
Respectfully,
Scott A. Shay
Chairman of the Board
Joseph J. DePaolo
President and
Chief Executive Officer
UNITED STATES
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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 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). 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, a smaller reporting
company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b 2 of the Exchange Act. (Check one):
Large accelerated filer T Accelerated filer £ Non-accelerated filer £ Smaller reporting company £ Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply-
ing with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
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, 2018 was $6.92 billion.
As of February 28, 2019, the Registrant had outstanding 55,095,822 shares of Common Stock.
Portions of the registrant’s definitive Proxy Statement for Annual Meeting of Stockholders to be held April 18, 2019. (Part III)
DOCUMENTS INCORPORATED BY REFERENCE
SIGNATURE BANK
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
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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 of 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 the Economic Growth, Regulatory Relief 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;
future dividends and share repurchases;
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;
fiscal challenges facing the U.S. government could negatively impact financial markets which in turn could
have an adverse effect on our financial position or results of operations;
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;
the planned phase out of LIBOR as a financial benchmark presents risks to the financial instruments originated
or held by us;
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 and the real estate market of the New York metropolitan area;
4
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 use of 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;
data security breaches;
decreases in trading volumes or prices;
exposure to legal claims and litigation;
our ability to pay cash dividends or engage in share repurchases is restricted;
potential responsibility for environmental claims;
climate change and related legislative and regulatory initiatives may result in operational changes and
expenditures that could significantly impact our business;
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;
5
work stoppages, financial difficulties, fire, earthquakes, flooding or other natural disasters;
changes in federal, state or local tax laws;
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 Financial, LLC
(“Signature Financial”), Signature Securities Group Corporation (“Signature Securities”) 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. In 2018, the
Bank expanded its footprint on the West Coast with the opening of its first full-service private client banking office
in San Francisco. 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
subsidiary, a licensed broker-dealer and investment adviser.
Through our 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 municipal finance.
Additionally, through a representative office of the Bank in Houston, Texas, we purchase, securitize and sell the
guaranteed portions of U.S. Small Business Administration (“SBA”) loans.
Since commencing operations in May 2001, we have grown to $47.36 billion in assets, $36.38 billion in deposits,
$36.42 billion in loans, $4.41 billion in equity capital and $3.78 billion in other assets under management as of
December 31, 2018. We intend to continue our growth and maintain our position as a premier relationship-based
financial services organization in the New York metropolitan area and on the West Coast as guided by our
Chairman and senior management team who have extensive experience developing, managing and growing
financial service organizations.
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.
Recent Highlights
Signet™
On January 1, 2019, the Bank launched SignetTM, a new proprietary digital payments platform, allowing our
commercial clients to transact in a real-time and transparent manner. Signet leverages blockchain technology in its
architecture, allowing Signature Bank’s commercial clients to make payments to other Signature commercial
clients in U.S. dollars 24 hours a day, seven days a week, 365 days a year.
7
Establishment of New Fund Banking Division
In October 2018, the Bank launched its new Fund Banking Division which is based in Midtown Manhattan. The
division is dedicated to providing financing and banking services to the private equity industry by offering
subscription lines of credit, management company lines of credit and general partner loans, specifically targeted to
private equity firms and their general partners.
Stock Repurchase Program
On October 17, 2018, the Bank’s stockholders approved the repurchase of common stock from the Bank’s
shareholders in open market transactions in the aggregate purchase amount of up to $500.0 million. The timing of
the execution of this plan, as well as the amount repurchased, will be at the discretion of our Board of Directors
and management, and will be dependent upon then-existing conditions, including our financial condition and
results of operations, capital requirements, commercial real estate concentration, contractual restrictions, business
prospects and other factors considered relevant. Share buybacks are also subject to shareholder and regulatory
approval, which were received for the repurchase program of up to $500.0 million in October and November 2018,
respectively. During the fourth quarter of 2018, the Bank repurchased 358,492 shares of common stock for a total
of $41.8 million.
Common Stock Dividend
On July 18, 2018, the Bank declared its inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0
million, which was paid on August 15, 2018 to our common shareholders of record at the close of business on
August 1, 2018. The Bank declared its second cash dividend of $0.56 per share, or a total of $31.0 million, which
was paid on November 15, 2018 to common shareholders of record at the close of business on November 1,
2018. On January 17, 2019, the Bank declared its third cash dividend of $0.56 per share, or a total of $30.8
million, which was paid on February 15, 2019 to common shareholders of record at the close of business on
February 1, 2019.
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.
Core Deposit Growth
During 2018, our deposits grew $2.94 billion, or 8.8 %, to $36.38 billion. Deposits at December 31, 2018 included
$2.21 billion of time deposits compared to $1.80 billion at year-end 2017. Core deposits, which exclude time
deposits and brokered deposits, increased $2.53 billion, or 8.0%, during 2018 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, as well as private equity firms and their general partners.
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
5.5% of our total deposits as of December 31, 2018. Our average cost for total deposits was 0.82% for the year
ended December 31, 2018.
Strategic Hires
During 2018, we increased our network of seasoned banking professionals by adding nine private client banking
teams and several new banking group directors, including the addition of the aforementioned Fund Banking
Division. Our full-time equivalent number of employees grew from 1,305 to 1,393 during 2018.
8
Private Client Banking Teams and Offices
As of December 31, 2018, we had 102 private client banking teams located throughout the New York metropolitan
area and on the West Coast. 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.
We currently operate 30 private client offices in the New York metropolitan area. In 2018, the Bank expanded its
footprint on the West Coast with the opening of its first full-service private client banking office in San Francisco.
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. As such, we expect to continue to expand our
geographic presence on the West Coast where we have significant client synergies.
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 major metropolitan areas 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 principally 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. Additionally, the newly launched Fund
Banking division will be dedicated to providing financing and banking services to the private equity industry by
offering subscription lines of credit, management company lines of credit and general partner loans, specifically
targeted to private equity firms and their general partners.
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 major metropolitan areas we serve in New York, as well as along the West Coast. 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.
9
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 and West Coast financial services
marketplaces 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 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 and Chief Lending 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.
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.
10
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 by Vendor Management.
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.
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. All warrants were
either exercised or expired as of the December 12, 2018 expiration date.
In July 2011, we completed a public offering of 4,715,000 shares of our common stock generating net
proceeds of $253.3 million.
In July 2014, we completed a public offering of 2,415,000 shares of our common stock generating net
proceeds of $295.8 million.
11
In February 2016, we completed a public offering of 2,366,855 shares of our common stock generating
net proceeds of $318.7 million.
In April 2016, the Bank issued $260.0 million of subordinated debt to institutional investors.
On August 15, 2018, the Bank paid its inaugural quarterly cash dividend to common shareholders.
On October 17, 2018, the Bank’s stockholders approved the repurchase of common stock from the
Bank’s shareholders in open market transactions in the aggregate purchase amount of up to $500.0
million. As of December 31, 2018, the Bank repurchased 358,492 shares of common stock for a total of
$41.8 million.
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;
Subscription lines of credit, management company lines of credit and general partner loans, specifically
targeted to private equity firms and their general partners;
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;
Business insurance products, including group health and group life products; and
Signet – digital payments platform, which leverages blockchain technology, allowing our commercial clients
to transact in real-time and transparent manner.
Personal Clients
We offer a full range of products and services oriented to the needs of our high net worth personal clients,
including:
Interest-bearing and non-interest-bearing checking accounts, with optional features such as debit/ATM
cards and overdraft protection and, for our top clients, rebates of certain charges, including ATM fees;
Money market accounts and money market mutual funds;
Time deposits;
Personal loans, both secured and unsecured;
Credit card accounts;
Investment and asset management services; and
Personal insurance products, including health, life and disability.
12
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. In 2018, we expanded our deposit gathering efforts to the West Coast with the opening of our
first full-service private client banking office in San Francisco. We distinguish ourselves from competitors by
focusing on our target market: privately owned businesses, their owners and their senior managers as well as
private equity firms and their general partners. 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 the dates indicated:
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(dollars in thousands)AmountPercentageAmountPercentage861,292$ 2.37%908,543 2.72%11,154,549 30.65%10,399,871 31.10%26 0.00%44,624 0.13%35,289 0.10%56,748 0.17%4,360,261 11.99%3,598,951 10.76%Brokered NOW2,215 0.01%- 0.00%283,941 0.78%231,192 0.69%3,669,637 10.09%4,091,155 12.23%13,887,703 38.17%12,353,360 36.95%Brokered money market accounts126,559 0.35%175,028 0.52%271,194 0.75%274,165 0.82%1,106,323 3.04%682,253 2.04%619,784 1.70%623,937 1.87%36,378,773$ 100.00%33,439,827 100.00%12,015,841$ 33.02%11,308,414 33.82%4,395,550 12.09%3,655,699 10.93%17,841,281 49.04%16,675,707 49.87%1,377,517 3.79%956,418 2.86%748,584 2.06%843,589 2.52%36,378,773$ 100.00%33,439,827 100.00%4,837,412$ 13.31%5,330,611 15.94%30,792,777 84.63%27,265,627 81.54%748,584 2.06%843,589 2.52%36,378,773$ 100.00%33,439,827 100.00%(1)Non-interest bearing.(2)20182017December 31,Personal demand deposit accounts (1)Business demand deposit accounts (1)Rent securityPersonal NOWBusiness NOWBrokered demand deposit accounts (1)Personal money market accountsBusiness money market accountsPersonal time depositsBusiness time depositsBrokered time depositsTotalTotalTotalPersonal BusinessBrokered deposits (2)Demand deposit accounts (1)NOWMoney market accountsTime depositsBrokered deposits (2)
Lending Activities
Our traditional commercial and industrial (“C&I”) 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. In 2018, we further expanded this target market to include private
equity firms and their general partners with the establishment of our new Fund Banking Division. 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 and Chief Lending 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 98% of our funded
loans are secured by collateral. Unsecured loans are typically made to individuals with substantial net worth.
Commercial and Industrial Loans
Our 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. Our Fund Banking Division also provides subscription lines of credit, management company lines
of credit and general partner loans, specifically targeted to private equity firms and their general partners.
At December 31, 2018, funded C&I loans totaled approximately 22% 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.
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The following table presents information regarding the distribution of our C&I loans among the various industries
we had concentration in as of December 31, 2018:
As of December 31, 2018, one component 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 increased competition from Transportation Network Companies within the taxi industry and
the significant decline in the underlying New York City taxi medallion collateral value in 2017 caused substantial
doubt regarding the collectability of these loans. As a result, in 2017, we placed the entire taxi medallion portfolio
on nonaccrual and recorded significant charge-offs within the New York City taxi medallion portfolio. In the first
quarter of 2018, a further significant decline in the underlying collateral fair value was observed resulting in
additional charge-offs. The charge-off activity combined with the application of all principal and interest payments
to the nonaccrual loan principal balance reduced our exposure to $88.5 million (or 1.11%) of our C&I loans at
December 31, 2018, as compared to $309.9 million (or 4.86%) at December 31, 2017. See the discussion of asset
quality and the ALLL later in this report, as well as in Note 8 to our Consolidated Financial Statements.
Real Estate Loans
Our real estate loan portfolio includes loans secured by commercial property, multi-family residential property, 1-4
family residential property, and acquisition, development and construction. 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 the property to verify the ongoing adequacy of the collateral. At December 31, 2018, funded
real estate loans totaled approximately $29.50 billion, representing approximately 80% of our total funded loans.
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Industry Classifications(dollars in thousands)Loan AmountPercentageFinancial Services1,522,684$ 19.04%Transportation Services1,112,958 13.92%Building and Construction Contractors738,217 9.23%Real Estate and Real Estate Management734,114 9.18%Manufacturing722,749 9.04%Automotive Services450,491 5.64%Accomodation and Food Services403,036 5.04%Professional Services398,504 4.99%Wholesale Trade384,543 4.81%Health Services288,089 3.60%Public Administration235,090 2.94%Retail Trade217,061 2.72%Audio/Video Services188,369 2.36%Educational Services183,032 2.29%Business Services90,037 1.13%Taxi Medallions88,511 1.11%Mining67,396 0.84%Recreational Services55,791 0.70%Private Households51,715 0.65%Utilities37,805 0.47%Agriculture23,807 0.30%Total7,993,999$ 100.00%
The following table shows the distribution of our real estate loans by collateral type as of December 31, 2018:
Personal residential real estate loans, or first and second mortgage loans for residential properties, are not a core
part of our business. Historically, we originated these loans to borrowers who were typically high net worth
individuals from our private client services. However, 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 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.
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, 2018, our commitments under letters of credit totaled approximately
$484.9 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, 2018, our consumer loans totaled $9.0 million, representing less than 0.1% of our
total funded loans.
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Loans Secured by Real Estate(dollars in thousands)Loan AmountPercentageMulti-family residential property15,688,481$ 53.19%Commercial property11,415,082 38.70%1-4 family residential property620,486 2.10%Home equity lines of credit116,272 0.39%Acquisition, development and construction loans1,656,467 5.62%Total29,496,788$ 100.00%December 31, 2018
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
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, 2018, we had $485.3 million in SBA loans held for sale, representing approximately 1.3% of our
total funded loans, compared to $432.3 million at December 31, 2017.
The Bank purchases, sells and assembles SBA loans and pools. We are one of the largest SBA pool assemblers
in the United States. Our primary business in the SBA related transactions 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.
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, 2018, the carrying amount of
our SBA excess servicing strip assets totaled $152.8 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.
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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 and West Coast
metropolitan areas. We compete with other bank holding companies, national and state-chartered commercial
banks, savings and loan associations, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders,
and other financial institutions. Many of these competitors have substantially greater financial resources, lending
limits and larger office networks than we do and are able to offer a broader range of products and services than
we can. Because we compete against larger institutions, our failure to compete effectively for 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.
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 $1.8 trillion in total deposits, as of June 30, 2018 – more
than three times larger than the second largest MSA in the U.S. (Sioux Falls, South Dakota). The recently entered
San Francisco MSA is seventh largest in the U.S. at $370.8 billion. 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, 2018, we operated 30 private client offices in the New York metropolitan area. These 30
offices housed a total of 99 private client banking teams. In 2018, three private client banking teams were added
on the West Coast with the opening of our first full-service private client banking office in San Francisco. As part of
the continuing development of our business strategy, we expect to add additional private client banking teams in
2019. We believe these additional teams will allow us to expand our current operations in the New York
metropolitan area, as well as to the West Coast.
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, Brown Deer, Wisconsin and Phoenix, Arizona. 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.
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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.
Employees
As of December 31, 2018, we had 1,393 full-time equivalent employees, 829 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 laws and 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 Bureau of Consumer
Financial Protection (commonly referred to as the “CFPB”) for financial products and services under its jurisdiction.
These regulators oversee our compliance with applicable federal, New York and other state 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 Board of Governors of Federal Reserve System (“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, certain investment advice rules promulgated by the Department of Labor (“DOL”), 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.
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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
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. However, in May 2018,
the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) was enacted
into law. Among other things, the Economic Growth Act raised the total asset threshold from $50 billion to $250
billion for automatic applicability of several regulatory requirements established under the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”) known as “enhanced prudential standards” which
include requirements related to company-run stress testing, leverage limits, liquidity requirements, and resolution
planning requirements for bank holding companies. On July 6, 2018, the federal banking agencies released an
interagency statement providing that depository institutions without a holding company and with less than $250
billion in total consolidated assets are exempt from company stress testing requirements until November 2019, at
which time such institutions will also be exempt from company run stress testing requirements under the Economic
Growth Act.
Under the Economic Growth Act, the Federal Reserve maintains the authority to apply such requirements on a
tailored basis to bank holding companies with total consolidated assets of $100 billion or more to address financial
stability risks or safety and soundness concerns. The regulatory relief mandated by the Economic Growth Act with
respect to bank holding companies with less than $100 billion in total consolidated assets may ultimately impact
the FDIC’s supervisory expectations with respect to banks of our asset size that do not have a holding company in
order to avoid unnecessary burdens for depository institutions and to ensure consistency with the regulatory
treatment of bank holding companies of a similar asset size.
The Economic Growth Act also enacted several important changes in certain technical compliance areas, for
which the banking agencies issued certain corresponding proposed and interim final rules, including:
Prohibiting federal banking regulators from imposing higher capital standards on High Volatility
Commercial Real Estate (“HVCRE”) exposures unless they are for acquisition, development or
construction (“ADC”), and clarifying ADC status;
Requiring the federal banking agencies to amend the liquidity coverage ratio rule (“LCR”) such that all
qualifying investment-grade, liquid and readily-marketable municipal securities are treated as level 2B
liquid assets (i.e., assets with a lesser degree of liquidity and more volatility than level 2A assets, which
include, for example, certain government securities, covered bonds and corporate debt securities),
making them more attractive investment alternatives;
Exempting from appraisal requirements certain transactions involving real property in rural areas and
valued at less than $400,000; and
Directing the CFPB to provide guidance on the applicability of the Truth in Lending Act (“TILA”)- Real
Estate Settlement Procedures Act (“RESPA”) Integrated Disclosure rule (the “TRID Rule”) to mortgage
assumption transactions and construction-to-permanent home loans, as well the extent to which lenders
can rely on model disclosures that do not reflect recent regulatory changes.
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.
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Restrictions on Dividends and Other Distributions
On July 18, 2018, the Bank declared its inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0
million, which was paid on August 15, 2018 to our common shareholders of record at the close of business on
August 1, 2018. The Bank declared its second cash dividend of $0.56 per share, or a total of $31.0 million, which
was paid on November 15, 2018 to common shareholders of record at the close of business on November 1,
2018. On January 17, 2019, the Bank declared its third cash dividend of $0.56 per share, or a total of $30.8
million, which was paid on February 15, 2019 to common shareholders of record at the close of business on
February 1, 2019.
Payments of dividends on our common stock may be subject to the prior approval of the 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 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.
In addition, on October 17, 2018, Bank stockholders approved our common stock repurchase program which
provides the Bank the ability to repurchase common stock from shareholders in the open market up to $500
million.
Any future determination to pay dividends or repurchase shares 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, commercial real estate concentration, contractual restrictions, business prospects and other
factors that the Board of Directors considers relevant. Share buybacks are also subject to shareholder and
regulatory approval.
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, 2018, our total risk-based capital ratio was 13.41%, and our Tier 1 risk-based capital ratio was
12.11%. 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, 2018, our leverage capital ratio was 9.70%. 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, 2018, our common equity Tier 1 capital ratio was 12.11%.
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
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 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.
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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 included new
risk-based capital and leverage ratios, which where phased-in to effect over a multi-year period, and refine the
definition of what constitutes “capital” for purposes of calculating those ratios. Full implementation of the capital
rules for all institutions began on January 1, 2019. The 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. 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 was 1.875% for 2018 and is currently 2.500%. As
the capital rules are now fully implemented, the following effective minimum capital ratios currently apply: (i) a
common equity Tier 1 capital ratio (plus capital conservation buffer) of 7.0%, (ii) a Tier 1 capital ratio (plus capital
conservation buffer) of 8.5%, and (iii) a total capital ratio (plus capital conservation buffer) 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 2017, the federal banking agencies adopted a final rule to extend the regulatory capital treatment applicable
during 2017 under the capital rules for certain items, including regulatory capital deductions, risk weights, and
certain minority interest limitations. The relief provided under the final rule applies to banking organizations that
are not subject to the capital rules’ advanced approaches, such as our Bank. Specifically, the final rule extends the
current regulatory capital treatment of mortgage servicing assets (“MSAs”), deferred tax assets (“DTAs”) arising
from temporary differences that could not be realized through net operating loss carrybacks, significant
investments in the capital of unconsolidated financial institutions in the form of common stock, non-significant
investments in the capital of unconsolidated financial institutions, significant investments in the capital of
unconsolidated financial institutions that are not in the form of common stock, and common equity Tier 1 minority
interest, Tier 1 minority interest, and total capital minority interest exceeding the capital rules’ minority interest
limitations.
In addition, the federal banking agencies issued a notice of proposed rulemaking on simplifications to the final
rules, a majority of which would apply solely to banking organizations that are not subject to the advanced
approaches capital rule. Under the proposed rulemaking, non-advanced approaches banking organizations would
apply a simpler regulatory capital treatment for MSAs; certain DTAs arising from temporary differences;
investments in the capital of unconsolidated financial institutions; and capital issued by a consolidated subsidiary
of a banking organization and held by third parties. Specifically, the proposed rulemaking would eliminate: (i) the
capital rule’s 10 percent common equity tier 1 capital deduction threshold that applies individually to MSAs,
temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the
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form of common stock; (ii) the aggregate 15 percent common equity tier 1 capital deduction threshold that
subsequently applies on a collective basis across such items; (iii) the 10 percent common equity tier 1 capital
deduction threshold for non-significant investments in the capital of unconsolidated financial institutions; and (iv)
the deduction treatment for significant investments in the capital of unconsolidated financial institutions not in the
form of common stock. The capital rule would no longer have distinct treatments for significant and non-significant
investments in the capital of unconsolidated financial institutions, but instead would require that non-advanced
approaches banking organizations deduct from common equity tier 1 capital any amount of MSAs, temporary
difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25
percent of common equity tier 1 capital. The proposed rulemaking also includes revisions to the treatment of
certain acquisition, development, or construction exposures that are designed to address comments regarding the
current definition of high volatility commercial real estate exposure under the capital rule’s standardized approach.
Also in 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord,
generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated
into the framework is to reduce excessive variability of risk-weighted assets, which will be accomplished by:
enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk—
which will facilitate the comparability of banks’ capital ratios; constraining the use of internally modelled
approaches; and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and
robust capital floor. Leadership of the federal banking agencies, who are tasked with implementing Basel IV, have
supported the revisions, although their incorporation into to the existing regulatory capital framework described
above is uncertain at this time.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update,
“Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which
replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to
as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, we will be required to present
certain financial assets carried at amortized cost, such as loans and leases held for investment and held-to-
maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is
to be based on information about past events, including historical experience, current conditions, and reasonable
and supportable forecasts that affect the collectability of the reported amount. On December 21, 2018, the federal
banking agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in
over a period of three years the day-one regulatory capital effects of the CECL model. The final rule also revises
the agencies’ other rules to reflect the update to the accounting standards. The final rule will take effect April 1,
2019. 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 losses as of the beginning of the first
reporting period in which we adopt the new standard, consistent with regulatory expectations set forth in
interagency guidance issued at the end of 2016. We also expect to incur both transition costs and ongoing costs in
developing and implementing the CECL methodology, and that the methodology will result in increased capital
costs upon initial adoption as well as over time.
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
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. The federal banking agencies published
guidance regarding certain requirements of the LCR rule and the modified LCR rule in October 2017, but this
guidance did not amend or materially alter the rules.
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
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$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. In June 2017, the Treasury
Department recommended a delay in the implementation of the proposed NSFR out of concern that the rule could
be duplicative of other liquidity requirements and could therefore impose unnecessary compliance costs.
Pursuant to the Economic Growth Act, in November 2018, the FDIC together with the other federal banking
agencies issued a joint statement proposing thresholds for the applicability of the LCR and the proposed NSFR.
Under the proposal, the federal banking agencies are proposing four categories of standards for banking
organizations, including depository institutions without a holding company, based on the following risk-based
indicators: asset size, cross-jurisdictional activities, nonbank assets, weighted short-term wholesale funding, and
off-balance sheet exposures. Category I institutions, which would include global systemically important banks (“G-
SIBs”) would continue to be subject to the most stringent regulatory requirements, and Category IV institutions
(those with above $100 billion in total consolidated assets, but less than $250 billion in total consolidated assets
and less than $75 billion in the other risk-based categories) would be subject to the least stringent requirements.
Additionally, under the proposal, the Federal Reserve is proposing to eliminate all LCR and NSFR requirements
for bank holding companies with less than $250 billion in total consolidated assets, with the exception of bank
holding companies with over $100 billion in total consolidated assets and over $75 billion in total nonbank assets,
weighted short-term wholesale funding or off-balance sheet exposures. Depository institutions with more than $10
billion in total consolidated assets that are the subsidiaries of bank holding companies of $250 billion in total
consolidated assets would be subject to the same requirements. The asset applicability threshold for depository
institutions without a holding company is $250 billion, therefore, we are not subject to the LCR or proposed NSFR
under the current or proposed rules.
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,
2018, 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.
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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 DFS also has broad powers to
enforce compliance with New York laws and regulations. The DFS and/or the FDIC examine us periodically for
safety and soundness and for compliance with applicable laws.
Dodd-Frank Act
The Dodd-Frank Act, which was signed into law on July 21, 2010, made extensive changes to the laws regulating
financial services firms. The Dodd-Frank Act also required 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 were required to draft and implement
enhanced supervision, examination, and capital and liquidity standards for depository institutions. The capital
provisions of the Dodd-Frank Act include, among other things, changes to capital and leverage limits and
limitations on the use of hybrid capital instruments. See “—Capital Adequacy Requirements.” The Dodd-Frank Act
also imposed new restrictions on investments and other activities by depository institutions, particularly with
respect to derivatives activities and proprietary trading. The Dodd-Frank Act also provided the federal banking
agencies, such as the Federal Reserve and the FDIC, with 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 authorized the federal regulators to impose various new assessments
and fees, which impacted the Bank’s operational costs. The FDIC’s special assessment enacted in connection
with the increase of the minimum for the DIF reserve ratio to 1.35% was reached in September 2018. Therefore,
this will no longer impact the Bank.
Prior to the second quarter of 2018, the Dodd-Frank Act required banks with total consolidated assets of more
than $10 billion to conduct annual stress tests. However, as previously discussed, the Economic Growth Act
raised the asset threshold for required Dodd-Frank Act Stress Tests (“DFAST”) from $10 billion to $250 billion for
bank holding companies and made the requirement “periodic” rather than “annual.” Additionally, the Federal
Reserve plans to continue capital stress testing of bank holding companies with total consolidated assets above
$100 billion under its Comprehensive Capital Analysis and Review (“CCAR”), and the Economic Growth Act
provides the Federal Reserve with discretion to subject bank holding companies with more than $100 billion in
total assets to enhanced supervision on a tailored basis. Notwithstanding the regulatory relief mandated under the
Economic Growth Act, the federal banking agencies indicated through interagency guidance that the capital
planning and risk management practices of institutions with total assets less than $100 billion would continue to be
reviewed through the regular supervisory process. The Bank will continue to perform capital stress testing on a
situational and idiosyncratic basis, such as during our annual capital planning and budgeting processes. In
addition, as noted above, the Economic Growth Act prohibits the federal banking agencies from requiring the Bank
to assign a heightened risk weight to certain HVCRE ADC loans as previously required under the Basel III Capital
Rules.
The Dodd-Frank Act also required 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, and which 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. In compliance with historical regulation, on July 28, 2017, we
submitted our stress testing results on data as of December 31, 2016. We publicly disclosed our results for the
severely adverse scenario on October 20, 2017. The stress testing results affirmed the adequacy of the Bank’s
capital, even under severe economic conditions. Due to the changes described above occurring in the second
quarter of 2018, Signature Bank will no longer be required to file and report annual company-run stress tests until
the revised threshold is reached.
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In addition, in December 2013, federal regulators adopted a final rule implementing Section 619 of the Dodd-Frank
Act, or the so-called “Volcker Rule”. 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. 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.
Under the Economic Growth Act, banks with fewer than $10 billion in total consolidated assets are exempt from
Volcker Rule requirements. Signature Bank has assets in excess of $10 billion and will therefore not benefit from
this general exemption. The Economic Growth Act also amends the Volcker Rule’s restriction on sponsoring
hedge funds and private equity funds to permit such funds to share the name or a variation of the same name of
the banking entity that is an investment adviser to the fund provided that (1) the investment adviser is not a bank,
bank holding company or a foreign banking organization that is treated as a bank holding company under the
International Banking Act of 1978, (2) the investment adviser does not share the same name, or a variation of the
same name, as a bank, bank holding company or a foreign banking organization that is treated as a bank holding
company under the International Banking Act of 1978, and (3) the name does not contain the word “bank.” In
December 2018, the federal banking agencies, the Securities and Exchange Commission (“SEC”) and the
Commodity Futures Trading Commission published a notice of proposed rulemaking to implement these changes.
The timing of the publication of a final rule is uncertain at this time.
In addition, in May 2018 the Federal Reserve published a notice of proposed rulemaking and request for public
comment regarding certain simplifications to the Volcker Rule. Among other things, the proposed rule would: (i)
tailor compliance requirements based on the size of a firm's trading assets and liabilities, with the most stringent
requirements applied to firms with the most trading activity, (ii) revise the Volcker Rule’s definition of "trading
account” by relying on commonly used accounting definitions, (iii) clarify that firms that trade within appropriately
developed internal risk limits are engaged in permissible market making or underwriting activity, (iv) streamline the
criteria that apply when a banking entity seeks to rely on the hedging exemption from the proprietary trading
prohibition, (v) limit the impact of the Volcker Rule on the foreign activity of foreign banks, and (vi) simplify the
trading activity information that banking entities are required to provide to federal banking agencies. If
implemented as proposed, these simplifications may reduce our Volcker Rule compliance costs; however, we may
incur certain costs in developing and implementing changes to our internal controls. Moreover, the rule proposal
contained a series of questions related to the potential scope of the Volcker Rule, including specific questions
regarding the regulatory treatment of covered funds. The resolution of these questions could impact our future
strategies regarding loans and investments. The prospects and timing of any further action on this rule proposal
are uncertain at this time.
The Bank had limited activities that were impacted by the Volcker Rule, and the only prohibited activity related to
our holding of certain AFS securities in investment vehicles that met the definition of Covered Funds. These
Covered Funds securities were either divested by the divestiture deadline in July 2017 or shortly thereafter with
the exception of one private CMO re-REMIC security which was written-off in the first quarter of 2018, leaving the
Bank zero exposure to Covered Funds securities since that time.
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, 2018, $12.02 billion,
or 33.0%, 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. Notwithstanding the
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above, we may be required to obtain the regulatory approval of the DFS, the FDIC and the banking agencies of
the states in which we seek to establish branch or other offices. As such, in 2018, the Bank opened its first full-
service private client banking office in San Francisco.
Consumer Financial Protection
Federal and state banking laws 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, TILA, the Truth in
Savings Act, the Home Mortgage Disclosure Act (“HMDA”), 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 its final TRID Rule adopting integrated disclosure in connection with
mortgage origination that incorporates disclosure requirements under RESPA and TILA. This disclosure
requirement became effective in October 2015. The CFPB issued proposed amendments to the TRID Rule in
July 2016, which were finalized in July 2017. The CFPB also issued interpretive guidance and updated model
disclosure forms in 2017. In 2018, the CFPB adopted a final rule providing creditors with certain relief regarding
the use of closing disclosures to reset tolerances in accordance with the TRID Rule.
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.
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.
The Bank is likely to continue to incur significant 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. Over the past several years, the CFPB has been very active in bringing enforcement
actions against banks and nonbank financial institutions to enforce consumer financial laws, and has developed a
number of new enforcement theories and applications of these laws; however, other federal financial regulatory
agencies, including the FDIC, and state attorneys general also have been increasingly active in this area with
respect to institutions over which they have jurisdiction. The CFPB proposed in February 2019 to delay the August
19, 2019 compliance date for the mandatory underwriting provisions of the regulation promulgated by the Bureau
in November 2017 governing Payday, Vehicle Title, and Certain High-Cost Installment Loans to November 19,
2020.
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
27
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
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, California 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 category. 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 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
In August 2018, the Office of the Comptroller of the Currency (“OCC”), which regulates national banks, proposed
an advanced notice of proposed rulemaking regarding potential reforms to the regulatory framework that
implements the CRA. The OCC sought public comment on a variety of aspects of the regulations, including
methods for the modernization of CRA performance methods, the interpretive standards used to determine banks’
communities and assessment areas, and the potential expansion of CRA-qualifying activities. Although the OCC
initiated this rulemaking process, any future rulemaking activity will likely occur in concert between the OCC and
the other federal banking agencies, including the FDIC, as any amendments to the existing CRA regulations must
be implemented uniformly. The prospects and timing of any future action on this rulemaking initiative are uncertain
at this time.
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, the Department of Housing and Urban Development (“HUD”) 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. Given recent
leadership changes at the DOJ and CFPB, as well as changes in DOJ enforcement policies and priorities, the
extent to which such coordination will continue to occur in the near term is uncertain. 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 (“BSA”), as
amended by the USA PATRIOT Act, and implementing regulations issued by the FDIC and the Financial Crimes
Enforcement Network (“FinCEN”) of 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.
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In 2016, the regulations implementing the BSA were amended by FinCEN to include express requirements
regarding risk-based procedures for conducting ongoing customer due diligence. Such procedures require banks
to take appropriate steps to understand the nature and purpose of customer relationships. In addition, absent an
applicable exclusion, banks must identify and verify the identity of the beneficial owners of all legal entity
customers at the time a new account is established. These requirements became effective in May 2018. We have
incurred, and are likely to continue to incur, certain costs associated with the expansion and maintenance of our
AML program in accordance with these requirements.
Signature Bank also is subject to New York AML laws and regulations. In June 2016, the 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. Effective April 2018, the rule also
required chief compliance officers to submit certifications of compliance with these requirements annually.
Signature Bank has incurred, and likely will continue to 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
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. The federal banking agencies have not yet taken
further action on these proposed standards.
Signature Bank also is subject various federal and state privacy protection laws and regulations. On March 1,
2017, cybersecurity regulations issued by the DFS became effective. The cybersecurity regulations require banks,
insurance companies, and other financial services institutions regulated by the 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. These regulations require each regulated entity to assess its specific risk profile and
design a program that addresses its risks in a robust fashion and, like the DFS’s enhanced anti-terrorism and AML
requirements, the regulations impose an obligation to conduct an ongoing, comprehensive risk assessment and
require each institution’s board of directors, or a senior officer of the institution, to submit annual certifications of
compliance with these requirements. Signature Bank must certify its compliance with the cybersecurity regulations
to the DFS on an annual basis. Signature Bank has incurred, and likely will continue to incur, additional costs 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
nonaffiliates. 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
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to the affiliate are required to be collateralized in accordance with the requirements set forth in Section 23A of the
Federal Reserve Act. For purposes of the above, an “affiliate” does not include a subsidiary of the bank, unless the
subsidiary is a financial subsidiary, is itself a depository institution, or is directly controlled by one or more affiliates
of the parent bank or a shareholder, or group of shareholders, that controls the parent bank. In addition, the so-
called “Super 23A” provisions of the Volcker Rule apply similar restrictions on transactions between a bank and
any “covered fund” that the bank advises or sponsors.
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 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 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
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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, and 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. The prospects for continued consideration of these proposed rules by the SEC and
federal banking agencies are uncertain, but implementation of any final rules is not expected in the near term.
In October 2016, the 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. Incentive
compensation and sales practices, particularly in connection with certain products and services that are viewed as
high-risk from a supervisory perspective—such as cross-selling and overdraft services—continue to be priority
issues on the examination and supervision agendas of the CFPB and the federal banking agencies.
In addition, the Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into law in December 2017, contains
certain provisions affecting performance-based compensation. Specifically, the pre-existing exception to the $1
million deduction limitation applicable to performance-based compensation was repealed. The deduction limitation
is now applied to all compensation exceeding $1.0 million, for the Bank’s covered employees, regardless of how it
is classified, which would have an adverse effect on income tax expense and net income.
Regulation of Signature Securities
Signature Securities is registered as a broker-dealer with and subject to examination and supervision by the SEC.
The SEC is the federal agency primarily responsible for the regulation of broker-dealers. Signature Securities is
also subject to regulation by one of the brokerage industry’s self-regulatory organizations, the Financial Industry
Regulatory Authority (“FINRA”). As a registered broker-dealer, Signature Securities is subject to the SEC’s uniform
net capital rule. The purpose of the net capital rule is to require broker-dealers to have at all times enough liquid
assets to satisfy promptly the claims of clients if the broker-dealer goes out of business. If Signature Securities
fails to maintain the required net capital, the SEC and FINRA may impose regulatory sanctions including
suspension or revocation of its broker-dealer license. A change in the net capital rules, the imposition of new rules,
or any unusually large charge against Signature Securities’ net capital could limit its operations. As a subsidiary of
Signature Bank, Signature Securities is also subject to regulation and supervision by the DFS. Signature
Securities currently is permitted to act as a broker and as a dealer in certain bank eligible securities.
In June 2018 the U.S. Court of Appeals for the Fifth Circuit issued a mandate vacating the DOL’s “fiduciary rule”
and related prohibited transaction exemptions, which had been enacted initially in 2016. As a result, although
Signature Securities may have taken certain measures to comply with the rule on a transitional basis, our
brokerage and investment advisory services and activities will no longer be affected. Separately, in April 2018,
pursuant to the Dodd-Frank Act, the SEC proposed Regulation Best Interest, which, among other things, requires
a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities
transaction or investment strategy involving securities to such customer. We anticipate the adoption of any new
rule by the SEC will require Signature Securities to review and possibly modify our compliance activities, which
may lead to additional costs. In addition, state laws that impose a fiduciary duty also may require monitoring, as
well as require that we undertake additional compliance measures.
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 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
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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%. 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 decreased our deposit insurance assessments by $1.7 million in 2018
compared to 2017. On September 30, 2018, the DIF reserve ratio reached 1.36%, exceeding the statutorily
required minimum reserve ratio of 1.35% ahead of the September 30, 2020 deadline required under the Dodd-
Frank Act. FDIC regulations provide that, upon reaching the minimum, surcharges on insured depository
institutions with total consolidated assets of $10 billion or more will cease. The last quarterly surcharge was
reflected in Signature Bank’s December 2018 assessment invoice, which covered the assessment period from
July 1 through September 30. March 2019 assessment invoices, which cover the assessment period from October
1, 2018, through December 31, 2018, no longer will include a quarterly surcharge. Assessment rates, which
declined for all banks when the reserve ratio first surpassed 1.15% in the third quarter of 2016, are expected to
remain unchanged. Assessment rates are scheduled to decrease when the reserve ratio exceeds 2%.
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.
Historically, deposit insurance premiums we have paid to the FDIC have been deductible for federal income tax
purposes; however, the Tax Cuts and Jobs Act of 2017 disallows the deduction of such premium payments for
banking organizations with total consolidated assets of $50 billion or more. For banks with less than $50 billion in
total consolidated assets, such as ours, the premium deduction is phased out based on the proportion of a bank’s
assets exceeding $10 billion. Based on our projections for 2019, we anticipate an increase to our deposit
insurance premium payments, excluding the aforementioned surcharge.
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
subsidiaries of registered bank holding companies. As an organization with a bank as its top-level company and
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with a relatively simple business model, Signature Bank, at its asset size of $47.36 billion as of December 31,
2018, 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 imposes 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. In
December 2018, the FDIC published an advanced notice of proposed rulemaking soliciting public comment on its
regulation of brokered deposits in light of the impact of changes in technology, business models and financial
products in the decades since the adoption of statutory restrictions on banks’ acceptance of brokered deposits.
The timing and prospects for future rulemaking activity in this area are not certain at this time. In addition, the
Economic Growth Act provides that reciprocal deposits are not treated as brokered deposits in the case of a “well
capitalized” institution that received an “outstanding” or “good” rating on its most recent examination to the extent
the amount of such deposits does not exceed the lesser of $5 billion or 20% of the bank’s total liabilities. In
December 2018, the FDIC published a final rule implementing these statutory changes. 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, 2017, our
ratio of total commercial real estate loans to total risk-based capital was 559.5%, and as of December 31, 2018,
that ratio had decreased to 551.0%. From December 31, 2015 to December 31, 2018, the outstanding balance of
our commercial real estate loan portfolio increased $9.33 billion, or 51.0%. 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.
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Future Legislation
In January 2019, control of the U.S. House of Representatives was assumed by the Democratic Party. As a result,
the leadership and roster of the House Financial Service Committee has also shifted. We anticipate that these
changes will have a significant effect on the legislative and oversight agendas of the Committee. Specifically, we
anticipate that the Committee will devote substantial attention to consumer protection matters, through greater
oversight of the CFPB’s and the federal banking agencies’ efforts in this area. Prospects for future legislation
remain uncertain; however, the divided control of the two chambers of Congress is likely to be a limiting factor on
the enactment of any meaningful legislation.
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 U.S. and global financial
markets have improved substantially since the financial crisis credit markets have continued to experience periods
of disruption and inconsistency following adverse changes in the global economy, which may include trade
negotiations with China and the political crisis in Venezuela. 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. Concerns about the European Union
(“EU”), including Britain’s June 2016 referendum to exit the EU (“Brexit”) and continued developments relating to
Brexit, and the stability of the EU’s sovereign debt, have caused uncertainty and disruption for financial markets
globally. The ultimate outcome of the Brexit and the EU’s financial support program, as well as 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, 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 may have an adverse impact on our industry.
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. In particular, we may face the following risks in
connection with challenging market conditions:
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Commercial loans (including commercial and industrial loans and loans secured by commercial real
estate) and multi-family mortgage loans constitute a substantial portion of our loan activity and loan
portfolio. 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. Any significant losses on such loans 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 negatively 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.
As discussed further below, shifts in prevailing interest rates and the value of domestic and foreign
currencies may have an adverse effect on our earnings and capital and our ability to engage in lending
activities. Moreover, prolonged periods of low prevailing interest rates may negatively impact our net
interest margins, which may affect the profitability of our loan products and the Bank as a whole.
Fiscal challenges facing the U.S. government could negatively impact financial markets which in turn could
have an adverse effect on our financial position or results of operations.
Many of our investment securities are issued by the U.S. government and government agencies and sponsored
entities. As a result of uncertain domestic political conditions, including the recent federal government shutdown and
potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations
for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial
instruments issued or guaranteed by the federal government pose economic and liquidity risks. Following the
government shutdown in 2011, Standard & Poor’s lowered its long term sovereign credit rating on the U.S. from
AAA to AA+. A further downgrade or a downgrade by other rating agencies, as well as sovereign debt issues facing
the governments of other countries, could have a material adverse impact on financial markets and economic
conditions in the U.S. and worldwide. In addition, the U.S. government and the governments of other countries took
steps to stabilize the financial system, including investing in financial institutions, and implementing programs to
improve general economic conditions, but there can be no assurances that these efforts will restore long-term
stability and that they will not result in adverse unintended consequences. A prolonged government shutdown may
also adversely impact a significant segment of our customer base resulting in increased defaults within our loan
portfolio, which could adversely affect our financial condition and results of operations.
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.
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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, which was established in 2012, 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. In October 2018, we launched a Fund
Banking Division to provide financing and banking services to the private equity industry by offering subscription
lines of credit, management company lines of credit and general partner loans. In December 2018, the Bank
announced the unveiling of its digital payments platform, Signet, to our commercial clients. The Signet platform
enables real-time payments between our commercial clients and was placed in service effective January 1, 2019.
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.
Our operations are affected significantly 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. Interest rates have moved above their recent historical
lows. The Federal Reserve increased its benchmark short-term interest rate four times in fiscal 2018 in 25 basis
point increments, compared with three 25 basis point increases in fiscal 2017 and one 25 basis point increase in
fiscal 2016. Such changes can significantly affect our ability to originate loans and obtain deposits and our costs in
doing so.
The Bank also entered into several interest rate swap contracts to manage our fair value and cash flow exposures
to changes in benchmark interest rates. The periodic net settlements of these interest rate swaps could either
result in a pay or receive position dependent upon the associated benchmark interest rate compared to the
associated contractual terms. See Risk Factors—“The planned phasing out of LIBOR as a financial benchmark
presents risks to the financial instruments originated or held by Signature Bank.”
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. Based upon our current interest rate swap strategy, a reduction in
interest rates could also negatively impact the net settlement of our interest rate swaps and the corresponding net
interest income.
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
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About Market Risk.”
The planned phase out of LIBOR as a financial benchmark presents risks to the financial instruments
originated or held by Signature Bank.
The London Interbank Offered Rate (“LIBOR”) is the reference rate used for many of our transactions, including
our lending and borrowing and our purchase and sale of securities, as well as the derivatives that we use to
manage risk related to such transactions. However, a reduced volume of interbank unsecured term borrowing
coupled with recent legal and regulatory proceedings related to rate manipulation by certain financial institutions
has led to international reconsideration of LIBOR as a financial benchmark. The United Kingdom Financial
Conduct Authority (“FCA”), which regulates the process for establishing LIBOR, announced in July 2017 that the
sustainability of LIBOR cannot be guaranteed. Accordingly, the FCA intends to stop persuading, or compelling,
banks to submit to LIBOR after 2021. Until such time, however, FCA panel banks have agreed to continue to
support LIBOR. Several authorities within the United Kingdom and the European Union are working in parallel on
proposals to transition from LIBOR to other financial benchmarks. It is impossible to predict what benchmark
rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are
currently referencing LIBOR if and when it ceases to exist. The uncertainty surrounding potential reforms,
including with respect to factors such as the use of alternative, market-based reference rates, changes to the
methods and processes used to calculate rates, the quality of the data upon which rates will be based, and how
closely rates will track to LIBOR may limit the extent to which markets accept alternative rates, which may, in turn,
have an adverse effect on the trading market for LIBOR-based securities, loan yields, and the amounts received
and paid on derivatives instruments. In addition, the implementation of LIBOR reform proposals may result in
increased compliance costs and operational costs, including costs related to continued participation in LIBOR.
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 and,
also, on the West Coast where we recently opened our first full-service private client banking office in 2018. 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 including internet services, cryptocurrencies and payment systems.
In addition to improving the ability to serve clients, the effective use of technology increases efficiency and enables
financial institutions to reduce long-term costs. These technological advancements also have made it possible for
non-financial institutions, such as so-called “fintech companies” and marketplace lenders, to offer products and
services that have traditionally been offered by financial institutions. Federal and state banking agencies continue
to deliberate over the regulatory treatment of fintech companies, including whether the agencies are authorized to
grant charters or licenses to such companies and whether it would be appropriate to do so in consideration of
several regulatory and economic factors. 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. New
37
technologies, such as the blockchain technology used in the Bank’s Signet platform, could require us to spend
more to modify or adopt our products to attract and retain clients or to match products and services offered by our
competitors, including fintech companies. New technologies also expose us to additional operational, as well as
financial risks. Because many of our competitors have substantially greater resources to invest in technological
improvements than we do, or, at present, operate in a less-burdensome regulatory environment, these institutions
could pose a significant competitive threat to us.
Government intervention in the banking industry has the potential to change the competitive landscape.
There has been significant government intervention in the banking industry in response to the economic crisis of
2008, including equity investments, liquidity facilities and guarantees. Although the Dodd-Frank Act limited the
ability of the federal government to provide emergency assistance to individual financial institutions, it is possible
that the federal government could take certain steps to intervene in the banking industry in order to stabilize the
financial system in the event of future disruptions. The federal government’s past actions have affected the
competitive landscape in certain respects. For example, clients may view some of our competitors as being “too
big to fail,” meaning that such competitors may thereby benefit from an implicit U.S. government guarantee
beyond that provided to banks generally. Any such intervention, or the perception of the possibility of 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, at present, subject to
regulatory capital limits or bank supervision, have become active competitors. Certain state regulatory agencies
have adopted “regulatory sandboxes,” which provide for certain exemptions from licensing and other functional
regulatory requirements for fintech companies that provide certain innovative financial products and services. In
December 2016, the OCC announced that it would explore the possibility of using its chartering authority to grant
certain fintech companies a special purpose national bank charter. In July 2018, the OCC adopted a policy
statement providing that it would begin accepting applications for special purpose national bank charters from
fintech companies which are engaged in the business of banking, but do not take deposits. These developments
are likely to 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 approximately 99.2% of our portfolio of investment securities was rated investment grade as of
December 31, 2018, 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. Shifts in market conditions may create dislocations in the
market for bank-collateralized pooled trust preferred securities and may limit other securities that we hold. Adverse
market conditions that include bank failures could result in a significant decline in the fair value of these securities.
We have in the past, and 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.
38
Additionally, taxi medallions have experienced, and may continue to experience, periods of illiquidity, caused by,
among other things, increased competition from Transportation Network Companies and the significant decline in
the underlying New York City taxi medallion collateral value. Although the NYC taxi medallion market has shown
signs of stabilization since the second quarter of 2018, potential reemergence of adverse conditions could result in
a further decline in the fair value of these medallions. We have in the past, and 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.
We primarily invest in mortgage-backed obligations and such obligations may 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, and (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. Home values have declined significantly prior to and in the aftermath of the
financial crisis. Although home prices have stabilized in many housing markets in recent years, 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 recent improvement, the residential mortgage market in the United States may
experience a variety of difficulties related to changing economic conditions, including an increase in
unemployment and under-employment rates, heightened defaults, credit losses and liquidity concerns. Historically,
economic disruptions, including those relating to recent international trade negotiations, have adversely affected
the performance and fair value of many of the types of financial instruments in which we invest and similar future
conditions may produce the same impact. 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
during the credit-crisis. In the aftermath of the financial crisis, the Federal Reserve took certain actions in an effort
to ameliorate market conditions; however, its ability to do so in the future may be limited by political, economic and
legal factors and any such efforts may be ineffective. While the housing market has stabilized and economic
conditions improved, 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
39
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.
In recent years, Fannie Mae and Freddie Mac were able to overcome the market disruptions of the economic crisis
and have been profitable since 2013. However, 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 these other
proposals will be adopted, and, if so, what the effect of the adopted reform would be. 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. In recent years uncertainty
regarding the U.S. Federal budget has increased as the current 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.
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, 2018, 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 acquisition, development and construction). Commercial loans generally involve
a higher degree of credit risk than residential mortgage loans do, 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.
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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 increased competition from Transportation Network Companies within the taxi industry
and the significant decline in the underlying New York City taxi medallion collateral value in 2017 and 2018 caused
substantial doubt on the collectability of these loans. As a result, we placed the entire taxi medallion portfolio on
nonaccrual in 2017. Due to the continued price decline in early 2018, we recorded $132.8 million in write downs in
the first quarter, primarily related to New York City taxi medallions. Our taxi medallion exposure reduced to $88.5
million (or 1.11% of our commercial and industrial loans) as of December 31, 2018, compared to $309.9 million (or
4.86%) at the end of the prior year. In 2018, we restructured $14.7 million of these loans (or 16.6% of our total
outstanding balance) as of December 31, 2018; we may need to restructure additional taxi medallion loans in
2019, if market conditions deteriorate. 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.
Our business and substantially all of our real estate collateral is concentrated in the New York
metropolitan area, and a downturn in the economy and the real estate market of the New York
metropolitan area may have a material adverse effect on our business.
As of December 31, 2018, approximately 80% of the collateral for the loans in our portfolio consisted of real
estate. Substantially all of the collateral 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. Although our business and real estate collateral is concentrated in the New York metropolitan area, these
same factors apply to our business operations on the West Coast and pose an increasing risk as our business in
that region expands.
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.
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
41
issued by private issuers. The issuers of our trust preferred securities include several depositary institutions that
suffered significant losses during the economic crisis. While the issuers of our trust preferred securities have
stabilized and recapitalized, should the economy weaken, credit risk may affect the value of our holdings, as 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. See Risk Factors—“ The Financial Accounting Standards Board’s
recently issued 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.”
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 $4.97 billion at December 31, 2018. 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 not be
available or 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, 2018, we held $264.9 million of FHLB
stock. As of December 31, 2018, the Bank had pledged $7.75 billion of commercial real estate loans through a
blanket assignment to secure borrowings from the FHLB to meet collateral requirements of $4.91 billion on FHLB
borrowings. While not pledged, FHLB held also $658.6 million of securities as of December 31, 2018 as the
custodian. These securities can be pledged towards future borrowings, as necessary.
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
42
have employment agreements with our key personnel. We adopted an equity incentive plan and a change of
control plan for key personnel in connection with the consummation of our initial public offering. Even though we
are party to these agreements and sponsor these plans, we cannot assure you that we will be successful in
retaining any of our key executive officers and employees.
Our business is built around group directors, who are principally responsible for our client relationships. A principal
component of our strategy is to increase market penetration by recruiting and retaining experienced group
directors, their groups, loan officers and other management professionals. Competition for experienced personnel
within the commercial banking, specialty finance, brokerage and insurance industries is strong and we may not be
successful in attracting and retaining the personnel we require. Our ability to develop new lines of business such
as our Fund Banking Division and Signature Public Funding, and our ability to expand into new digital products
and new geographic markets, are also dependent on our ability to attract and retain key personnel. 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 (as amended) 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
43
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 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 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. Levels of activity may also be impacted by temporary government shutdowns. 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, 2018, $748.6 million, or 2.1% of our
total deposit account balances consisted of brokered deposits, a decrease of $95.0 million or 11.3% when
compared to $843.6 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. In December 2018, the FDIC published an advanced
notice of proposed rulemaking soliciting public comment on its regulation of brokered deposits in light of certain
changes in the provision of banking services and technological advancements that have occurred since the
imposition of statutory restrictions on banks’ acceptance of brokered deposits. We cannot, however, predict the
timing or outcome of any regulatory initiative to update or modify the existing regulations governing brokered
deposits. 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. Although we maintain contingency plans for the transitioning of outsourced activities to
other third parties, 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, even if
temporary, 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. In June 2017, the FDIC adopted supervisory guidance on model risk
management which builds upon previously-issued risk management guidance and requires us to, among other
things, validate third-party vendors and products in a manner consistent with FDIC supervisory expectations and
our internal risk management protocols. If our regulators conclude that we are not exercising proper oversight and
44
control over third-party vendors, or that third parties are not performing their services appropriately, then we may
be subject to enhanced supervisory scrutiny or enforcement actions. These regulatory changes or enforcement
actions could result in additional costs and 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.
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 implemented and intend to continue to implement
and enhance security technology and establish operational procedures to prevent such damage, there can be no
assurance that these security measures will be successful in deterring or mitigating the effects of every cyber-
threat that we face. 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, other customer data and employee data. Any cyber-attack or other
security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer or
employee information could severely damage our reputation, erode confidence in the security of our systems,
products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material
adverse effect on our business.
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 and
result in the incurrence of significant costs, including those related to forensic analysis and legal counsel, each of
which may be required to ascertain the extent of any potential harm to our customers, or employees, or damage to
our information systems and any legal or regulatory obligations that may result therefrom. The occurrence of a
cyber-threat may therefore have a material adverse effect on our financial condition and results of operations.
Risks and exposures related to cybersecurity 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. The Bank has
significantly increased efforts to educate employees and clients on the topic. Clients can also be sources of
cybersecurity risk to the Bank, particularly when their activities and systems are beyond the Bank’s own security
and control systems. Although we expect that, where cybersecurity incidents are due to client failure to maintain
45
the security of their own systems and processes, clients will generally be responsible for losses incurred, there can
be no assurance that our relationship with the affected client (and other clients) will not be adversely affected.
We are subject to laws regarding the privacy, information security and protection of personal information
and any violation of these laws or an incident involving personal, confidential or proprietary information
of individuals could damage our reputation and otherwise adversely affect our operations and financial
condition.
Our business requires the collection and retention of large volumes of customer data, including personally
identifiable information in various information systems that we maintain and in those maintained by third parties
with whom we contract to provide data services. We also collect data regarding our employees, suppliers and
other third-parties. We are subject to complex and evolving laws and regulations governing the privacy and
protection of personal information of individuals (including customers, employees, suppliers and other third
parties). For example, our business is subject to laws and regulations which, among other things: (i) impose
certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated
third parties; (ii) require that we provide certain disclosures to customers about our information collection, sharing
and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated
third parties (with certain exceptions); and (iii) require that we develop, implement and maintain a written
comprehensive information security program containing appropriate safeguards based on our size and complexity,
the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for
responding to data security breaches. Various state and federal banking regulators and states, have also enacted
data security breach notification requirements with varying levels of individual, consumer, regulatory or law
enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection,
use, transfer and storage of personal information complies with all applicable laws and regulations can increase
our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and
other third parties have appropriate controls in place to protect the confidentiality of the information that they
exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential
or proprietary information of customers or others were to be mishandled or misused, we could be exposed to
litigation or regulatory sanctions under personal information laws and regulations. Concerns regarding the
effectiveness of our measures to safeguard personal information, or even the perception that such measures are
inadequate, could cause us to lose customers or potential customers for our products and services and thereby
reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data
protection laws and regulations may subject us to inquiries, examinations and investigations that could result in
requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and
could damage our reputation and otherwise adversely affect our operations and financial condition. Moreover,
compliance with applicable regulations and mandates could add significantly to our operating expenses.
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.
Our ability to pay cash dividends or engaging in share repurchases is restricted.
On July 18, 2018, the Bank declared its inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0
million, which was paid on August 15, 2018 to our common shareholders of record at the close of business on
August 1, 2018. The Bank declared its second cash dividend of $0.56 per share, or a total of $31.0 million, which
was paid on November 15, 2018 to common shareholders of record at the close of business on November 1,
2018. On January 17, 2019, the Bank declared its third cash dividend of $0.56 per share, or a total of $30.8
million, which was paid on February 15, 2019 to common shareholders of record at the close of business on
February 1, 2019.
In addition, on October 17, 2018, Bank stockholders approved our common stock repurchase program which
provides the Bank the ability to repurchase common stock from shareholders in the open market up to $500
million. 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 DFS under
46
certain conditions. Share buybacks are also subject to shareholder and regulatory approval, which were received
for the repurchase program of up to $500 million in October and November 2018, respectively. Our ability to pay
dividends and to buy back shares 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.”
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.
Climate change and related legislative and regulatory initiatives may result in operational changes and
expenditures that could significantly impact our business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of
the global environment. As a result, political and social attention to the issue of climate change has increased. In
recent years, governments across the world have entered into international agreements to attempt to reduce
global temperatures, in part by limiting greenhouse gas emissions. Although the United States government has
announced its plans to withdraw from the Paris Agreement, the most recent international climate change accord,
the U.S. Congress, state legislatures and federal and state regulatory agencies have continued to propose and
advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These
agreements and measures may result in the imposition of taxes and fees, the required purchase of emission
credits, and the implementation of significant operational changes, each of which may require us to expend
significant capital and incur compliance, operating, maintenance and remediation costs. Given the lack of
empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how
climate change may impact our financial condition and operations; however, as a banking organization, the
physical effects of climate change may present certain unique risks. For example, weather disasters, shifts in local
climates and other disruptions related to climate change may adversely affect the value of real properties securing
our loans, which could diminish the value of our loan portfolio. Such events may also cause reductions in regional
and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise
and invest capital in these areas and communities, each of which could have a material adverse effect on our
financial condition and results of operations.
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 $260.0 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
47
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. 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
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 depend upon the accuracy and completeness of information about clients and other third parties and
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
whether to extend credit or enter into other transactions with clients, as well as the terms of the credit. 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 origination operations.
48
If the credit is extended to a business, we may 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. 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. In addition, 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.
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. Although we may employ certain mitigating tactics that could limit
the extent of our loss exposure, we are nevertheless subject to the risks that are 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
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 short-and long-term impact of the TCJA on the economic conditions in the markets in which we operate, and
in the United States as a whole, is uncertain, and any unfavorable change in the general business environment in
which we operate could adversely affect our business, results of operation or financial condition. Similarly, the
Bank’s customers are likely to experience varying effects from both the individual and business tax provisions of
the TCJA and such effects, whether positive or negative, may have a corresponding impact on our business.
49
The Financial Accounting Standards Board’s recently issued 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.
On December 21, 2018, the regulatory agencies approved a final rule modifying their regulatory capital rules and
providing an option to phase in over a period of three years the day-one regulatory capital effects of the CECL
model. The final rule also revises the agencies’ other rules to reflect the update to the accounting standards. The
final rule will take effect April 1, 2019. 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 we adopt the new standard, consistent with
regulatory expectations set forth in interagency guidance issued at the end of 2016. We also expect to incur both
transition costs and ongoing costs in developing and implementing the CECL methodology, and that the
methodology will result in increased capital costs upon initial adoption as well as over time. While we have made
extensive progress on the implementation of the standard, 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 the SEC change accounting regulations and reporting standards that govern our
preparation of financial statements, and bank regulators often provide supervisory views and guidance 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.
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.
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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.
Signature Bank is subject to regulatory risk-based capital rules imposed by the FDIC. The FDIC’s rules implement
the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The FDIC rules include
risk-based capital and leverage ratios and refine the definition of what constitutes “capital” for purposes of
calculating those ratios. The initial minimum capital-level requirements, which were phased-in over a multi-year
period, included the following: (i) a 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 capital rules also establish a “capital conservation buffer” of 2.5% above the regulatory
minimum capital requirements. The capital rules became fully implemented for all financial institutions on January
1, 2019, resulting in the following effective minimum ratios: (i) a common equity Tier 1 capital ratio (plus capital
conservation buffer) of 7.0%, (ii) a Tier 1 capital ratio (plus capital conservation buffer) of 8.5%, and (iii) a total
capital ratio (plus capital conservation buffer) of 10.5%. 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.
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
51
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. Because of our size and organizational structure, Signature
Bank is not viewed as “highly complex’ and is not likely to be viewed as such in the near future. 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 a final rule on deposit insurance assessment rates for large and small insured
depository institutions, which took effect on June 30, 2016. The final rule imposes 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% (which occurred as of
September 30, 2018, thus saving the Bank approximately $3.5 million per quarter prospectively). In total, recent
changes to the FDIC’s assessments decreased our deposit insurance assessments by $1.7 million in 2018
compared to 2017. 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 DFS, the Federal Reserve, the CFPB,
the SEC and FINRA. In addition, we may be subject to inquiries or investigations conducted by the U.S.
Department of Justice or State Attorneys General, either in connection with referrals made by our regulators or on
an independent basis. 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.
The securities markets and the brokerage industry in which Signature Securities operates are also highly
regulated. Signature Securities is subject to regulation as a securities broker and investment adviser, and many of
the regulations applicable to Signature Securities may have the effect of limiting its activities, including activities
that might be profitable. Signature Securities is registered with and subject to supervision by the SEC and FINRA
and is also subject to state insurance regulation. As a subsidiary of Signature Bank, Signature Securities is also
subject to regulation and supervision by the 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.
52
In addition, we are subject to ongoing examination by the FDIC, the 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.”
Significantly, on May 24, 2018, the President signed into law the Economic Growth, Regulatory Relief, and
Consumer Protection Act (“Economic Growth Act”), which repealed or modified several important provisions of the
Dodd-Frank Act. Among other things, the Economic Growth Act raises the total asset thresholds to $250 billion for
Dodd-Frank Act annual company-run stress testing, leverage limits, liquidity requirements, and resolution planning
requirements for bank holding companies, subject to the ability of the Federal Reserve to apply such requirements
to institutions with assets of $100 billion or more to address financial stability risks or safety and soundness
concerns. In addition new agency leadership are considering several proposals to modify existing regulations.
Accordingly, the effect of banking legislation and regulations remains uncertain. The implementation, amendment, or
repeal of federal banking laws or regulations may affect the banking industry as a whole, including our business and
results of operations, in ways that are difficult to predict. See Risk Factors—“The recently enacted Economic Growth
Act did not eliminate many of the aspects of the Dodd Frank Act that have increased our compliance costs, and
remains subject to further rulemaking.”
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, made extensive changes to the laws regulating financial services
firms. The Dodd-Frank Act also required 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 were 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. The Bank had limited activities that were impacted by the Volcker Rule, and the only
prohibited activity related to our holding of certain AFS securities in investment vehicles that met the definition of
Covered Funds. These Covered Funds securities were either divested by the divestiture deadline in July 2017 or
shortly thereafter with the exception of one private CMO re-REMIC security which was written off in the first
quarter of 2018, leaving the Bank zero exposure to Covered Funds securities since that time. See “Regulation and
Supervision –Dodd-Frank Act.”
53
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 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, which is currently at $47.36 billion as of December 31, 2018. 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; however, the extent to which the FDIC’s expectations may vary as a result of the
increase in asset thresholds for a number of functional regulatory requirements imposed under the Dodd-Frank
Act is uncertain. 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 recently enacted Economic Growth Act did not eliminate many of the aspects of the Dodd Frank Act
that have increased our compliance costs, and remains subject to further rulemaking.
The Economic Growth Act represents modest reform to the regulation of the financial services industry primarily
through certain amendments of the Dodd-Frank Act. However, many provisions of the Dodd-Frank Act that have
increased our compliance costs, such as the Volcker Rule, remain in place. Certain of the provisions amended by
the Economic Growth Act took effect immediately, while others are subject to ongoing joint agency rulemakings. It
is not possible to predict when any final rules would ultimately be issued through any such rulemakings, and what
the specific content of such rules will be. Although we expect to benefit from many aspects of this legislative
reform, the legislation and any implementing rules that are ultimately issued could have adverse implications on
the financial industry, the competitive environment, and our ability to conduct business. In addition, the federal
banking agencies indicated through interagency guidance that the capital planning and risk management practices
of institutions with total assets less than $100 billion would continue to be reviewed through the regular
supervisory process, which may offset the impact of the Economic Growth Acts changes regarding stress testing
and risk management.
The financial services industry, as well as the broader economy, may be subject to new legislation,
regulation, and government policy.
In November 2018, the Democrats took control of the U.S. House of Representatives and assumed leadership of
the House Financial Services Committee. In December 2018, Congress confirmed a new Director of the CFPB. As
a result of the changes and political and economic trends, new regulatory initiatives may be stalled and certain
previously enacted regulations may be revisited. Recent appointments to the Board of Governors of the Federal
Reserve could affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns
of trade and economic growth. At this time, further impact of these leadership changes and the potential impact
on the regulatory requirements applicable to us and our supervision by these agencies is uncertain. See
“Regulation and Supervision–Future Legislation.”
54
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.
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, 2018, $12.02 billion, or 33.0%, of our total
deposits were held in non-interest-bearing demand deposit accounts. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
55
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.
For additional information on our lease commitments, see Note 19 to our Consolidated Financial Statements.
56
Number of OfficesPrivate Client OfficesManhattan9Long Island7Queens4Brooklyn4Westchester2Staten Island2Bronx1Greenwich, CT1San Francisco, CA1Representative and Client Accommodation OfficesManhattan1Brooklyn1Bank and Brokerage Operations and SupportManhattan3Long Island1SBA & Institutional TradingHouston, TX1Signature FinancialBethel, CT1Bothell, WA1El Dorado Hills, CA1Littleton, CO1Norwell, MA1Prairie, MN1Woodstock, GA1Signature Public Funding Corp.Towson, MD1 Total Locations46Location
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.
57
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Record
Our common stock is listed on the NASDAQ Global Select Market under the symbol “SBNY.” As of December 31,
2018, 55,405,531 shares of our common stock were issued and 55,039,433 shares were outstanding.
On December 31, 2018, the last reported sale price of our common stock was $102.81 and there were eight
holders of record of our common stock, including record holders on behalf of an indeterminate number of
beneficial holders.
Equity Incentive Plan Information
The information set forth under the caption “Equity Incentive Plan Information” in our Proxy Statement for the
Annual Meeting of Stockholders to be held on April 18, 2019 is incorporated herein by reference.
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:
The performance period reflected below assumes that $100 was invested in our common stock and each of the
indexes listed below on December 31, 2013. The performance of our common stock reflected below is not
indicative of our future performance.
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.
58
December 31,2013December 31,2014December 31,2015December 31,2016December 31,2017December 31,2018Signature Bank100.00 117.26 142.78 139.82 127.78 95.71 Standard & Poor's 500 Index100.00 111.39 110.58 121.13 144.65 135.63 ICB 8300 Banks Index100.00 111.83 114.30 144.63 171.24 143.15
Unregistered Sales of Equity Securities
During the quarter ended December 31, 2018, we issued an aggregate of 25,283 shares of our common stock in
connection with investor exercises of warrants issued under our 2010 TARP Capital Purchase Program.
Dividends
Because of the expected savings from the Tax Cuts and Jobs Act of 2017, we declared and paid quarterly cash
dividends on our common stock in the third and fourth quarters of 2018. The first quarter of 2019 dividend
payment was made on February 15, 2019. 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.
Share Repurchase Program
On October 17, 2018, the Bank shareholders approved our common stock repurchase program which provides the
Bank the ability to repurchase common stock from shareholders in the open market up to an amount of $500.0
million. During the fourth quarter of 2018, the Bank repurchased 358,492 shares of common stock for a total of
$41.8 million. Therefore, as of December 31, 2018, the remaining program balance is $458.2 million. The
repurchased shares are held in our Treasury account and may be used for various corporate purposes, including,
but not limited to, the vesting of restricted stock awards or potential future common stock offerings. Share
buybacks are also subject to shareholder and regulatory approval, which were received for this repurchase
program in October and November 2018, respectively.
59
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with our Consolidated Financial Statements and
related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
each of which is included elsewhere in this Annual Report on Form 10-K.
(Continued on the next page)
60
20182017201620152014SELECTED OPERATING DATA1,708,920$ 1,470,169 1,317,151 1,106,948 924,273 409,933 232,583 169,909 129,847 123,122 1,298,9871,237,586 1,147,242 977,101 801,151 162,524 263,297 155,774 44,914 31,110 1,136,463974,289 991,468 932,187 770,041 (16)(633) (427) (963) (1,724) 23,27836,041 42,750 37,104 34,982 486,278435,066 376,771 341,214 293,244 673,463575,264 657,447 628,077 511,779 168,121188,055 261,123 255,012 215,075 505,342$ 387,209 396,324 373,065 296,704 9.27$ 7.17 7.42 7.35 6.05 9.23$ 7.12 7.37 7.27 5.95 Dividends per common share1.12$ - - - - 47,364,816$ 43,117,720 39,047,611 33,450,545 27,318,640 7,301,6046,953,719 6,335,347 6,240,761 6,073,459 1,883,5331,996,376 2,038,125 2,133,144 2,208,551 485,305432,277 559,528 456,358 548,297 36,193,12232,416,580 28,829,670 23,597,541 17,693,316 230,005195,959 213,495 195,023 164,392 36,378,77333,439,827 31,861,260 26,773,923 22,620,275 6,048,1745,242,381 3,200,488 3,537,163 2,050,163 4,407,140 4,031,691 3,612,264 2,891,834 2,496,238 Net impairment losses on securities recognized in earnings Total non-interest incomeNon-interest expenseIncome before income taxes(dollars in thousands, except per share amounts)Net interest income before provision for loan and lease lossesInterest expenseAt or for the years ended December 31,Interest incomeNon-interest income:Net interest income after provision for loan and lease lossesProvision for loan and lease lossesTotal assetsSecurities available-for-saleLoans and leases, netAllowance for loan and lease lossesIncome tax expenseNet incomePER COMMON SHARE DATAEarnings per share - basic Earnings per share - diluted BALANCE SHEET DATASecurities held-to-maturityLoans held for saleDepositsBorrowingsShareholders' equity
61
201820172016201520143,784,716$ 3,607,453$ 3,354,085$ 5,207,906$ 3,566,595$ 44,434,158$ 40,174,810$ 36,004,958$ 29,962,220$ 24,340,755$ 1,3931,3051,2181,1221,01031 303029281.12%0.95%1.09%1.23%1.20%11.98%10.13%12.19%13.85%13.81%3.85%3.66%3.66%3.69%3.80%3.85%3.67%3.66%3.69%3.80%1.01%0.64%0.52%0.47%0.55%2.92%3.08%3.19%3.26%3.29%2.93%3.09%3.19%3.26%3.29%36.78%34.16%31.66%33.64%35.07%0.38%0.92%0.52%0.07%0.01%0.63%0.60%0.74%0.82%0.92%211.69%59.94%135.49%271.22%782.52%0.30%1.00%0.54%0.30%0.12%0.34%0.83%0.46%0.22%0.08%9.70%9.72%9.61%8.87%9.25%12.11%11.99%11.92%11.33%- 12.11%11.99%11.92%11.33%13.49%13.41%13.32%13.46%12.10%14.39%9.37%9.38%8.93%8.88%8.69%9.27%9.31%8.88%8.88%8.69%54,406 54,001 53,406 50,739 49,066 80.07$ 73.33$ 66.15$ 56.81$ 49.61$ (1)(2)(3)(4)Based on the 21 percent U.S. federal statutory tax rate for 2018 and the 35 percent rate for 2017 and prior. The tax-equivalent basis is considered 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. 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. Yield on average interest-earning assets, tax-equivalent basis (1)Net interest margin, tax-equivalent basis (1)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.Total Risk-Based Capital RatioTier 1 Risk-Based Capital RatioTier 1 Leverage Capital RatioCapital and Liquidity Ratios:Common Equity Tier 1 Risk-Based Capital Ratio (3)Non-performing assets to total assetsBook value per common shareNumber of weighted average common shares outstandingPer common share data:Average tangible equity to average tangible assets (4)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.Non-accrual loans to total loansALLL to non-accrual loansALLL to total loansNet interest marginAverage rate on deposits and borrowings Private client officesFull-time employee equivalentsAverage interest-earning assetsAssets under managementAt or for the years ended December 31,Average equity to average assetsThis 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.Return on average shareholders' equityReturn on average assetsSELECTED FINANCIAL RATIOSNet charge-offs to average loansAsset Quality Ratios:OTHER DATA(dollars in thousands, except per share amounts)Performance Ratios:Efficiency ratio (2)Yield on average interest-earning assets
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 $47.36 billion in assets, $36.38 billion in deposits, $36.42 billion in loans, $4.41 billion in equity
capital and $3.78 billion in other assets under management as of December 31, 2018.
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 36.8% for
the year ended December 31, 2018.
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 550 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 with respect to the size and number of client relationships, and
geographically within the New York metropolitan area, as well as on the West Coast where we have significant
client synergies 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”). On an ongoing basis, we evaluate our significant accounting policies and
associated estimates applied in our consolidated financial statements. Some of these 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.
See Note 2(g) for our accounting policies related to the ALLL.
New Accounting Standards
See Note 2(t) for discussion regarding new accounting standards recently adopted and those expected to be
adopted in the future.
62
Results of Operations
The following is a discussion and analysis of our results of operations for the year ended December 31, 2018
compared to the year ended December 31, 2017 and for the year ended December 31, 2017 compared to the
year ended December 31, 2016.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Net Income
Net income for the year ended December 31, 2018 was $505.3 million, or $9.23 diluted earnings per share,
compared to $387.2 million, or $7.12 diluted earnings per share, for the year ended December 31, 2017. The
increase was primarily due to a decrease of $100.8 million in the provision for loan losses, nearly all attributable to
the NYC taxi medallion portfolio. The increase was also driven by a $238.8 million increase in interest income,
which was partially offset by an increase of $177.4 million in interest expense, resulting in a net increase of $61.4
million in net interest income from continuing deposit and loan growth. This overall increase was partially offset by
an increase of $51.2 million in non-interest expense attributable to the addition of new private client banking
teams, as well as an increase in costs in our risk management and compliance related activities. The returns on
average shareholders’ equity and average total assets for the year ended December 31, 2018 were 11.98% and
1.12%, respectively, compared to 10.13% and 0.95% for the year ended December 31, 2017.
63
(in thousands)20182017Interest income1,708,920$ 1,470,169Interest expense409,933232,583Net interest income before provision for loan and lease losses1,298,9871,237,586Provision for loan and lease losses162,524263,297Non-interest income:Net impairment losses on securities recognized in earnings(16) (633) Total non-interest income23,27836,041Non-interest expense486,278435,066Income tax expense168,121188,055Net income505,342$ 387,209Years ended December 31,
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, 2018 and 2017:
64
(dollars in thousands)Average BalanceInterest Income/ ExpenseAverage Yield/ RateAverage BalanceInterest Income/ ExpenseAverage Yield/ RateINTEREST-EARNING ASSETSShort-term investments463,799$ 8,9251.92%462,3515,0171.09%Investment securities9,392,563299,6973.19%8,948,973269,6243.01%Commercial loans, mortgages and leases (1)(2)33,972,4591,383,5314.07%30,299,1441,184,9113.91%Residential mortgages and consumer loans (1)230,7279,7194.21%267,75710,1473.79%Loans held for sale374,61010,8632.90%196,5854,3342.20%Total interest-earning assets44,434,1581,712,7353.85%40,174,8101,474,0333.67%Non-interest-earning assets611,430578,233Total assets45,045,588$ 40,753,043 INTEREST-BEARING LIABILITIESInterest-bearing depositsNOW and interest-bearing demand3,661,849$ 52,4261.43%3,864,93229,9150.77%Money market17,878,509207,6901.16%17,086,353125,0140.73%Time deposits1,648,43329,1321.77%1,504,88716,9001.12%Non-interest-bearing demand deposits11,954,403--10,702,062--Total deposits35,143,194289,2480.82%33,158,234171,8290.52%Subordinated debt257,74814,5735.65%256,953 14,535 5.66%Other borrowings5,073,852106,1122.09%3,143,21846,2191.47%Total deposits and borrowings40,474,794409,9331.01%36,558,405232,5830.64%Other non-interest-bearing liabilitiesand shareholders' equity4,570,7944,194,638Total liabilities and shareholders' equity45,045,588$ 40,753,043 OTHER DATANet interest income / interest rate spread (2)1,302,8022.84%1,241,4503.03%Tax-equivalent adjustment(3,815) (3,864) Net interest income, as reported1,298,9871,237,586Net interest margin2.92%3.08%Tax-equivalent effect0.01%0.01%Net interest margin on a fully tax-equivalent basis (2)2.93%3.09%Ratio of average interest-earnings assetsto average interest-bearing liabilities109.78%109.89%(1) Average loan balances include non-accrual loans along with deferred fees and costs.(2) Presented on a tax-equivalent, non-GAAP basis for municipal leasing and financing transactions using the U.S. federal statutory tax rate of 21 percent for the period ended December 31, 2018 and 35 percent for the period ended December 31, 2017. 20182017Years ended December 31,
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. The effect of nonperforming assets is included in the table below.
Net interest income for the year ended December 31, 2018 was $1.30 billion, an increase of $61.4 million, or
4.96%, over the year ended December 31, 2017. The increase in net interest income for 2018 was largely driven
by increases in average interest-earning assets and average deposits, which increased $4.26 billion and $1.98
billion, respectively, compared to the previous year, as well as an increase of 18 basis points in the yield on
average interest-earning assets, and increase in prepayment penalty income. However, this increase was offset
by a 37 basis point increase in average cost of funds to 1.01% for the year ended December 31, 2018 compared
to 0.64% in the prior year due to the higher interest rate environment and increased deposit competition. These
same factors contributed to the 16 basis point decline in net interest margin on a tax-equivalent basis to 2.93% for
2018, when compared to the prior year.
Total investment securities averaged $9.39 billion for the year ended December 31, 2018, compared to $8.95
billion for the year ended December 31, 2017. The overall yield on the securities portfolio for the year ended
December 31, 2018 was 3.19%, higher when compared to the 3.01% of previous year due to higher reinvestment
yields and lower premium amortization due to slower prepayment speeds. Our portfolio primarily consists of high
quality and highly-rated mortgage-backed securities, commercial mortgage-backed securities, and collateralized
mortgage obligations issued by government agencies, government-sponsored enterprises, and private issuers.
We mitigate extension risk through our overall strategy of purchasing relatively stable duration securities that, by
65
(in thousands)Change Due to RateChange Due to VolumeTotal ChangeINTEREST INCOMEShort-term investments3,892$ 16 3,908 Investment securities16,708 13,365 30,073 Commercial loans, mortgages and leases (1)54,967 143,653 198,620 Residential mortgages and consumer loans975 (1,403) (428) Loans held for sale2,604 3,925 6,529 Total interest income79,146 159,556 238,702 INTEREST EXPENSEInterest-bearing depositsNOW and interest-bearing demand24,083 (1,572) 22,511 Money market76,880 5,796 82,676 Time deposits10,620 1,612 12,232 Total interest-bearing deposits111,583 5,836 117,419 Subordinated debt(7) 45 38 Borrowings31,504 28,389 59,893 Total interest expense143,080 34,270 177,350 Net interest income(63,934)$ 125,286 61,352 Year ended December 31,2018 vs. 2017(1) Presented on a tax-equivalent, non-GAAP basis for municipal leasing and financing transactions using the U.S. federal statutory tax rate of 21 percent for the period ended December 31, 2018 and 35 percent for the period ended December 31, 2017.
their nature, have lower yields. At December 31, 2018, the baseline average duration of our investment securities
portfolio was approximately 3.33 years, compared to 3.28 years at December 31, 2017.
Total commercial loans, mortgages and leases averaged $33.97 billion for the year ended December 31, 2018, an
increase of $3.67 billion or 12.1% over the year ended December 31, 2017. The average yield on this portfolio
increased 16 basis points to 4.07% when compared to the year ended December 31, 2017, primarily due to
increased market rates. Prepayment penalty income was $28.7 million for the year ended December 31, 2018,
compared to $26.8 million for the prior 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 $374.6 million and
$196.6 million for the years ended December 31, 2018 and 2017, respectively.
Average total deposits and borrowings increased $3.92 billion, or 10.7%, to $40.47 billion during the year ended
December 31, 2018, compared to $36.56 billion for the previous year. Overall cost of funding was 1.01% during
2018, increasing 37 basis points from 0.64% in 2017, primarily due to the increase in market interest rates and
increased deposit competition in 2018.
For the year ended December 31, 2018, average non-interest-bearing demand deposits were $11.95 billion,
compared to $10.70 billion for the year ended December 31, 2017, an increase of $1.25 billion, or 11.7%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
33.0% of all deposits at December 31, 2018. Additionally, average NOW and interest-bearing demand and money
market accounts totaled $21.54 billion for the year ended December 31, 2018, an increase of $589.1 million, or
2.8%, over the year ended December 31, 2017. 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. As a result of the
current competitive and rising interest rate environment, our funding cost for money market accounts increased to
1.16% for the year ended December 31, 2018 compared to 0.73% for the prior year. Our funding cost for NOW
and interest-bearing demand accounts was 1.43% for the year ended December 31, 2018 compared to 0.77% for
the year ended December 31, 2017.
Average time deposits, which are relatively short-term in nature, totaled $1.65 billion for the year ended December
31, 2018 and carried an average cost of 1.77% in 2018, up 65 basis points from 1.12% in 2017. 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, 2018, average total borrowings were $5.33 billion, compared to $3.40 billion for
the previous year, an increase of $1.93 billion or 56.8%. The increase in average total borrowings, when
compared to the previous year, reflects funding needs as a result of our continued loan growth. At December 31,
2018 total borrowings represent approximately 14.3% of all funding liabilities, compared to 13.6% at December 31,
2017. The average cost of our total borrowings was 2.26% for 2018, up 47 basis points from 1.79% in 2017. The
increase in the average cost of borrowings primarily reflects higher replacement rates for both matured and new
term borrowings.
66
Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $162.5 million for the year ended December 31, 2018, compared to
$263.3 million for the prior year, a decrease of $100.8 million, or 38.3%. The decline was driven by lower NYC taxi
medallion portfolio charge-offs during the year ended December 31, 2018, compared to the same period a year
ago. The remaining NYC taxi medallion portfolio net exposure is $72.6 million. In Chicago, the remaining taxi
medallion portfolio net exposure is $14.0 million. Including repossessed taxi medallions, remaining net exposure
totals $114.4 million in NYC and $15.9 million in Chicago.
Our ALLL increased $ 34.0 million to $230.0 million at December 31, 2018 from $196.0 million at December 31,
2017. The increase is primarily attributable to an increase in reserves due to growth in the Bank’s commercial real
estate and commercial and industrial portfolios. Further contributing is an increase in qualitative reserves, primarily
the economic and business condition factor in the specialty finance and commercial and industrial portfolios.
For additional information about the provision for loan and lease losses and the 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:
Non-Interest Income
For the year ended December 31, 2018, non-interest income was $23.3 million, a decrease of $12.8 million, or
35.4%, when compared with 2017. The decrease was primarily due to $14.4 million in additional amortization of
low income housing tax credit investments as a result of an increase in the underlying investment balances
compared to the same period last year. These investments have contributed to the reduction of the Bank’s
effective tax rate.
Non-Interest Expense
Non-interest expense increased $51.2 million, or 11.8%, to $486.3 million for the year ended December 31, 2018
from $435.1 million for the year ended December 31, 2017. The increase was primarily driven by an increase of
$28.9 million in salaries and benefits mostly attributable to the addition of new private client banking teams, along
with increased compensation costs driven by the continued growth of our business. This increase was also
attributable to an increase of $15.1 million in other general and administrative expenses, primarily as a result of
$20.3 million in fair value adjustments related to repossessed New York City taxi medallions, compared to $15.0
million for the same period last year, as well as an increase of $6.6 million in additional client activity related
expenses as a result of growth. Further contributing to this trend is a $3.1 million increase in information
67
(dollars in thousands)LoanAmountAllowance AmountAllowanceas a % of Loan AmountLoan AmountAllowance AmountAllowanceas a % of Loan AmountMortgage loans:Multi-family residential property15,688,481$ 99,964 0.64%14,512,051 82,554 0.57%Commercial property10,309,837 63,328 0.61%8,902,027 53,283 0.60%1-4 family residential property620,486 3,424 0.55%621,377 2,311 0.37%Home equity lines of credit116,272 2,035 1.75%133,268 1,994 1.50%Acquisition, development and construction loans1,656,467 12,339 0.74%2,018,901 15,844 0.78%Other loans:Commercial and industrial 7,905,488 47,257 0.60%6,070,217 39,837 0.66%New York City taxi medallions72,639 - 0.00%276,800 - 0.00%Chicago taxi medallions15,553 1,538 9.89%32,509 - 0.00%Philadelphia taxi medallions319 13 4.08%585 - 0.00%Consumer 9,038 107 1.18%15,310 136 0.89%Total36,394,580$ 230,005 0.63%32,583,045 195,959 0.60%December 31, 20182017
technology expenses due to the implementation of new cloud-based systems (loan and human resource systems)
during the year, as well as increased transaction volume from the continued growth of our business.
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, 2018, our total unrecognized compensation cost related to unvested restricted shares was
$76.0 million, which is expected to be recognized over a weighted-average period of 1.80 years. During the years
ended December 31, 2018 and 2017, we recognized compensation expense of $52.6 million and $46.4 million,
respectively, for restricted shares. The total fair value of restricted shares that vested during the years ended
December 31, 2018 and 2017 was $62.4 million and $59.5 million, respectively.
Income Taxes
We recognized income tax expense for the year ended December 31, 2018 of $168.1 million reflecting an effective
tax rate 25.0%, compared to $188.1 million for the year ended December 31, 2017 reflecting an effective tax rate
of 32.7%.
The decrease in the effective tax rate is primarily due to the lower statutory corporate tax rate as a result of the
enacted Federal corporate tax reform, partially offset by the absence of the 2017 tax benefit associated with the
significant taxi medallion charge-offs and the impact of the higher statutory corporate tax rate related to that
benefit.
68
Segment Results
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, 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:
69
(in thousands)Commercial BankingSpecialty FinanceEliminations (1)ConsolidatedNet interest income1,212,969$ 86,018 - 1,298,987 Provision for (recovery of) loan and lease losses28,707 133,817 - 162,524 Total non-interest income18,738 4,564 (24) 23,278 Total non-interest expense432,819 53,483 (24) 486,278 Income (loss) before income taxes770,181 (96,718) - 673,463 Total assets47,594,348$ 4,357,754 (4,587,286) 47,364,816 (1) Eliminations related to intercompany funding.Year ended December 31, 2018(in thousands)Commercial BankingSpecialty FinanceEliminations (1)ConsolidatedNet interest income1,159,208$ 78,378 - 1,237,586 Provision for (recovery of) loan and lease losses44,283 219,014 - 263,297 Total non-interest income31,486 4,579 (24) 36,041 Total non-interest expense392,041 43,049 (24) 435,066 Income (loss) before income taxes754,370 (179,106) - 575,264 Total assets43,388,741$ 4,063,495 (4,334,516) 43,117,720 (1) Eliminations related to intercompany funding.Year ended December 31, 2017
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 net interest income was $1.21 billion for the year ended December 31, 2018, an increase of
$53.8 million, or 4.6%, when compared to $1.16 billion in the prior year. This increase was primarily due to growth
in average interest-earning assets and the yield earned on those assets, partially offset by an increase in average
deposits and an increase in the cost of funds as a result of the current competitive environment, an increase in
borrowings, and an increase in replacement rates.
The provision for loan and lease losses decreased $15.6 million, or 35.2%, to a $28.7 million reserve build,
compared to a $44.3 million reserve build in the prior year. The decrease was primarily due to the absence of a
2017 increase in the commercial real estate portfolio qualitative reserves primarily related to loan review, and the
nature and volume of loans. For additional information about the provision for loan and lease losses, see the
discussion of asset quality and the ALLL later in this report, as well as in Note 8 to our Consolidated Financial
Statements.
Non-interest expense was $432.8 million for the year ended December 31, 2018, an increase of $40.8 million, or
10.4%, when compared to $392.0 million in the prior year. The increase was primarily attributable to an increase in
salaries and benefits expense due to the addition of new private client banking teams and an increase in
compensation costs driven by the growth of our business. Further contributing is an increase in other general and
administrative expense and information technology expenses, also attributable to the continued growth of our
business.
The increase of $4.20 billion in total assets, or 9.7%, from $43.39 billion as of December 31, 2017 to $47.59 billion
as of December 31, 2018 was primarily attributable to growth in our commercial real estate loan portfolio.
70
(in thousands)20182017Net interest income1,212,969$ 1,159,208 Provision for (recovery of) loan and lease losses28,707 44,283 Total non-interest income18,738 31,486Total non-interest expense432,819 392,041 Income (loss) before income taxes770,181 754,370 Total assets47,594,348$ 43,388,741 Years ended December 31,
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.
Specialty Finance net interest income was $86.0 million for the year ended December 31, 2018, an increase of
$7.6 million when compared to $78.4 million in the prior year. The increase is primarily attributable to the increase
in interest income due to continued loan growth in our equipment leasing portfolios, as well as an increase in asset
yields, partially offset by a decrease in interest income as a result of the entire taxi medallion portfolio being placed
on nonaccrual in the second quarter of 2017.
The provision for loan and lease losses decreased $85.2 million, or 38.9%, to $133.8 million for the year ended
December 31, 2018 from $219.0 million for the year ended December 31, 2017. The decline was driven by lower
NYC taxi medallion portfolio charge-offs during the year ended December 31, 2018, as the underlying collateral
value decline in the first quarter of 2018, while large, was less significant than that in the year ended December
31, 2017. For additional information about the provision for loan and lease losses, see the discussion of asset
quality and the ALLL later in this report, as well as in Note 8 to our Consolidated Financial Statements.
Non-interest expense was $53.5 million for the year ended December 31, 2018, an increase of $10.4 million, or
24.2%, when compared to $43.1 million for the same period a year ago, nearly all due to the increase in fair value
adjustments related to repossessed taxi medallions as a result of the significant decline in taxi medallion values
during the first quarter of 2018 related to a larger repossessed asset population in 2018.
The increase of $294.3 million in total assets, or 7.2%, from $4.06 billion as of December 31, 2017 to $4.36 billion
as of December 31, 2018 was primarily attributable to growth in our equipment leasing portfolios, partially offset by
the reduction of taxi medallion balances due to charge-offs and the application of principal and interest payments
to the related nonaccrual loan balances.
71
(in thousands)20182017Net interest income86,018$ 78,378 Provision for (recovery of) loan and lease losses133,817 219,014 Total non-interest income4,564 4,579Total non-interest expense53,483 43,049 Income (loss) before income taxes(96,718) (179,106) Total assets4,357,754$ 4,063,495 Years ended December 31,
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net Income
Net income for the year ended December 31, 2017 was $387.2 million, or $7.12 diluted earnings per share,
compared to $396.3 million, or $7.37 diluted earnings per share, for the year ended December 31, 2016. The
decrease in net income was primarily driven by an increase in the provision for loan losses and non-interest
expense, as well as a decrease in loan prepayment penalty income, partially offset by increased net interest
income, fueled by strong deposit and loan growth. The returns on average shareholders’ equity and average total
assets for the year ended December 31, 2017 were 10.13% and 0.95%, respectively, compared to 12.19% and
1.09% for the year ended December 31, 2016.
72
(in thousands)20172016Interest income1,470,169$ 1,317,151Interest expense232,583169,909Net interest income before provision for loan and lease losses1,237,5861,147,242Provision for loan and lease losses263,297155,774Non-interest income:Net impairment losses on securities recognized in earnings(633) (427)Total non-interest income36,04142,750Non-interest expense435,066376,771Income tax expense188,055261,123Net income387,209$ 396,324Years ended December 31,
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, 2017 and 2016:
73
(dollars in thousands)Average BalanceInterest Income/ ExpenseAverage Yield/ RateAverage BalanceInterest Income/ ExpenseAverage Yield/ RateINTEREST-EARNING ASSETSShort-term investments462,351$ 5,0171.09%493,6462,4560.50%Investment securities8,948,973269,6243.01%8,695,632267,4063.08%Commercial loans, mortgages and leases (1) (2)30,299,1441,184,9113.91%26,212,8111,032,8293.94%Residential mortgages and consumer loans (1)267,75710,1473.79%297,47811,2353.78%Loans held for sale196,5854,3342.20%305,3914,5721.50%Total interest-earning assets40,174,8101,474,0333.67%36,004,9581,318,4983.66%Non-interest-earning assets578,233410,764Total assets40,753,043$ 36,415,722 INTEREST-BEARING LIABILITIESInterest-bearing depositsNOW and interest-bearing demand3,864,932$ 29,9150.77%3,591,98416,5730.46%Money market17,086,353125,0140.73%15,399,82594,2940.61%Time deposits1,504,88716,9001.12%1,286,77512,4180.97%Non-interest-bearing demand deposits10,702,062--9,469,240--Total deposits33,158,234171,8290.52%29,747,824123,2850.41%Subordinated debt256,95314,5355.66%180,12010,2025.66%Borrowings3,143,21846,2191.47%2,781,30536,4221.31%Total deposits and borrowings36,558,405232,5830.64%32,709,249169,9090.52%Other non-interest-bearing liabilitiesand shareholders' equity4,194,6383,706,473Total liabilities and shareholders' equity40,753,043$ 36,415,722 OTHER DATANet interest income / interest rate spread (2)1,241,4503.03%1,148,5893.14%Tax-equivalent adjustment(3,864) (1,347) Net interest income, as reported1,237,5861,147,242Net interest margin3.08%3.19%Tax-equivalent effect0.01%- Net interest margin on a fully tax-equivalent basis (2)3.09%3.19%Ratio of average interest-earnings assetsto average interest-bearing liabilities109.89%110.08%(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. 20172016Years ended December 31,
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. The effect of nonperforming assets is included in the table below.
Net interest income for the year ended December 31, 2017 was $1.24 billion, an increase of $90.3 million, or
7.87%, over the year ended December 31, 2016. The increase in net interest income for 2017 was largely driven
by increases in average interest-earning assets and average deposits, which increased $4.17 billion and $3.41
billion, respectively, compared to the previous year. However, this increase was offset by a 12 basis point increase
in average cost of funds to 0.64% for the year ended December 31, 2017 compared to 0.52% in the prior year.
The increase in net interest income is further offset by a reduction in prepayment penalty income, lower asset
yields on our investment portfolio due to the flat yield curve and lower replacement rates, as well as the
commercial loan yield impact of placing the entire taxi medallion portfolio on non-accrual in the second quarter of
2017. These same factors contributed to the ten basis point decline in net interest margin on a tax-equivalent
basis to 3.09% for 2017, when compared to the prior year.
Total investment securities averaged $8.95 billion for the year ended December 31, 2017, compared to $8.70
billion for the year ended December 31, 2016. The overall yield on the securities portfolio for the year ended
December 31, 2017 was 3.01%, lower when compared to the 3.08% from the previous year due to the
aforementioned flat yield curve and lower replacement rates. Our portfolio primarily consists of high quality and
highly-rated mortgage-backed securities, commercial mortgage-backed securities, and collateralized mortgage
obligations issued by government agencies, government-sponsored enterprises, and private issuers. We mitigate
extension risk through our overall strategy of purchasing relatively stable duration securities that, by their nature,
74
(in thousands)Change Due to RateChange Due to VolumeTotal ChangeINTEREST INCOMEShort-term investments2,717$ (156) 2,561 Investment securities(5,573) 7,791 2,218 Commercial loans, mortgages and leases (1)(8,926) 161,008 152,082 Residential mortgages and consumer loans34 (1,122) (1,088) Loans held for sale1,391 (1,629) (238) Total interest income(10,357) 165,892 155,535 INTEREST EXPENSEInterest-bearing depositsNOW and interest-bearing demand12,083 1,259 13,342 Money market20,393 10,327 30,720 Time deposits2,377 2,105 4,482 Total interest-bearing deposits34,853 13,69148,544 Subordinated debt(19) 4,352 4,333 Borrowings5,0584,739 9,797 Total interest expense39,892 22,782 62,674 Net interest income(50,249)$ 143,110 92,861 (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.2017 vs. 2016Year ended December 31,
have lower yields. At December 31, 2017, the baseline average duration of our investment securities portfolio was
approximately 3.28 years, compared to 3.71 years at December 31, 2016.
Total commercial loans, mortgages and leases averaged $30.30 billion for the year ended December 31, 2017, an
increase of $4.09 billion or 15.6% over the year ended December 31, 2016. The average yield on this portfolio
decreased three basis points to 3.91% when compared to the year ended December 31, 2016. The decrease in
average yield is primarily driven by the impact of placing the entire taxi medallion portfolio on non-accrual in the
second quarter of 2017, along with a $5.3 million decrease in prepayment penalty income when compared to the
prior year. Prepayment penalty income was $26.8 million for the year ended December 31, 2017, compared to
$32.1 million for the prior 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 $196.6 million and
$305.4 million for the years ended December 31, 2017 and 2016, respectively.
Average total deposits and borrowings increased $3.85 billion, or 11.8%, to $36.56 billion during the year ended
December 31, 2017, compared to $32.71 billion for the previous year. Overall cost of funding was 0.64% during
2017, increasing 12 basis points from 0.52% in 2016, primarily due to the increase in market interest rates in 2017
and the full year impact of the April 2016 issuance of subordinated debt.
For the year ended December 31, 2017, average non-interest-bearing demand deposits were $10.70 billion,
compared to $9.47 billion for the year ended December 31, 2016, an increase of $1.23 billion, or 13.0%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
34.0% of all deposits at December 31, 2017. Additionally, average NOW and interest-bearing demand and money
market accounts totaled $20.95 billion for the year ended December 31, 2017, an increase of $1.96 billion, or
10.3%, over the year ended December 31, 2016. 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 2017
rise in market interest rates, our funding cost for money market accounts increased to 0.73% for the year ended
December 31, 2017 compared to 0.61% for the prior year. Our funding cost for NOW and interest-bearing demand
accounts was 0.77% for the year ended December 31, 2017 compared to 0.46% for the year ended December 31,
2016.
Average time deposits, which are relatively short-term in nature, totaled $1.50 billion for the year ended December
31, 2017 and carried an average cost of 1.12% in 2017, up 15 basis points from 0.97% in 2016. 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, 2017, average total borrowings were $3.40 billion, compared to $2.96 billion for
the previous year, an increase of $438.7 million, or 14.8%. The increase in average total borrowings, when
compared to the previous year, reflects funding needs as a result of our continued loan growth. At December 31,
2017, total borrowings represent approximately 13.6% of all funding liabilities, compared to 9.1% at December 31,
2016. The average cost of our total borrowings was 1.79% for 2017, up 22 basis points from 1.57% in 2016. The
increase in the average cost of borrowings reflects the issuance of subordinated debt, as well as the increase in
other borrowings.
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Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $263.3 million for the year ended December 31, 2017, compared to
$155.8 million for the prior year, an increase of $107.5 million, or 69.0%. The increased provision was largely due
to the increase in net charge-offs related to the NYC taxi medallion portfolio driven by a significant decline in the
underlying collateral value during 2017. Additionally, all remaining taxi medallion loans were placed on nonaccrual
in 2017 due to the heightened economic stress at an individual borrower level, which contributed to the increased
provision. As of December 31, 2017, the NYC taxi medallion portfolio was written down to estimated fair value of
$312,000 per medallion, net of selling costs, and the Chicago taxi medallion portfolio was written down to $46,000,
net of selling costs. As a result, the Bank significantly reduced its net exposure to the taxi medallion portfolio to
$309.9 million at the end of 2017, of which, $276.8 million and $32.5 million were related to NYC and Chicago taxi
medallions, respectively. This increase in provision was partially offset by the absence of 2016 charge-off activity
related to the Chicago taxi medallion portfolio due to a significant decline in the underlying collateral value in the
prior year, as well as the payment default of two of the Bank’s largest relationships.
Our ALLL decreased $17.5 million to $196.0 million at December 31, 2017 from $213.5 million at December 31,
2016. The decrease is primarily attributable to taxi medallion charge-offs during 2017 due to the placement of the
entire portfolio on nonaccrual and a significant decline in collateral value, partially offset by an increase in reserves
due to growth in the Bank’s commercial real estate and commercial and industrial portfolios.
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:
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, 2017, non-interest income was $36.0 million, a decrease of $6.7 million, or
15.7%, when compared with 2016. The decrease in non-interest income was driven by a $3.7 million decrease in
net gains on sales of securities, which was due to the absence of a number of 2016 sales that resulted in gains as
the Bank capitalized on current market conditions at the time. Further contributing to this decrease is a $7.3 million
increase in other losses from amortization of low income housing tax credit investments. This decrease was
76
(dollars in thousands)LoanAmountAllowance AmountAllowanceas a % of Loan AmountLoan AmountAllowance AmountAllowanceas a % of Loan AmountMortgage loans:Multi-family residential property14,512,051$ 82,554 0.57%13,504,619 63,855 0.47%Commercial property8,902,027 53,283 0.60%7,606,868 38,761 0.51%1-4 family residential property621,377 2,311 0.37%529,228 2,107 0.40%Home equity lines of credit133,268 1,994 1.50%148,094 3,182 2.15%Acquisition, development and construction loans2,018,901 15,844 0.78%1,799,848 11,966 0.66%Other loans:Commercial and industrial 6,070,217 39,837 0.66%4,793,135 35,159 0.73%New York City taxi medallions276,800 - 0.00%567,925 44,319 7.80%Chicago taxi medallions32,509 - 0.00%55,216 12,152 22.01%Philadelphia taxi medallions585 - 0.00%4,258 1,797 42.20%Consumer 15,310 136 0.89%10,268 197 1.92%Total32,583,045$ 195,959 0.60%29,019,459 213,495 0.74%(1) Certain loans were reclassified from other categories and included with construction loans as acquisition, development and construction loans.December 31, 20172016 (1)
partially offset by a $2.5 million increase in net gains on sale of loans and a $1.7 million increase in fees and
service charges due to the Bank’s continued growth.
Non-Interest Expense
Non-interest expense increased $58.3 million, or 15.5%, to $435.1 million for the year ended December 31, 2017
from $376.8 million for the year ended December 31, 2016. This increase was mainly driven by a $26.8 million
increase in salaries and benefits mostly attributable to the addition of nine 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 $5.7 million rise in FDIC assessment fees driven by our
deposit growth and a $15.5 million increase in other general and administrative expenses, which was primarily
attributable to a $12.3 million increase in repossessed taxi medallion fair value adjustments. Further contributing to
the increase is a $2.4 million increase in professional fees associated with risk management and compliance
related activities, a $2.3 million increase in information technology fees due to additional client activity as a result
of our growth, as well as a $3.0 million increase in occupancy and equipment expenses resulting from the
continued 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, 2017, our total unrecognized compensation cost related to unvested restricted shares was
$77.2 million, which is expected to be recognized over a weighted-average period of 1.83 years. During the years
ended December 31, 2017 and 2016, we recognized compensation expense of $46.4 million and $41.7 million,
respectively, for restricted shares. The total fair value of restricted shares that vested during the years ended
December 31, 2017 and 2016 was $59.5 million and $58.5 million, respectively.
Income Taxes
We recognized income tax expense for the year ended December 31, 2017 of $188.1 million reflecting an effective
tax rate of 32.7%, compared to $261.1 million for the year ended December 31, 2016 reflecting an effective tax
rate of 39.7%.
The decrease in income tax expense for the year ended December 31, 2017, when compared to the previous year
was primarily due to the decrease in pretax income during the year, as well as a $15.1 million net tax benefit not
previously recorded associated with the reduction from the NYC tax base of net interest income earned on
qualified affordable housing and low income community related loans in accordance with legislation enacted in
2015 impacting the 2015 and 2016 tax years. For 2017, the net tax benefit related to qualified affordable housing
and low income community related loans is approximately $7.3 million. Current year income tax expense also
includes a net tax benefit of $2.0 million related to the impact of recently enacted Federal corporate tax reform
primarily related to the revaluation of deferred tax assets and liabilities, partially offset by the tax reform impact on
other comprehensive income (“OCI") as a result of a deferred tax asset remeasurement related to the net
unrealized loss of our available-for-sale (‘AFS”) securities. Finally, income tax expense also includes a benefit of
$6.5 million related to the vesting of stock-based compensation as a result of the 2017 adoption of the new stock-
based compensation standard.
The newly issued ASU 2018-02, Income Statement –Reporting Comprehensive Income (Topic 220) provides
entities an option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the
2017 Tax Cuts and Jobs Act to retained earnings. Early adoption is permitted as of December 31, 2017, prior to
the issuance of the related financial statements. The Company elected not to reclassify as of December 31, 2017.
See Note 2(t) for additional information.
Considering the impacts of the recently enacted Federal corporate tax reform, the Bank anticipates its 2018
estimated effective tax rate to be approximately 27 percent.
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Segment Results
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, 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:
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(in thousands)Commercial BankingSpecialty FinanceEliminations (1)ConsolidatedNet interest income1,159,208$ 78,378 - 1,237,586 Provision for (recovery of) loan and lease losses44,283 219,014 - 263,297 Total non-interest income31,486 4,579 (24) 36,041 Total non-interest expense392,041 43,049 (24) 435,066 Income (loss) before income taxes754,370 (179,106) - 575,264 Total assets43,388,741$ 4,063,495 (4,334,516) 43,117,720 (1) Eliminations related to intercompany funding.Year ended December 31, 2017(in thousands)Commercial BankingSpecialty FinanceEliminations (1)ConsolidatedNet interest income1,065,872$ 81,370 - 1,147,242 Provision for (recovery of) loan and lease losses(20,174) 175,948 - 155,774 Total non-interest income39,293 3,491 (34) 42,750 Total non-interest expense353,481 23,324 (34) 376,771 Income (loss) before income taxes771,858 (114,411) - 657,447 Total assets39,081,992$ 3,440,329 (3,474,710) 39,047,611 (1) Eliminations related to intercompany funding.Year ended December 31, 2016
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 net interest income was $1.16 billion for the year ended December 31, 2017, an increase of
$93.3 million, or 8.8%, when compared to $1.07 billion in the prior year. This increase was primarily due to growth
in average interest-earning assets, partially offset by an increase in average deposits, a reduction in prepayment
penalty income, as well as lower asset yields on our investment portfolio due to the flat yield curve and lower
replacement rates, as well as an increase in the funding cost of total deposits and borrowings as a result of an
increase in market interest rates.
The provision for loan and lease losses increased $64.5 million, or over 100%, to a $44.3 million reserve build,
compared to a $20.2 million reserve release in the prior year. The increase was primarily due to the absence of
the 2016 change in estimate related to the commercial real estate portfolio, which resulted in a reserve release of
$25.7 million, portfolio growth, as well as an increase in qualitative reserves primarily related to the economic
conditions and the loan review qualitative factors. 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 $392.0 million for the year ended December 31, 2017, an increase of $38.5 million, or
10.9%, when compared to $353.5 million in the prior year. The increase was primarily attributable to an increase in
salaries and benefits expense due to the addition of new private client banking teams and an increase in
compensation costs driven by the growth of our business. Further contributing is an increase in occupancy and
equipment expense, information technology costs and FDIC assessment fees, which were also attributable to the
continued growth of our business, as well as an increase in professional fees associated with risk management
and compliance related activities.
The increase of $4.31 billion in total assets, or 11.0%, from $39.08 billion as of December 31, 2016 to $43.39
billion as of December 31, 2017 was primarily attributable to growth in our commercial real estate and commercial
and industrial loan portfolios.
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(in thousands)20172016Net interest income1,159,208$ 1,065,872 Provision for (recovery of) loan and lease losses44,283 (20,174) Total non-interest income31,48639,293 Total non-interest expense392,041353,481 Income (loss) before income taxes754,370 771,858 Total assets43,388,741$ 39,081,992 Years ended December 31,
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.
Specialty Finance net interest income was $78.4 million for the year ended December 31, 2017, a decrease of
$3.0 million when compared to $81.4 million in the prior year. The decrease is primarily attributable to the decline
in interest income as a result of an increase in nonaccrual loans, primarily taxi medallion loans.
The provision for loan and lease losses increased $43.1 million, or 24.5%, to $219.0 million for the year ended
December 31, 2017 from $175.9 million for the year ended December 31, 2016. The increase was primarily
attributable to charge-offs related to the NYC taxi medallion portfolio during 2017 as a result of the collateral value
decline and an increase in nonaccrual loans during the current year, partially offset by the absence of the 2016
provision related to the Chicago taxi medallion 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 $43.1 million for the year ended December 31, 2017, an increase of $19.8 million, or
84.6%, when compared to $23.3 million in the prior year. The increase was primarily attributable to repossessed
NYC taxi medallion fair value adjustments of $15.0 million for the year ended December 31, 2017.
The increase of $623.2 million in total assets, or 18.1%, from $3.44 billion as of December 31, 2016 to $4.06
billion as of December 31, 2017 was primarily attributable to growth in our equipment leasing portfolios, partially
offset by the reduction of taxi medallion balances due to charge-offs and the application of principal and interest
payments to the related nonaccrual loan balances.
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(in thousands)20172016Net interest income78,378$ 81,370 Provision for (recovery of) loan and lease losses219,014175,948 Total non-interest income4,5793,491 Total non-interest expense43,04923,324 Income (loss) before income taxes(179,106) (114,411) Total assets4,063,495$ 3,440,329 Years ended December 31,
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, 2018, our total securities portfolio was $9.19 billion and primarily consisted of mortgage-backed
securities (“MBSs”) and collateralized mortgage obligations (“CMOs”) issued by U.S. Government agencies
($497.5 million), government-sponsored enterprises ($7.10 billion), and private issuers ($472.6 million). As of
December 31, 2018, 92.8% of our securities portfolio had a AAA credit rating, 97.3% had a credit rating of A or
better, and 99.2% was rated investment grade or better. Overall, our securities portfolio had a weighted average
duration of 3.33 years and a weighted average life of 4.92 years as of December 31, 2018. 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, 2018, the net unrealized loss on securities, net of tax effect, was $142.2 million as reflected in
accumulated other comprehensive loss, compared to a net unrealized loss of $68.9 million at December 31, 2017.
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.”
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 and
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 previously
exercised its authority to extend the divestiture period for such pre-2014 investments to July 21, 2017. The Bank
had limited activities that were impacted by the Volcker Rule, and the only prohibited activity related to our holding
of certain AFS securities in investment vehicles that met the definition of Covered Funds. These Covered Funds
securities were either divested by the divestiture deadline in July 2017 or shortly thereafter with the exception of
one private CMO re-REMIC security which was written off in the first quarter of 2018, leaving the Bank zero
exposure to Covered Funds securities since that time.
81
The following table summarizes the components of our securities portfolios as of the dates indicated:
82
AmortizedFairAmortizedFairAmortizedFair(in thousands)CostValueCostValueCostValueAVAILABLE-FOR-SALE32,954$ 32,894 24,831 24,726 2,000 1,999 44,196 43,707 32,260 32,282 14,443 14,893 1,558,689 1,513,294 1,505,352 1,494,890 1,352,441 1,350,423 244,772 239,343 249,906 245,724 332,886 332,042 3,984,361 3,889,617 3,787,233 3,713,775 3,451,257 3,403,766 478,399 470,132 401,343 399,684 389,722 383,798 6,692 6,554 7,506 7,550 8,556 8,349 111,409 109,988 127,791 128,213 149,862 151,201 450,305 444,324 398,157 400,823 403,668 402,888 20,675 20,928 21,159 18,356 25,315 17,084 - - - - 4,457 5,541 554,354 530,823 474,691 466,636 250,689 242,696 (1)- - 22,243 21,060 21,731 20,667 7,486,806$ 7,301,604 7,052,472 6,953,719 6,407,027 6,335,347 HELD-TO-MATURITY35,566$ 34,424 43,322 43,197 5,286 5,213 335,969 325,912 378,149 376,570 416,415 416,196 178,851 173,139 207,027 203,631 248,699 246,943 1,264,876 1,241,933 1,297,857 1,284,875 1,295,413 1,284,240 2,437 2,453 2,985 3,002 3,652 3,357 17,570 17,542 17,916 18,206 17,994 18,739 48,257 49,788 48,529 52,980 48,800 50,813 Other7 7 591 626 1,866 1,892 Total held-to-maturity1,883,533$ 1,845,198 1,996,376 1,983,087 2,038,125 2,027,393 (1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. Effective January 1, 2018, we adopted ASU 2016-01 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we reclassified CRA securities from the available-for-sale category to other assets.December 31,201820172016
The following table presents the credit rating distribution of our securities portfolio as of December 31, 2018:
The following table provides the estimated change in fair value of our debt securities for various interest rate
shocks as of December 31, 2018:
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Percentage ofCredit RatingPortfolioAAA92.80%AA 1.38%A3.07%BBB1.93%Below BBB0.82%Total100.00%Interest Rate ShockEstimated FairValue Change-100 basis points3.36%+100 basis points(4.50%)+200 basis points(9.33%)+300 basis points(14.09%)+400 basis points(18.72%)
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, 2018. Due to prepayments of collateral underlying the
securities, actual maturity may differ from contractual maturity.
84
(dollars in thousands)Amortized CostFair ValueAverage YieldLess than one yearU.S. Treasury securities9,994$ 9,908 1.48%Mortgage-backed securities10 10 5.07%Collateralized mortgage obligations345 358 5.35%Other securities 557,397 533,246 4.33%Total567,746$ 543,522 4.29%One year to less than five yearsU.S. Treasury securities22,960$ 22,986 2.63%Mortgage-backed securities3 3 6.00%Collateralized mortgage obligations6,426 6,447 3.13%Other securities304,239 302,720 3.63%Total333,628$ 332,156 3.55%Five years to less than 10 yearsMortgage-backed securities3,418$ 3,438 3.34%Collateralized mortgage obligations156,140 154,032 3.10%Other securities189,810 185,158 3.91%Total349,368$ 342,628 3.54%10 years and longerMortgage-backed securities1,970,989$ 1,913,886 3.00%Collateralized mortgage obligations5,990,785 5,855,780 2.99%Securities of U.S. states and political subdivisions6,692 6,554 3.25%Other securities151,131 152,276 4.51%Total8,119,597$ 7,928,496 3.02%All maturitiesU.S. Treasury securities32,954$ 32,894 2.28%Mortgage-backed securities1,974,420 1,917,337 3.00%Collateralized mortgage obligations6,153,696 6,016,617 2.99%Securities of U.S. states and political subdivisions6,692 6,554 3.25%Other securities 1,202,577 1,173,400 4.11%Total9,370,339$ 9,146,802 3.13%
Loan Portfolio
The following table presents information regarding the composition of our loan portfolio, including loans held for
sale, as of the dates indicated:
Total loans increased by $3.86 billion to $36.91 billion at December 31, 2018 from $33.04 billion at December 31,
2017. Our total loan-to-deposit ratio, excluding loans held for sale, increased to 100.1% at December 31, 2018
from 97.5% at December 31, 2017.
Beginning in 2017, to better align with recent regulatory guidance, the Bank began using the acquisition,
development and construction caption. Historically, only construction loans were reported within this line. The
Bank reviewed its loan portfolio in 2017 to identify acquisition and development loans. Therefore, certain loans
were reclassified from other categories and included with construction loans as acquisition, development and
construction loans. These loans were also reclassified in the prior periods. The amounts reclassified were $1.31
billion, $933.7 million and $363.8 million, as of December 31, 2016, 2015 and 2014, respectively.
Additionally, 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 and $545.0 million as of December 31, 2015 and 2014, respectively.
Substantially all of the collateral for our loans secured by real estate is located within the New York metropolitan
area. As a result, our financial condition and results of operations may be affected by changes in the economy and
the real estate market of the New York metropolitan area. A prolonged period of economic recession or other
adverse economic conditions in the New York metropolitan area may result in an increase in nonpayment of loans,
a decrease in collateral value, and an increase in our ALLL.
We only securitize the U.S. Government guaranteed portion of SBA loans, and we have not securitized any of our
loans secured by real estate. As a result, we have not made any representations to, and do not have obligations
to, third-party purchasers regarding any such loans.
At December 31, 2018, loans fully secured by cash and marketable securities represented 0.4% of outstanding
loan balances. The SBA portfolio, consisting only of the guaranteed portion of the SBA loans, represented 1.1% of
outstanding loan balances. Our fully unsecured loan portfolio represented 1.8% of our total outstanding loan
portfolio at December 31, 2018. We generally limit unsecured lending for consumer loans to private clients who we
believe possess ample net worth, liquidity and repayment capacity. The remainder of our loan portfolio is secured
by real estate, company assets, personal assets and other forms of collateral.
85
(dollars in thousands)Amount%Amount%Amount%Amount%Amount%Mortgage loans:Multi-family residential property15,688,481$ 42.59%14,512,051 44.03%13,504,619 45.74%11,201,592 46.33%8,380,473 45.73%Commercial property10,309,837 27.99%8,902,027 27.00%7,606,868 25.77%6,109,635 25.27%4,188,042 22.85%1-4 family residential property620,486 1.68%621,377 1.88%529,228 1.79%533,416 2.21%463,420 2.53%Home equity lines of credit116,272 0.32%133,268 0.40%148,094 0.50%163,191 0.68%160,890 0.88%Acquisition, development and construction loans1,656,467 4.50%2,018,901 6.12%1,799,848 6.10%1,009,666 4.18%428,668 2.34%Other loans:Commercial and industrial7,993,999 21.70%6,380,111 19.35%5,420,534 18.36%4,745,821 19.63%4,206,478 22.95%Commercial - SBA guaranteed portion442,078 1.20%387,012 1.17%502,240 1.70%401,084 1.66%486,750 2.66%Consumer9,038 0.02%15,310 0.05%10,268 0.04%9,714 0.04%10,245 0.06%Sub-total / Total36,836,658 100.00%32,970,057 100.00%29,521,699 100.00%24,174,119 100.00%18,324,966 100.00%Premiums, deferred fees and costs71,774 74,759 80,994 74,803 81,039 Total36,908,432$ 33,044,816 29,602,693 24,248,922 18,406,005 December 31,20162015201420182017
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. See Note 7 to our Consolidated Financial
Statements for the summary of our portfolio of commercial loans by credit rating as of December 31, 2018 and
2017.
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 and home equity lines of credit, though we continue to
service the existing portfolios. 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:
The following table presents commercial and industrial loans and acquisition, development and construction loans
by maturity for the period indicated:
86
(in thousands)PerformingNonperformingTotalDecember 31, 2018Residential mortgages87,848$ 3,033 90,881 Home equity lines of credit112,799 3,473 116,272 Other consumer loans9,038 - 9,038 Total consumer loans209,685$ 6,506 216,191 December 31, 2017Residential mortgages103,825$ 1,135 104,960 Home equity lines of credit129,376 3,892 133,268 Other consumer loans15,310 - 15,310 Total consumer loans248,511$ 5,027 253,538 (in thousands)Within One YearOne to Five YearsAfter FiveYearsTotalLoan TypeCommercial and industrial1,224,320$ 5,106,268 1,663,411 7,993,999 Acquistion, development and construction loans710,802 505,273 440,392 1,656,467 Total1,935,122$ 5,611,541 2,103,803 9,650,466 As of December 31, 2018
The following table presents commercial and industrial loans and acquisition, development and construction loans
at fixed and variable rates contractually maturing after December 31, 2019:
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. Additionally, other considerations are made in determining whether a loan
should be classified as nonaccrual, including whether the loan is to a borrower in an industry experiencing
economic stress, whether the borrower is experiencing other issues such as inadequate cash-flow, or the nature of
the underlying collateral and whether it is susceptible to deterioration in realizable value.
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.
87
(in thousands)FixedVariableTotalLoan TypeCommercial and industrial4,858,946$ 1,910,733 6,769,679 Acquistion, development and construction loans881,627 64,038 945,665 Total5,740,573$ 1,974,771 7,715,344 Maturing After December 31, 2019
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:
Significant nonaccrual loans at December 31, 2018 consisted of $88.5 million in loans secured by taxi medallions
(commercial and industrial loans), comprised of 460 New York City medallion related loans totaling $72.6 million,
248 Chicago medallion related loans totaling $15.6 million and five Philadelphia medallion related loans totaling
$319,000. Other significant nonaccrual loans include three commercial and industrial loans totaling $4.0 million,
two loans secured by 1-4 family residential property totaling $3.3 million, and four home equity lines of credit
totaling $2.6 million. Each nonaccrual loan is being actively managed by the Bank, and the ALLL includes a
specific allocation for each such loan, when appropriate.
Significant nonaccrual loans at December 31, 2017 consisted of $309.9 million in loans secured by taxi medallions
(commercial and industrial loans), comprised of 789 New York City medallion related loans totaling $276.8 million,
293 Chicago medallion related loans totaling $32.5 million and five Philadelphia medallion related loans totaling
$585,000. During 2017, all remaining taxi medallion loans were placed on nonaccrual as a result of the significant
decline in the underlying NYC taxi medallion collateral value. Due to the decline in collateral values, management
determined the collectability of all amounts due to be doubtful and portions of loans uncollectable to the extent not
covered by the underlying collateral value. Other significant nonaccrual loans include six commercial and industrial
loans totaling $6.2 million, three commercial real estate loans totaling $3.4 million, and four home equity lines of
credit totaling $2.3 million. Each nonaccrual loan is being actively managed by the Bank, and the ALLL included a
specific allocation for each such loan, when appropriate.
Nonaccrual investment securities at December 31, 2018 consisted of one bank-collateralized pooled trust
preferred security totaling $275,000. This security is classified as nonperforming because of delinquent payments
as a result of payment deferrals. Nonaccrual investment securities at December 31, 2017 consisted of one bank-
collateralized pooled trust preferred security totaling $75,000. This security was classified as nonperforming
because of delinquent payments as a result of payment deferrals.
88
(dollars in thousands)20182017201620152014(1)(2)(3)(4)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.See Note 7 for full delinquency status of our loan portfolio.December 31,Includes $45.3 million of taxi medallion loans past due maturity of 90 days or more that were considered impaired as December 31, 2016. The balances in all other periods do not contain impaired loans.
At December 31, 2018, loans past due 90 days or more and accruing included one commercial real estate loan
totaling $5.0 million and six commercial and industrial loans totaling $2.0 million that are well secured and in
process of collection. At December 31, 2017, loans past due 90 days or more included 14 commercial and
industrial loans totaling $3.3 million, four loans secured by 1-4 family residential property totaling $2.3 million, and
one commercial real estate loan for $559,000 that were well secured and in process of collection.
The $86.1 million decrease in TDRs from $220.3 million as of December 31, 2017 to $134.2 million as of
December 31, 2018, was primarily driven by taxi medallion charge-offs of $49.9 million as a result of further
significant declines in the underlying collateral fair value in the first quarter of 2018, the foreclosure of taxi
medallion loans totaling $30.4 million, taxi medallion loan payoffs totaling $35.0 million, continued payment
reductions for existing TDRs totaling $13.7 million, and other loan portfolio TDR payoffs of $11.8 million. This was
partially offset by the restructure of 94 taxi medallion loans totaling $14.7 million, 22 other commercial and
industrial loans totaling $33.9 million, one commercial real estate loan totaling $9.6 million, and one home equity
line of credit totaling $1.0 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 TDRs 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, (iii) principal forgiveness or
(iv) 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 TDRs and the related financial effects, see Note 8 to our Consolidated Financial Statements.
Our repossessed assets as of December 31, 2018 and December 31, 2017 totaled $51.6 million and $28.8 million,
respectively. The increase is primarily driven by the repossession of taxi medallions during the year with a fair
value of $31.4 million. Further contributing to the increase is the impact of the reclassification of certain nonaccrual
loans in conjunction with the adoption of ASU 2014-09, Revenue from Contracts with Customers, which resulted in
an increase of $5.6 million. Of the total $37.0 million of taxi medallion repossessed assets added in 2018 and in
accordance with ASU 2014-09, $19.1 million are legal sales that cannot be derecognized as they were Bank
financed and uncertainty exists regarding collectability. See Note 2(t) for additional information regarding the
adoption of ASU 2014-09. The increase is partially offset by $4.2 million of fair value adjustments and the sale of
$12.0 million of repossessed medallions during the year.
As of December 31, 2018, repossessed assets included taxi medallions totaling $27.4 million that were sold to
new borrowers with financing provided by the Bank. While these are legal sales to the new borrower, because
they are Bank-financed and uncertainty exists regarding collectability, the repossessed assets cannot be
derecognized under the new revenue recognition accounting standard adopted in 2018. Ongoing principal and
interest payments associated with these transactions continue to be collected and are recorded in Accrued
expenses and other liabilities. As of December 31, 2018, $5.6 million of payments have been received to date
leaving the remaining net exposure for these medallions at $21.8 million. See Note 2(t) for additional information
regarding the adoption of this new revenue recognition accounting standard.
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, 2018, 2017, and 2016, our ALLL totaled $230.0 million, $196.0 million, and $213.5 million, respectively, which
represents 0.63%, 0.60%, and 0.74% 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, 2018, 2017, and 2016, we recorded provisions of $162.5 million, $263.3 million, and
$155.8 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.
89
The decrease in the provision for the year ended December 31, 2018, when compared to the prior year, was
primarily due to the decline in taxi medallion charge-offs, partially offset by loan portfolio growth across all major
portfolios, as well as an increase in the commercial and industrial and specialty finance qualitative reserves as a
result of the changes in economic and business condition metrics over the last year.
Over the last three years, the NYC and Chicago taxi medallion markets had been distressed and the underlying
collateral values had declined as a result of elevated risk premiums and the absence of new financing. However,
in Chicago, since the third quarter of 2017 transfer volumes have been consistent with historical levels and
transfer values are relatively stable. Therefore, the Bank has been exclusively utilizing observable public transfer
data to measure the related fair value of the underlying Chicago taxi medallions.
In NYC, during the first quarter of 2018, numerous transactions were noted ranging from approximately $120,000
to $400,000 and both revenues and observable market transfers declined significantly. Because the declines over
a short period were substantial, and based on other trends within the market providing additional evidence of
market illiquidity and deterioration at that time, management felt it necessary to reassess its inputs and
assumptions. Following that review, most notably, management recalibrated its discount rate and growth rate
assumptions within its discounted cash flow model and began to weight cash sales more heavily when evaluating
observable transfers. Also reflected in the updated assumptions in the first quarter of 2018 were failed auction
activity and a significant increase in medallion supply due to anticipated credit union sales and/or auctions in the
first quarter of 2018. Both transfer prices and the discounted cash flow model valuation output were weighted to
derive an estimated fair value of $160,000, net of selling costs, which represented a significant decline from the
December 31, 2017.
Since then, the NYC Taxi & Limousine Commission (TLC) trip data has shown stabilization in revenue per
medallion, and transfer values have been relatively consistent. Therefore, the associated fair value has also
remained stable. In the fourth quarter, TLC trip data again supported stabilization. However, management noted a
recent increase and sustained level in observable market transfer volumes, as well as similar trends in our own
medallion sales activity. In fact, approximately 40% of the TLC published transfers in the fourth quarter of 2018 are
our own cash or financed sales. This represented a significant change from prior quarterly trends. Therefore, in the
fourth quarter, management changed its methodology from a weighted cash flow and observable data calculation,
to a full weight of observable transfers.
Management placed significant weight on our own transaction prices given transparency into our own deal terms.
Pursuant to ASC 820, Fair Value Measurement, the transaction prices utilized in the valuation also considered any
transaction price adjustments necessary. Non-Signature transfers were also incorporated into the valuation. For
non-Signature transactions, since we lack transparency into the deal terms, management determined the need to
apply estimated transaction price adjustments for consistency purposes as the presumption is certain term
concessions were likely. When considering all transfer levels, the estimated NYC taxi medallion fair value as of
December 31, 2018 was $160,000 net of selling costs, which is again consistent with the first quarter of 2018
valuation. See Note 8 for additional information.
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:
90
(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential Mortgages (1)Consumer TotalAs of December 31, 2018As of December 31, 2017(1) Includes home equity lines of credit.Non-rated loansCredit-rated loans
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:
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:
Our net charge-offs during 2018 decreased to $128.5 million compared to $280.8 million for the prior year. Net
charge-offs for both periods were nearly all attributable to the NYC taxi medallion portfolio.
91
(dollars in thousands)Amount%Amount%Amount%Amount%Amount%Mortgage Loans:Multi-family residential property99,964$ 43.11%82,554 44.54%63,855 46.54%77,366 47.12%61,398 46.98%Commercial property63,328 28.33%53,283 27.32%38,761 26.21%43,295 25.70%32,169 23.48%1-4 family residential property3,424 1.70%2,311 1.91%2,107 1.82%3,573 2.24%7,178 2.60%Home equity lines of credit2,035 0.32%1,994 0.41%3,182 0.51%4,931 0.69%3,522 0.90%Acquistion, development and construction12,339 4.56%15,844 6.19%11,966 6.20%8,018 4.25%3,358 2.40%Other loans:Commercial and industrial47,257 21.72%39,837 18.63%35,159 16.52%34,334 16.62%47,924 19.04%New York City taxi medallions- 0.20%- 0.85%44,319 1.96%14,536 2.60%3,841 3.52%Chicago taxi medallions1,538 0.04%- 0.10%12,152 0.19%8,107 0.71%4,502 0.98%Philadelphia taxi medallions13 0.00%- 0.00%1,797 0.01%522 0.03%42 0.04%Consumer107 0.02%136 0.05%197 0.04%341 0.04%458 0.06%Total230,005$ 100.00%195,959 100.00%213,495 100.00%195,023 100.00%164,392 100.00%2018December 31,2014201520162017(dollars in thousands)20182017201620152014Years ended December 31,
Net Deferred Tax Asset
The following table presents the components of our net deferred tax asset (liability) as of the dates indicated:
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.
As of December 31, 2018, as a result of the Tax Cuts and Jobs Act enacted in December 2017, stranded tax
effects totaling $14.1 million are included in accumulated other comprehensive income. We have elected not to
adopt ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). Therefore, the Company
will recognize these stranded tax effects using the individual security approach. See Footnote 2 for further details.
92
(in thousands)2018201767,977$ 56,587 82,204 57,253 11,583 10,917 Repossessed taxi medallion valuation reserve10,843 4,519 3,734 3,763 Depreciation - ordinary2,439 17 4,466 3,086 183,246 136,142 44,022 29,275 2,512 5,440 229,780 170,857 207,593 136,581 818 755 Deferred income- 23,967 11,939 11,535 220,350 172,838 9,430$ (1,981) Net deferred tax asset (liability)Total deferred tax assets recognized in earningsNet unrealized losses on securities available-for-saleNet unrealized losses on securities transferred to held-to-maturityTotal deferred tax assetsDEFERRED TAX LIABILITIESDepreciation - leased assetsPrepaid expensesOtherTotal deferred tax liabilitiesOtherDecember 31,DEFERRED TAX ASSETSAllowance for loan and lease lossesIncome on leased assetsWrite-down for other-than-temporary impairment of securitiesUnearned compensation - restricted stock
Deposits
Core deposits, which exclude time deposits and brokered deposits, increased $2.53 billion to $34.17 billion as of
December 31, 2018 from $31.64 billion as of December 31, 2017. The increase is due to the addition of new
private client banking teams, as well as additional deposits garnered by our existing private client banking teams.
See Item 1. Business – Part I Deposit Products for the composition of our deposit accounts as of December 31,
2018 and 2017.
The following table presents our average deposits and average interest rates accrued for the periods indicated:
The following table presents time deposits of $100,000 or more by their maturity:
93
(dollars in thousands)Average RateAverage BalanceAverage RateNOW and interest-bearing demand1.43%3,864,9320.77%Money market1.16%17,086,3530.73%Time deposits1.77%1,504,8871.12%Non-interest-bearing demand deposits- 10,702,062- Total deposits0.82%33,158,234 0.52%Years ended December 31,17,878,509 Average Balance1,648,433 11,954,403 35,143,194$ 201820173,661,849$ (in thousands)Total (1)(1) Includes brokered time deposits of $597.0 million.1,909,790$ December 31, 2018129,676 Three months or lessOver three months through six monthsOver six months through one yearOver one year568,575 384,727 826,812$
Borrowings
The following table presents information regarding our borrowings:
At December 31, 2018, our borrowings were $6.05 billion, or 14.3% of our funding liabilities, compared to $5.25
billion, or 13.6% of our funding liabilities, at December 31, 2017. The increase in our borrowings, primarily reflects
the use of $775.0 million in additional FHLB borrowings to assist in the funding of our strong loan growth in 2018.
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 $264.9 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 $7.88 billion at
December 31, 2018.
Additionally, in 2016, the Bank issued $260.0 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 $1.8 million.
The following table presents the maturity or re-pricing of our borrowings at December 31, 2018:
94
(dollars in thousands)AmountWeighted Average RateAmountWeighted Average RateAmountWeighted Average Rate(1)At or for the year ended December 31,201720162018(1) Excludes $1.8 million and $2.6 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the Consolidated Statements of Financial Condition as of December 31, 2018 and 2017, respectively . 3 months or less3 - 12 months1 - 3 yearsOver 3 years (1)Total2,505,000$ 1,890,000 1,345,000 310,000 6,050,000 (1) Excludes $1.8 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the Consolidated Statements of Financial Condition.Maturity or repricing period (in thousands)
Contractual Obligations
The following table presents our significant contractual obligations as of December 31, 2018:
On April 19, 2016, the Bank issued $260.0 million aggregate principal amount of Variable Rate Subordinated
Notes due April 19, 2026 to institutional investors. The Notes accrue interest at a fixed rate of 5.30% for the first
five years until April 2021. After this date and for the remaining five years of the Notes’ term, interest will accrue at
a variable rate of LIBOR plus 3.92%. Additionally, during the variable interest rate period and at the Bank’s option,
the Notes can be prepaid by the Bank. Net proceeds from this offering were used for general corporate purposes
and to facilitate our continued growth.
Off-Balance Sheet Arrangements
In the normal course of business, we have various outstanding commitments and contingent liabilities not reflected
in the accompanying Consolidated Financial Statements.
We enter into transactions that involve financial instruments with off-balance sheet risks in the ordinary course of
business to meet the financing needs of our clients. Such financial instruments include commitments to extend
credit, standby letters of credit, and unused balances under confirmed letters of credit, all of which are primarily
variable rate. Such instruments involve, to varying degrees, elements of credit and interest rate risk.
Our exposure to credit loss in the event of nonperformance by the other party with regard to financial instruments
is represented by the contractual notional amount of those instruments. Financial instrument transactions are
subject to our normal credit policies and approvals, financial controls and risk limiting and monitoring procedures.
We generally require collateral or other security to support financial instruments with credit risk.
95
(in thousands)Less than1 year1 - 3years3 - 5yearsMore than5 yearsTotalBorrowings (1)4,395,000$ 1,345,000 50,000 260,000 6,050,000 Operating leases25,750 60,368 60,647 179,625 326,390 Investments in qualified affordable housing projects- 181,273 20,863 16,939 219,075 Information technology contracts19,242 21,078 1,518 - 41,838 Total contractual cash obligations4,439,992$ 1,607,719 133,028 456,564 6,637,303 Payments due by period(1) Excludes $1.8 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the Consolidated Statements of Financial Condition.
The following table presents a summary of our commitments and contingent liabilities:
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 included new
risk-based capital and leverage ratios, which where phased-in to effect over a multi-year period, and refine the
definition of what constitutes “capital” for purposes of calculating those ratios. Full implementation of the capital
rules for all institutions began on January 1, 2019. The 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. 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 was 1.875% for 2018 and is currently 2.500%. As the capital
rules are now fully implemented, the following effective minimum capital ratios currently apply: (i) a common equity
Tier 1 capital ratio (plus capital conservation buffer) of 7.0%, (ii) a Tier 1 capital ratio (plus capital conservation
buffer) of 8.5%, and (iii) a total capital ratio (plus capital conservation buffer) 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 $10 billion or more in total foreign exposures), which
currently excludes Signature Bank. The final rules also implement revisions and clarifications consistent with Basel
III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as
well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time.
96
(in thousands)20182017Unused commitments to extend credit3,173,675$ 1,352,032 Financial standby letters of credit482,482 497,581 Commercial and similar letters of credit20,145 18,002 Other1,254 1,559 Total3,677,556$ 1,869,174 December 31,
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 2017, the federal banking agencies adopted a final rule to extend the regulatory capital treatment applicable
during 2017 under the capital rules for certain items, including regulatory capital deductions, risk weights, and
certain minority interest limitations. The relief provided under the final rule applies to banking organizations that
are not subject to the capital rules’ advanced approaches, such as our Bank. Specifically, the final rule extends
the current regulatory capital treatment of mortgage servicing assets (“MSAs”), deferred tax assets (“DTAs”)
arising from temporary differences that could not be realized through net operating loss carrybacks, significant
investments in the capital of unconsolidated financial institutions in the form of common stock, non-significant
investments in the capital of unconsolidated financial institutions, significant investments in the capital of
unconsolidated financial institutions that are not in the form of common stock, and common equity Tier 1 minority
interest, Tier 1 minority interest, and total capital minority interest exceeding the capital rules’ minority interest
limitations.
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 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.
97
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2018:
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2017:
During 2018, we paid cash dividends in the third and fourth quarters of 2018 to eligible common stockholders and
declared cash dividends for the fourth quarter of 2018 on January 17, 2019. We also initiated a stock repurchase
program in 2018. See “Regulation and Supervision—Restrictions on Dividends and Other Distributions.”
Stress Testing
Prior to the second quarter of 2018, the Dodd-Frank Act required banks with total consolidated assets of more
than $10 billion to conduct annual stress tests. However, the Economic Growth, Regulatory Relief, and Consumer
Protection Act caused changes in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically,
the Economic Growth Act raised the asset threshold for required Dodd-Frank Act Stress Tests (DFAST) from $10
billion to $100 billion and made the requirement “periodic” rather than “annual.” The Bank will continue to perform
capital stress testing on a situational and idiosyncratic basis, such as during our annual capital planning and
budgeting processes.
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 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.
In compliance with historical regulation, on July 28, 2017, we submitted our stress testing results on data as of
December 31, 2016. We publicly disclosed our results for the severely adverse scenario on October 20, 2017. The
stress testing results affirmed the adequacy of the Bank’s capital, even under severe economic conditions. Due to
regulation changes in the second quarter of 2018 and the increase in the asset threshold, Signature Bank will no
longer be required to file and report annual company-run stress tests until the revised threshold is reached.
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
98
(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)5,040,828$ 13.41%3,006,522 8.00%3,758,153 10.00%Tier 1 capital (to risk-weighted assets)4,551,609 12.11%2,254,892 6.00%3,006,522 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,551,609 12.11%1,691,169 4.50%2,442,800 6.50%Tier 1 leverage capital (to average assets)4,551,609 9.70%1,876,893 4.00%2,346,116 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)4,553,605$ 13.32%2,735,682 8.00%3,419,603 10.00%Tier 1 capital (to risk-weighted assets)4,099,327 11.99%2,051,762 6.00%2,735,682 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,099,327 11.99%1,538,821 4.50%2,222,742 6.50%Tier 1 leverage capital (to average assets)4,099,327 9.72%1,687,292 4.00%2,109,115 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized
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. While the Bank may raise funds
through a common stock offering or debt issuance 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 our historical
common stock offerings, as well as the 2016 subordinated debt issuance.
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, 2018, our FHLB borrowings totaled $4.97 billion with an average rate of 2.51%
that mature by December 2023. We had no securities sold under repurchase agreements to the FHLB as of
December 31, 2018. While not pledged, FHLB held $658.6 million of securities as of December 31, 2018 as
custodian as of quarter end. These securities can be pledged towards future borrowings, as necessary.
We also have repurchase agreement lines with several leading financial institutions totaling $2.23 billion. At
December 31, 2018, we had $150.0 million of securities sold under repurchase agreements to one of these
institutions. These borrowings have an average rate of 2.93% and mature by May 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 $7.88 billion as of December 31, 2018.
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 within the next year. However, Congress recently passed the Economic Growth,
Regulatory Relief and Consumer Protection Act which increased the asset threshold for designation as a
Systemically Important Financial Institution (“SIFI”) from $50 billion to $250 billion in total consolidated assets.
Such a change may impact the asset thresholds applicable to the LCR and similar rules, as well as the FDIC’s
supervisory expectations with respect to the substance of such rules.
On July 18, 2018, the Bank declared its inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0
million, which was paid on August 15, 2018 to our common shareholders of record at the close of business on
August 1, 2018. The Bank declared its second cash dividend of $0.56 per share, or a total of $31.0 million, which
was paid on November 15, 2018 to common shareholders of record at the close of business on November 1,
2018. On January 17, 2019, the Bank declared its third cash dividend of $0.56 per share, or a total of $30.8
million, which was paid on February 15, 2019 to common shareholders of record at the close of business on
February 1, 2019.
In addition, in October 2018, the Bank’s stockholders approved our common stock repurchase program which
provides the Bank the ability to repurchase common stock from shareholders in the open market up to an amount
of $500.0 million. Share buybacks are also subject to shareholder and regulatory approval, which were received
for the repurchase program of up to $500 million in October and November 2018, respectively. Subsequent to
receipt of the required approvals, in the fourth quarter of 2018, the Bank repurchased 358,492 shares of common
stock for a total of $41.8 million. As of December 31, 2018, the remaining program balance was $458.2 million.
Any future determination to pay dividends or buy back shares 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, commercial real estate concentration, contractual restrictions, business prospects and other factors
that the Board of Directors considers relevant.
99
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 including derivative instruments such as interest rate swaps, 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, 2018, 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 by 100, 200, 300 and 400
basis points and decreased by 100 basis points, 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 and decreased by 100 basis points (“shock
scenario”).
100
The following table indicates the sensitivity of projected annualized net interest income to the interest rate
movements described above at December 31, 2018:
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, 2018,
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 and decreased by 100 basis points.
The following table indicates the sensitivity of market value of equity at December 31, 2018 to the interest rate
movements described above (base case market value of equity is $6.89 billion):
The market value of equity sensitivity analysis assumes an immediate parallel shift in interest rates and yield
curves. The computation of prospective effects of hypothetical interest rate changes is based on numerous
assumptions, including relative levels of interest rates, asset prepayments, deposit decay and changes in re-
pricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results.
Further, the computations do not take into account any actions that we may undertake in response to future
changes in interest rates.
101
(dollars in thousands)Adjusted NetInterest IncomeChangefrom BaseRamp scenario:Base1,270,160$ - Down 100 basis points1,261,942 (0.7)%Up 100 basis points1,259,946 (0.8)%Up 200 basis points1,241,867 (2.2)%Up 300 basis points1,213,938 (4.4)%Up 400 basis points1,181,821 (7.0)%Shock scenario:Base1,270,160$ - Down 100 basis points1,271,526 0.1%Up 100 basis points1,232,496 (3.0)%Up 200 basis points1,187,522 (6.5)%Up 300 basis points1,124,197 (11.5)%Up 400 basis points1,053,970 (17.0)%(dollars in thousands)SensitivityChangefrom BaseDown 100 basis points(87,860)$ (1.3)%Up 100 basis points(118,232) (1.7)%Up 200 basis points(261,583) (3.8)%Up 300 basis points(558,861) (8.1)%Up 400 basis points(889,773) (12.9)%
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, 2018, 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, 2018 is effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2018 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, 2018. The report of KPMG LLP on the effectiveness of the
Company’s internal control over financial reporting is included below.
102
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Signature Bank:
Opinion on Internal Control Over Financial Reporting
We have audited Signature Bank and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated statements of financial condition of the Company as of
December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the “consolidated financial statements”), and our report
dated March 1, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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
103
KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG LLP345 Park AvenueNew York, NY 10154-0102 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.
New York, New York
March 1, 2019
104
ITEM 9B.
None.
OTHER INFORMATION
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 18, 2019.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 18, 2019.
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 18, 2019.
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 18, 2019.
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 18, 2019.
105
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-63. 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 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
Certificate of Amendment to the Bank's Restated Organization Certificate. (Incorporated by reference
from Annex A to the 2017 Definitive Proxy Statement on Schedule 14A, filed with the Federal Deposit
Insurance Corporation on March 10, 2017.)
3.4
Amended and Restated By-laws of the Registrant. (Incorporated by reference to Signature Bank’s
Current Report on Form 8-K filed on January 23, 2018.)
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.)
10.1 Signature Bank Amended and Restated 2004 Long-Term Incentive Plan (Incorporated by reference
from Appendix B to the 2018 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on April 25, 2018.)
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.)
10.13 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.)
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
106
ITEM 16. Form 10-K Summary
Not applicable.
107
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, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
March 1, 2019 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)
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ KATHRYN A. BYRNE
(Kathryn A. Byrne)
/s/ Derrick D. Cephas
(Derrick D. Cephas)
/s/ ALFONSE M. D’AMATO
(Alfonse M. D’Amato)
/s/ BARNEY FRANK
(Barney Frank)
/s/ JUDITH A. HUNTINGTON
(Judith A. Huntington)
/s/ JEFFREY W. MESHEL
(Jeffrey W. Meshel)
Director
Director
Director
Director
Director
Director
108
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Financial Condition as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2018, 2017, and 2016 . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017, and
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2018,
2017, and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016 . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Signature Bank:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Signature Bank
and subsidiaries (the Company) as of December 31, 2018 and 2017, 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, 2018, and the related notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2018, 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) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2019 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
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 are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2001.
New York, New York
March 1, 2019
F-2
KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG LLP345 Park AvenueNew York, NY 10154-0102 See accompanying notes to Consolidated Financial Statements.
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SIGNATURE BANKSignature BankCONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONConsolidated Statements of Financial Condition(in thousands, except per share amounts)(dollars in thousands, except shares and per share amounts)20182017ASSETSAssetsCash and due from banks269,204$ 290,078 Short-term investments48,05145,388Total cash and cash equivalents317,255335,466Securities available-for-sale7,301,6046,953,719Securities held-to-maturity (fair value $1,845,198 at December 31, 2018and $1,983,087 at December 31, 2017)1,883,5331,996,376Federal Home Loan Bank stock264,877227,920Loans held for sale485,305432,277Loans and leases, net36,193,12232,416,580Premises and equipment, net59,05161,571Accrued interest and dividends receivable141,829117,070Other assets718,240576,741Total assets47,364,816$ 43,117,720 LIABILITIES AND SHAREHOLDERS' EQUITYDepositsNon-interest-bearing12,016,197$ 11,353,038Interest-bearing24,362,57622,086,789Total deposits36,378,77333,439,827Federal funds purchased and securities sold under agreementsto repurchase820,000790,000Federal Home Loan Bank borrowings4,970,0004,195,000Subordinated debt258,174 257,381 Accrued expenses and other liabilities530,729403,821Total liabilities42,957,67639,086,029Shareholders’ equityPreferred stock, par value $.01 per share; 61,000,000 shares authorized;none issued at December 31, 2018 and December 31, 2017- - Common stock, par value $.01 per share; 64,000,000 shares authorized;55,405,531 shares issued and 55,039,433 outstanding at December 31, 2018;54,979,213 shares issued and 54,977,971 outstanding at December 31, 2017554550Additional paid-in capital1,862,8961,809,642Retained earnings2,730,899 2,290,537 Treasury stock, 366,098 shares at December 31, 2018 and 1,242 shares at December 31, 2017(42,680) (171) Accumulated other comprehensive loss(144,529) (68,867) Total shareholders' equity4,407,1404,031,691Total liabilities and shareholders' equity47,364,816$ 43,117,720 December 31, See accompanying notes to Consolidated Financial Statements.
F-4
SIGNATURE BANKSignature BankCONSOLIDATED STATEMENTS OF INCOMEConsolidated Statements of Income(unaudited)(in thousands, except per share amounts)(dollars in thousands, except per share amounts)201820172016INTEREST AND DIVIDEND INCOMELoans held for sale10,863$ 4,3344,572Loans and leases, net1,389,4351,191,1941,042,717Securities available-for-sale224,012201,657198,001Securities held-to-maturity57,93058,85562,834Other investments26,68014,1299,027Total interest income1,708,9201,470,1691,317,151INTEREST EXPENSEDeposits289,248171,829123,285Federal funds purchased and securities sold underagreements to repurchase13,4849,69511,857Federal Home Loan Bank borrowings92,62836,52424,565Subordinated debt14,573 14,535 10,202 Total interest expense409,933232,583169,909Net interest income before provision for loan and lease losses1,298,9871,237,5861,147,242Provision for loan and lease losses162,524263,297155,774Net interest income after provision for loan and lease losses1,136,463974,289991,468NON-INTEREST INCOMECommissions13,12012,29911,474Fees and service charges28,55323,55721,846Net gains on sales of securities9893,9637,711Net gains on sales of loans6,738 9,2186,750Other-than-temporary impairment losses on securities:Total impairment losses on securities(2) (654)(986) Portion recognized in other comprehensive income (before taxes)(14) 21 559 Net impairment losses on securities recognized in earnings(16) (633)(427)Tax credit investment amortization(30,195) (15,821)(8,562)Other income4,0893,4583,958Total non-interest income23,27836,04142,750NON-INTEREST EXPENSESalaries and benefits302,095273,240246,406Occupancy and equipment34,31132,14129,140Information technology25,73222,62320,343FDIC assessment fees25,25626,99621,265Professional fees13,69812,0219,671Other general and administrative85,18668,04549,946Total non-interest expense486,278435,066376,771Income before income taxes673,463575,264657,447Income tax expense168,121188,055261,123Net income505,342$ 387,209396,324PER COMMON SHARE DATAEarnings per share – basic 9.27$ 7.177.42Earnings per share – diluted9.23$ 7.127.37Dividends per common share1.12$ - - Years ended December 31,
See accompanying notes to Consolidated Financial Statements.
F-5
SIGNATURE BANKCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands)201820172016Net income505,342$ 387,209 396,324 Other comprehensive income, net of tax:Net unrealized gains (losses) on securities(100,974) (22,015) (72,418) Tax effect25,533 8,163 30,032 Net of taxNet of tax(75,441) (13,852) (42,386) Reclassification adjustment for net gains on sales of securitiesincluded in net income(989) (3,963) (7,711) Tax effect292 1,470 3,198 Net of taxNet of tax(697) (2,493) (4,513) Amortization of net unrealized loss on securities transferred to held-to-maturity2,266 2,872 3,015 Tax effect(670) (1,065) (1,250) Net of tax1,596 1,807 1,765 Other-than-temporary gains (losses) on securities related to noncredit factors14 (21) (559) Tax effect(4) 8 232 Net of tax10 (13) (327) Reclassification adjustment for other-than-temporary impairment losses onsecurities related to credit factors included in net income16 633 427 Tax effect(5) (235) (177) Net of taxNet of tax11 398 250 Net unrealized gains (losses) on cash flow hedges(3,302) - - Reclassification adjustment for net losses included in net income4 - - Tax effect974 - - Net of taxNet of tax(2,324) - - Total other comprehensive loss, net of tax(76,845) (14,153) (45,211) Comprehensive income, net of tax428,497$ 373,056 351,113 At or for the years ended December 31,
See accompanying notes to Consolidated Financial Statements.
F-6
SIGNATURE BANKCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(in thousands)Common stockAdditionalpaid-incapitalRetained earningsTreasurystockAccumulated other comprehensive lossTotalshareholders'equityBalance at December 31, 2015509$ 1,399,501 1,507,011 (5,684) (9,503) 2,891,834 24 318,764 - - - 318,788 - - - - - - 13 44,744 - 5,775 - 50,532 Stock warrant activity, net- 91 - (91) - - Other- - (3) - - (3) Net income- - 396,324 - - 396,324 Other comprehensive loss, net of tax- - - - (45,211) (45,211) Balance at December 31, 2016546$ 1,763,100 1,903,332 - (54,714) 3,612,264 - - - - - - - - - - - - 4 46,371 - - - 46,375 - 171 - (171) - - - - (4) - - (4) - - 387,209 - - 387,209 - - - - (14,153) (14,153) Balance at December 31, 2017550$ 1,809,642 2,290,537 (171) (68,867) 4,031,691 - - (2,972) - 1,183 (1,789) 3 - - - - 3 - - - - - - 1 51,989 - 171 - 52,161 - 1,265 - (869) - 396 - - - (41,811) - (41,811) - - (3) - - (3) - - 505,342 - - 505,342 - - - - (76,845) (76,845) - - (62,005) - - (62,005) Balance at December 31, 2018554$ 1,862,896 2,730,899 (42,680) (144,529) 4,407,140 Stock options activity, netRestricted stock activity, netStock warrant activity, netOtherCommon stock repurchasedOpening retained earnings adjustments (1)(1) Effective January 1, 2018, we adopted changes in accounting for sale of repossessed assets pursuant to ASU 2014-09 (Amendments to Revenue from Contracts with Customers) and ASU 2016-01 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we recorded a $3.0 million decrease to retained earnings that included a reclassification of $1.2 million of unrealized losses related to equity securities from accumulated other comprehensive loss to retained earnings as a cumulative-effect adjustment.Common stock issuedStock options activity, netStock options activity, netCommon stock issuedRestricted stock activity, netStock warrant activity, netOtherNet incomeOther comprehensive loss, net of taxRestricted stock activity, netDividends paid on common stock ($0.56 per share)Net incomeOther comprehensive loss, net of taxCommon stock issued
See accompanying notes to Consolidated Financial Statements.
F-7
SIGNATURE BANKCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)201820172016CASH FLOWS FROM OPERATING ACTIVITIESNet income505,342$ 387,209396,324Depreciation and amortization14,00712,19310,086Provision for loan and lease losses162,524263,297155,774Net impairment losses on securities recognized in earnings16633427Net amortization/accretion of premium/discount117,952115,442106,257Stock-based compensation expense52,566 46,375 41,656Net gains on sales of securities and loans(7,727)(13,181)(14,461)Deferred income tax expense1,37958,1278,712Federal tax reform impact on OCI remeasurement- 14,100 - Purchases of loans held for sale(1,892,916)(2,112,418)(1,894,896)1,690,5981,910,1331,660,081Net increase in accrued interest and dividends receivable(24,759)(14,107)(8,957)(115,088) (179,842) (48,939)Net increase in accrued expenses and other liabilities147,66958,051152,940Net cash provided by operating activities651,563546,012565,004CASH FLOWS FROM INVESTING ACTIVITIESPurchases of securities available-for-sale ("AFS")(1,458,768)(1,634,890)(1,632,908)Proceeds from sales of securities AFS30,269103,532204,6681,030,4511,136,1461,308,463Purchases of securities held-to-maturity ("HTM")(113,067)(201,605)(171,129)213,202228,238252,383Purchases of Federal Home Loan Bank stock(1,404,732)(621,560)(322,441) Proceeds from redemptions of Federal Home Loan Bank stock1,367,775 526,269 344,217 Proceeds from the settlement of bank owned life insurance ("BOLI")- 620 1,187 Net increase in loans and leases(3,942,777)(3,855,016)(5,386,218)Net purchases of premises and equipment(11,487)(23,066)(16,623)Net cash used in investing activities(4,289,134)(4,341,332)(5,418,401)CASH FLOWS FROM FINANCING ACTIVITIESNet increase in non-interest-bearing deposits663,159832,5091,953,229Net increase in interest-bearing deposits2,275,787746,0583,134,108Proceeds from the issuance of Federal Home Loan Bank borrowings3,595,000 3,660,000 1,225,000 Repayment of Federal Home Loan Bank borrowings(2,820,000) (1,515,900) (1,894,263) Proceeds from the issuance of other borrowings820,000 715,000 568,000 Repayment of other borrowings(790,000) (818,000) (492,000) Cash dividends paid on common stock(62,005) - - Proceeds from the issuance of subordinated debt, net- - 256,032 Tax benefit from stock-based compensation- - 8,878 Payments of employee taxes withheld from stock-based compensation(20,761) (27,828) (26,965) (Repurchase) issuance of common stock(41,808) - 318,786Other (12) (4) (3) Net cash provided by financing activities3,619,360 3,591,835 5,050,802 Net (decrease) increase in cash and cash equivalents(18,211)(203,485)197,405Cash and cash equivalents at beginning of year335,466538,951341,546 Cash and cash equivalents at end of year317,255$ 335,466538,951Supplemental disclosures of cash flow information:Interest paid during the year402,717$ 229,738158,838Income taxes paid during the year107,527$ 177,142265,781Transfer of repossessed assets to loans, at fair value73,864$ 35,154 19,061 Excess servicing strips from the securitization of SBA loans94,018$ 87,557 102,604 Maturities, redemptions, calls and principal repayments on securities HTMYears ended December 31,Adjustments to reconcile net income to net cash provided by operating activities:Maturities, redemptions, calls and principal repayments on securities AFSProceeds from sales and principal repayments of loans held for saleNet increase in other assets
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 and one private
client office on the West Coast, 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: To better align with recent regulatory
guidance, in 2017 the Bank began using the acquisition, development and construction loan caption. Within this
document, the change only impacted the loan and lease loss provision by loan portfolio segment in Note 8.
(b) 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.
During 2016, there was a change in estimate related to the commercial real estate portfolio’s general reserve loss
factors. See Note 8 to our Consolidated Financial Statements for further discussion.
Our significant estimates include the adequacy of the allowance for loan and lease losses (“ALLL” or the
“allowance”).
(c) 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, 2018 consisted of cash and due from banks of $269.2 million,
interest-bearing deposits with banks of $11.6 million and money market mutual funds of $36.4 million. Cash and
cash equivalents at December 31, 2017 consisted of cash and due from banks of $290.1 million, interest-bearing
deposits with banks of $7.0 million and money market mutual funds of $38.4 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 $401.3 million and $377.1 million for the
periods that included December 31, 2018 and 2017, respectively.
(d) 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 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). This
technique leverages observable inputs including quoted prices for similar assets, benchmark yield curves, and
other market corroborated inputs. In cases where there is little, if any, related market activity, fair value estimates
are based upon internally-developed valuation techniques and assumptions 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 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
F-9
determine whether we expect to receive all originally expected cash flows. Projected credit losses are compared to
the current level of credit enhancement to assess whether the security is expected to incur losses in any future
period and therefore would be deemed other-than-temporarily impaired.
Equity securities, including FHLB stock, which are not quoted on an exchange and not considered to be readily
marketable are recorded at cost, less impairment (if any).
(e) 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.
(f) 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. Other factors are also considered in determining whether a loan should be classified as
nonaccrual, including whether the loan is to a borrower in an industry experiencing economic stress, whether the
borrower is experiencing other issues such as inadequate cash-flow, or the nature of the underlying collateral and
whether it is susceptible to deterioration in realizable value. 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 can 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.
(g) 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 by credit rating, 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
F-10
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
loan portfolio is comprised of credit-rated commercial loans, comprising 99.0% of our total loan portfolio, excluding
loans held for sale, as of December 31, 2018. 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 our 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. A quarterly Problem Loan meeting is also
conducted where loan officers discuss the status and prospects of each watchlist credit with the Chief Credit
Officer, Chief Lending Officer, and other members of credit and accounting. Nonaccrual, risk rating change and
charge-off decisions are contemplated at this meeting. 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, and generally cover, in aggregate, between 20-30% of the
commercial loan portfolio, including a sample of commercial loans 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 1.0% of our total loan
portfolio, excluding loans held for sale, as of December 31, 2018.
F-11
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;
• 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 original 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. 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.
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.
In addition, bank regulators, as an integral part of their supervisory functions, periodically review our loan portfolio
and related ALLL. These regulatory agencies may disagree with our methodology, which could result in changes
to our current ALLL estimates or processes and result in an increase to our provision for loan and lease losses or
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the recognition of further loan charge-offs based upon their judgments, which may be different from ours. An
increase in the ALLL as a result of these judgments 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 TDRs, however, are reported as such for as long as the loan remains outstanding.
(h) 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.
(i) 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.
(j) 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
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.
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(k) 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.
(l) 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 $64.3 million
at December 31, 2018, and $63.5 million at December 31, 2017. There was no deferred acquisition cost as of
December 31, 2018 and 2017. Our investment in BOLI generated income of $1.6 million, $2.2 million, and $2.9
million for the years ended December 31, 2018, 2017, and 2016, respectively.
(m) 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. If a repossessed asset is subsequently contracted for sale and the
transaction is financed by the Bank, to the extent uncertainty exists related to collectability of the financed amount
at the time of sale, the repossessed asset will not be derecognized and all payments received will be recorded as
a deposit liability until the uncertainty is resolved.
As of December 31, 2018 and 2017, our repossessed assets totaled $51.6 million and $28.8 million, respectively,
and consisted primarily of taxi medallions. The December 31, 2018 balance includes taxi medallions totaling $27.4
million that were sold to new borrowers with financing provided by the Bank where collectability is uncertain. As of
December 31, 2018, $5.6 million of payments have been received to date, leaving the remaining net exposure for
these medallions at $21.8 million.
(n) 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, 2018. 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.
(o) 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.
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Income tax expense consists of current and deferred income tax expense (benefit). Deferred income tax expense
(benefit) is determined by recognizing deferred tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and certain unused carry-forward deductions and credits. The realization of deferred tax assets is
assessed and if necessary, a valuation allowance is provided to reduce the asset to the amount that will more
likely than not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are expected to be recovered or settled
and carry-forward deductions and credits are expected to be utilized. The effect on deferred tax assets and
liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the
enactment date of the change.
Uncertain tax positions are recognized if they are more likely than not to be sustained upon examination, based on
the technical merits of the position. The amount of tax benefit recognized is the largest amount of benefit that is
greater than 50% likely of being realized upon settlement. We account for interest and penalties (if any) as a
component of income tax expense in the Consolidated Statements of Income.
(p) 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. If the status of the recipient of an equity
award changes from employee to non-employee and the vesting likelihood changes from improbable to probable, the
modification is treated as a forfeiture of the old award and issuance of a new award. The full amount of compensation
cost related to the new award will be measured under ASC 505-50, Equity-Based Payments to Non-employees, and
recognized prospectively over the required requisite service period. Additionally, nonemployee awards are revalued
each period end using the prevailing common stock price. Compensation expense is measured based on grant date
fair value and is included in Salaries and benefits in our Consolidated Statements of Income.
(q) 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. Unvested stock awards with non-forfeitable rights
to dividends, whether paid or unpaid, are considered participating securities and are included in the calculation of
EPS using the two class method whereby net income is allocated between common stock and participating
securities.
Diluted earnings per common share is computed by dividing income allocated to common stockholders for basic
EPS, adjusted for earnings reallocated from participating securities, by the weighted average number of common
shares outstanding for the period for the dilutive effect of unvested stock awards using the treasury stock method.
Diluted earnings per common share 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.
(r) Derivative Instruments and Hedging Activities
The Company utilizes derivative instruments as part of its asset/liability management strategies and to facilitate our
client risk management needs. The accounting for changes in the fair value of derivatives depends on the intended
use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply
hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge
accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as
hedges of the foreign currency exposures for foreign currency swaps that were entered to accommodate our
borrowers.
F-15
Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging
instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to
the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow
hedge. The Company may also enter into derivative contracts that are intended to economically hedge certain of its
risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in Accumulated other
comprehensive income and subsequently reclassified into interest expense in the same period during which the
hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate
liabilities.
For derivatives designated as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain
on the hedged item attributable to the hedged risk are recognized in interest income. On a quarterly basis, the
Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows or fair
value of the derivative hedging instrument with the changes in cash flows or fair value of the designated hedged item
or transaction. If a hedging relationship is terminated due to ineffectiveness, and the derivative instrument is not re-
designated to a new hedging relationship, the subsequent change in fair value of such instrument is charged directly
to earnings. Derivatives not designated as hedges do not meet the hedge accounting requirements. Changes in fair
value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company
calculates the credit valuation adjustments to the fair value of derivatives on a net basis by counterparty portfolio, as
an accounting policy election under the provisions of ASU 2011-04, Fair Value Measurement (Topic 820),
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs.
Derivative assets and liabilities are reported in Other assets and Other liabilities, respectively, within the Consolidated
Statements of Financial Condition.
(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 June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting. The standard simplifies the accounting for shared-based
payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain
exceptions. Equity-classified nonemployee awards will be measured on the grant date, rather than on the earlier of
(1) the performance commitment date or (2) the date at which the nonemployee’s performance is complete. The
standard requires a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of
adoption. Subsequent to year-end, the Company adopted ASU 2018-07 as of January 1, 2019. The adoption of
ASU 2018-07 had zero impact on the Company's Consolidated Financial Statements because the compensation
expense recognized for eligible restricted stock awards to nonemployees was based on the shares’ fair value
measurement as of December 31, 2018 (and on January 1, 2019, the adoption date).
In February 2018, the FASB issued ASU 2018-02, Income Statement –Reporting Comprehensive Income (Topic
220). The standard provides entities with an option to reclassify tax effects stranded in accumulated other
comprehensive income as a result of the Tax Cuts and Jobs Act enacted in December 2017 to retained earnings
as compared to income tax expense. The new standard can be applied either (1) in the period of adoption or (2)
retrospectively to each period in which the effect of the change in the federal income tax rate is recognized.
F-16
Subsequent to year-end, the Company adopted ASU 2018-02 as of January 1, 2019 but made no election to
reclassify the stranded OCI to retained earnings as permitted by the standard. Therefore, this standard had no
impact on the Company’s Consolidated Financial Statements. The Company will reclassify these stranded tax
effects using the individual security approach. As securities with stranded effects mature or are sold, the
associated amounts will be reclassified.
In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities. The standard shortens the amortization
period for certain purchased callable debt securities held at a premium to the earliest call date. The guidance does
not change the accounting for discount accretion. Subsequent to year-end, the Company adopted ASU 2017-08,
which impacted a very limited number of securities. We recognized additional amortization of $147,000 as a
cumulative adjustment to retained earnings as of January 1, 2019.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires 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 replaces most existing lease
accounting guidance and requires expanded quantitative and qualitative disclosures for both lessees and lessors.
In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (Topic 842), which provides
entities a transition option to initially apply the new leases standard at the effective date, e.g. January 1, 2019 for
the Company, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption without restating comparative periods presented in the financial statements. Further amending
the new leases standard, in December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which allows
lessors to make an accounting policy election to not evaluate whether sales taxes and other similar taxes are
lessor costs. The ASU also requires lessors to exclude lessor costs paid directly by lessees to third parties on the
lessor’s behalf from variable payments but to include lessor costs that are reimbursed by the lessees in the
measurement of variable lease revenue and the associated expense. The effective date of this ASU is the same
as other Leases related ASUs, which is January 1, 2019.
Subsequent to year-end, the Company adopted the three above-mentioned ASUs related to Leases (Topic 842)
as of January 1, 2019. We elected the transition option as provided in ASU 2018-11 to initially apply the new
leases standard as of January 1, 2019. In addition, we elected the transition practical expedient package which
allowed us not to reassess 1) whether any contracts are or contain embedded leases; 2) the lease classification
for any leases; and 3) whether initial direct costs meet the new definition, as of the initial adoption date at January
1, 2019. From the lessee perspective, no embedded leases were identified and we recognized upon adoption, a
Right of Use (“ROU’) asset of $232.0 million and a lease liability of $251.5 million primarily related to real estate
leases existing on January 1, 2019. From the lessor perspective, the related accounting is unchanged, except that
certain initial direct costs are no longer eligible for capitalization. Additionally, the classification for certain leases
will change from direct financing to sales-type when the control is deemed to have transferred, i.e., the residual
value is guaranteed solely by the lessee, which only has disclosure implications for the Company. These changes
will have minimal impact on the Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—
Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, and modifies certain
disclosure requirements for fair value measurements. It also adds new disclosure requirements for Level 3
instruments, such as changes in unrealized gains and losses included in Other comprehensive income, the range
and weighted average of significant unobservable inputs and narrative description of the measurement
uncertainty. The guidance is effective for fiscal years beginning after December 15, 2019, but entities are
permitted to early adopt either the entire standard or only the provisions that eliminate or modify the existing
requirements. Retrospective transition is required for most amendments while others require prospective
application, e.g., the new disclosure requirements related to Level 3 fair value measurements. The Company is
currently assessing 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
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.
F-17
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 of this standard through the monitoring and
governance of a Steering Committee comprised of executives from the applicable areas of the organization. The
Steering Committee’s focus is to evaluate the impact to the organization, monitor status, as well as to assess and
mitigate risks to the implementation of the standard.
In early 2018, the Company completed its gap analysis and identified areas of focus for an effective adoption.
After finalizing model selection in the third quarter of 2018, the Company is currently working with its vendors on
model development. We anticipate finalizing model development and integrating the models with the broader IT
infrastructure in early 2019. In addition, the Company completed scoping of the standard to ensure that all
financial instruments have been appropriately evaluated under the standard. The scoping exercise resulted in the
conclusion of a zero credit loss assumption for certain United States Treasury bills as well as held-to-
maturity(“HTM”) debt securities issued by government sponsored organizations (“GSEs”), which is the significant
majority of our HTM securities portfolio.
Throughout 2019, the Company expects to continue to devote a significant amount of time to the implementation
process, including the design of new or enhanced processes and controls, user acceptance testing, as well as
parallel run activities. The adoption of this standard could have a material impact on the Company’s Financial
Statements depending on the characteristics of our loan portfolio, as well as the current and forecasted economic
conditions as of the date of adoption.
(ii) Recently Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic
350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract. This ASU aligns the requirements for capitalizing implementation costs in a Cloud Computing
Arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-
use software license. Implementation costs incurred by customers in a cloud computing arrangement are to be
deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in
a software licensing arrangement under the internal-use software guidance. The Company early adopted this ASU
as of September 30, 2018 with retrospective transition to capitalize implementation costs incurred for new
systems, primarily related to loan operations. The impact to the Company is limited to financial statement
presentation. Specifically, the capitalized asset and amortization expense in both the Consolidated Statement of
Financial Condition and the Consolidated Statements of Income changed for new cloud based software. The
capitalization of eligible implementation costs is recorded in the Consolidated Statement of Financial Condition in
Other assets, instead of Premises and equipment, net. The associated amortization is recorded in Information
technology expense instead of Other general and administrative expenses in the Consolidated Statement of
Income.
In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial
Instruments –Overall (Topic 825). The standard amended the new guidance issued in ASU 2016-01 on
recognizing and measuring financial instruments. ASU 2018-03 clarified that entities measuring an equity security
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using the measurement alternative may change its measurement approach to a fair value method in accordance
with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all
identical or similar investments of the same issuer. It also clarified that the adjustments made under the
measurement alternative are intended to reflect the fair value of the security as of the date that the observable
transaction for a similar security took place. In addition, the new standard clarified that the prospective transition
approach for equity securities without a readily determinable fair value in ASU 2016-01 is meant only for equity
securities an entity may elect to measure using the measurement alternative. The Company adopted these
amendments as of June 30, 2018 with no impact to its Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities, which changes the recognition and presentation requirements of hedge
accounting, including: eliminating the requirement to separately measure and report hedge ineffectiveness; and
presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also
provides new alternatives for applying hedge accounting to additional hedging strategies; measuring the hedged
item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by
easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match
method; and reducing the risk of material error correction if a company applies the shortcut method
inappropriately. The Company early adopted this ASU on April 1, 2018. The guidance did not have an impact on
our derivatives on the date of adoption and thus there was no impact to the Consolidated Financial Statements
through June 30, 2018. However, during the latter half of 2018, we entered into partial term fair value hedges to
hedge certain fixed rate loans held for investment. These hedges are expected to be highly effective in offsetting
changes in the fair value of the hedged loans. The related hedging relationships are designated as fair value
hedges under the “last-of-layer” method, a new approach provided by ASU 2017-12. Gains and losses on
derivatives instruments designated as fair value hedges, as well as changes in fair value on the hedged item, are
recorded in Interest income for loans and leases, net in the Consolidated Statements of Income. See Note 20 to
the Consolidated Financial Statements for further discussion.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured
Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedging
Accounting Purposes. The ASU adds the overnight index swap rate based on the Secured Overnight Financing
Rate to the list of US benchmark interest rates in ASC 815 that are eligible to be hedged. This guidance is
effective when an entity adopts the new hedging guidance in ASU 2017-12, which the Company early adopted on
April 1, 2018. The new ASU had no impact to the Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): The standard
clarifies when to account for a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is applied only if the fair value, the vesting
conditions, and the classification of the award (as an equity or liability instrument) change as a result of the change
in terms or conditions. The ASU’s amendments will be applied prospectively to awards modified on or after the
effective date. The Company adopted the applicable requirements for ASU 2017-09 on January 1, 2018 with no
impact to the Consolidated Financial Statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash. This ASU amended the guidance in ASC
Topic 230, Statement of Cash Flows, and is intended to reduce the diversity in the classification and presentation
of changes in restricted cash on the statement of cash flows. The amendments within this ASU required that the
reconciliation of the beginning-of-period and end-of-period cash and cash equivalents amounts shown on the
statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash and restricted
cash equivalents are presented separately from cash and cash equivalents on the balance sheet, an entity is
required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet.
An entity is also required to disclose information regarding the nature of the restrictions. ASU 2016-18 required
retrospective application and was adopted by the Company as of January 1, 2018. The adoption of ASU 2016-18
had no impact to our Statement of Cash Flows. The Bank did not have any restricted cash as of December 31,
2018 and prior comparative periods presented in the Statement of Cash Flows.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments—
Statement of Cash Flows (Topic 230), which addressed 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
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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 Company adopted ASU 2016-15 on
January 1, 2018. Upon adoption, proceeds from settlement of bank-owned life insurance policies from “Cash flows
from operating activities” were reclassified to “Cash flows from investing activities.” In addition, we disclosed our
retained beneficial interest, which represents the excess servicing strips resulted from the securitization of SBA
loans in “Non-cash investing activities.” Retrospective disclosure was applied for each period presented in the
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 simplified various aspects related to how share-based
payments are accounted for and presented in the financial statements. Since adoption, excess tax benefits and
certain tax deficiencies for share-based payments are recorded as income tax expense or benefit within the
Consolidated Statements of Income, rather than within Additional paid-in capital. Other amendments included
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, and changes to the earnings per share calculation related to the excess tax benefit. The Company adopted
the applicable requirements for ASU 2016-09 on January 1, 2017 with no impact to our financial condition or
results of operations. Upon adoption, the Company made an accounting policy election to account for forfeitures of
restricted stock awards as they occur, as opposed to estimate forfeitures when recording compensation expense.
The required Statement of Cash Flow changes were also applied in the current period. The classification of
employee taxes paid within the Consolidated Statements of Cash Flows when an employer withholds shares for
tax-withholding purposes was adopted on a retrospective basis, as required by the ASU. Additionally, following the
adoption of this standard and due to restricted stock vestings, for the years ended December 31, 2018 and 2017,
tax benefits of $3.3 million and $6.5 million, respectively, were recorded within Income tax expense in the
Consolidated Statements of Income.
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 addressed certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. As it relates to the Company, the ASU
required 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 the changes in fair value recognized in net
income, thus eliminating eligibility for the current available-for-sale category. However, the Federal Reserve Bank
and the Federal Home Loan Bank stock are not in scope of the ASU and will continue to be presented at cost. The
Company adopted ASU 2016-01 as of January 1, 2018. The initial adoption impact on the Consolidated Financial
Statements was limited to a $1.2 million reclassification of unrealized losses related to the in-scope equity
securities from Accumulated other comprehensive loss to Retained earnings. Subsequent fair value changes
recognized in Net income for the year ended December 31, 2018 were not material.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which required an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method,
which included presenting the cumulative effect of initial adoption along with supplementary disclosures. The
Company determined the majority of our revenue streams to be out-of-scope since our primary revenue streams
are accounted for in accordance with financial instrument standards. With respect to the two revenue streams that
are in-scope, fees and service charges related to deposit accounts, as well as commissions, the Company
determined there is little to no impact to the Consolidated Financial Statements on the recognition of revenues due
to the short duration of the related contracts with customers and the transactional nature of the related fees.
However, the standard has impacted and will continue to impact how the Company accounts for certain
bank/seller financed sales of repossessed assets. Specifically, to the extent uncertainty exists related to
collectability of financing payments at the time of sale consummation, the repossessed asset will remain on the
Consolidated Statements of Financial Condition until that uncertainty is resolved. Under legacy GAAP in this
situation, the Company derecognized the repossessed asset and a nonaccrual loan was recorded. In addition, if a
sale is financed by the Company and financing terms are not consistent with market terms, a transaction price
adjustment may be required. Both of these factors could impact the sale of the repossessed asset in a distressed
market (i.e., taxi medallions). The cumulative impact from transaction price adjustments from bank/seller financed
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sales of repossessed assets that were nonaccrual loans upon initial adoption on January 1, 2018 was $1.8 million.
Additionally, as there is uncertainty related to the collectability of previously sold taxi medallions (i.e., nonaccrual
loans upon adoption), $10.1 million of nonaccrual loans related to historical Bank-financed sales of repossessed
taxi medallions were reclassed to repossessed assets (Other assets) upon adoption. In conjunction with this, $0.6
million of historical principal and interest payments related to these sold repossessed assets were reclassified
from nonaccrual loans to Accrued expenses and other liabilities in accordance with the deposit method. Therefore,
in total, this resulted in a $10.7 million increase in repossessed assets. Potential impact of future bank/seller
financed sales of repossessed assets subsequent to the adoption could vary depending on the specific terms of
the sale/financing and the collectability assessment of the financed amount. Overall, the adoption did not have a
material impact on the Company’s Consolidated Financial Statements.
(3) Fair Value Measurements
The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. Fair value measurements are recorded on a recurring basis for certain assets
and liabilities when fair value is the measure for accounting purposes, such as investment securities classified as
available-for-sale and derivatives. Certain other assets and liabilities are measured at fair value on a non-recurring
basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of
impairment.
U.S. GAAP establishes a three-level fair value hierarchy that prioritizes techniques used to measure the fair value
of assets and liabilities, based on the transparency and reliability of inputs to valuation methodologies. The three
levels are defined as follows:
Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities.
Accordingly, valuation of these assets and liabilities does not entail a significant degree of judgment.
Examples include most U.S. 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.
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.
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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. This technique leverages observable inputs including quoted prices for similar
assets, benchmark yield curves, and other market corroborated inputs. Most of our securities portfolio is priced
using this method, and as such, these 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 loss. The
securities are valued using Level 3 inputs and had fair values of $152.8 million at December 31, 2018 and $124.9
million at December 31, 2017. 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 2%. 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 $20.9 million at December 31,
2018 and $18.4 million at December 31, 2017. 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
30%.
Level 3 private CMOs classified as AFS had fair values of $9.5 million at December 31, 2018 and $11.3 million at
December 31, 2017. The fair values for these securities are determined based upon a discounted cash flow
model, with the market risk premium as the most significant unobservable input. If this assumption were to change
by 300 basis points, the fair values of our Level 3 private CMOs would increase or decrease accordingly by
approximately 5%.
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Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents the assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2018 and 2017, classified according to the three-level valuation hierarchy:
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(in thousands)Quoted Prices inActive Markets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs (Level 3)Total CarryingValue December 31, 2018ASSETSLIABILITIESDecember 31, 2017ASSETSLIABILITIES(1)Equity securities represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. Effective January 1, 2018, we adopted ASU 2016-01 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we reclassified CRA securities from the available-for-sale category to other assets.
Changes in Level 3 Fair Value Measurements
We recognize transfers between levels of the valuation hierarchy at the end of reporting periods. There were no
transfers of assets between Level 1 and Level 2 for the years ended December 31, 2018 and 2017. Additionally,
the following table presents information for AFS securities and derivatives measured at fair value on a recurring
basis and classified by the Bank within Level 3 of the valuation hierarchy for the periods indicated:
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(in thousands)AFSSecuritiesDerivative LiabilitiesYear ended December 31, 2018Beginning balance - Level 3154,490$ (27) Formation of SBA interest-only strip securities94,018 - Purchase of risk participation agreement- (203) Termination of risk participation agreement- 1 Transfers into Level 3 - - Transfers out of Level 3 - - Total gains or (losses) (realized/unrealized):- - Included in earnings- - Non-interest income802 176 Interest income(24,970) - Included in other comprehensive income(13,898) - Sale of AFS securities(27,192) - Ending balance - Level 3183,250$ (53) Year ended December 31, 2017Beginning balance - Level 3164,580$ (69) Formation of SBA interest-only strip securities87,557 - Purchase of risk participation agreement- (38) Transfers into Level 3 - - Transfers out of Level 3 - - Total gains or (losses) (realized/unrealized):Included in earningsNon-interest income2,914 80 Interest income(21,377) - Included in other comprehensive income(1,595) - Sale of AFS securities(77,589) - Ending balance - Level 3154,490$ (27) Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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 table presents the assets that were measured at fair value on a non-recurring basis as of December
31, 2018 and 2017, classified according to the three-level valuation hierarchy:
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 recent market transfer values, with more weight placed on our own
transactions given the transparency into the corresponding deal terms. See Note 8 to our Consolidated Financial
Statements for further discussion.
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, 2018, 2017, and 2016, we
recorded fair value adjustments on collateral-dependent impaired loans totaling $105.4 million, $243.4 million and
$91.0 million, respectively. The current year adjustments principally related to the New York City taxi medallion
portfolio due to a further significant decline in the underlying collateral value in the first quarter of 2018. 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, recent observable market transfer prices. Fair value adjustments are reported
through a valuation allowance against the asset. During the years ended December 31, 2018, 2017 and 2016, we
recorded negative fair value adjustments of $20.3 million, $15.0 million, and 2.7 million, respectively, on
repossessed assets. The increase in fair value adjustments for the year ended December 31, 2018 is primarily
due to the increase in repossessed taxi medallions coupled with a further decline in collateral value. In conjunction
with the repossession of $17.9 million and $31.7 million in additional taxi medallions during the years ended
December 31, 2018 and 2017, respectively, we recorded charge-offs to the ALLL totaling zero and $665,000,
respectively. See the Asset Quality section within Management’s Discussion and Analysis for additional
information regarding repossessed assets in aggregate, including repossession activity.
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(in thousands)Quoted Prices inActive Markets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs (Level 3)Total CarryingValueDecember 31, 2018(1)December 31, 2017(1)(1) Includes $82.6 million and $297.7 million of taxi medallion loans as of December 31, 2018 and December 31, 2017, respectively.
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. Other factors, such as credit risk and liquidity risk are incorporated in
the fair value measurement.
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, 92.5% of which mature within one year, had a carrying value and estimated fair
value of $1.85 billion at December 31, 2018. 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 is based on the discounted value of contractual cash flows using
interest rates that approximate those offered for borrowings with similar maturities and collateral requirements.
The estimated fair value of our subordinated debt is based on a quoted market price.
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The following table summarizes the carrying amounts and estimated fair values of our financial assets and
liabilities:
(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-27
(in thousands)Carrying AmountTotal Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)December 31, 2018FINANCIAL ASSETS(1)(2) (3)FINANCIAL LIABILITIES(4)36,378,773 December 31, 2017FINANCIAL ASSETS (1) (2)FINANCIAL LIABILITIES (4)(1)FHLB stock has no trading market and is redeemable at par. As such, fair value is presented at the redemption (par) value.(2)(3)(4)The carrying and fair values of deposits do not include the intangible fair value of core deposit relationships.The estimated fair value measurements for loans and leases include adjustments related to market interest rates, and other factors such as credit risk and liquidity risk. Estimated Fair Value MeasurementsEquity securities primarily represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. Effective January 1, 2018, we adopted ASU 201601 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we reclassified CRA securities from the available-for-sale category to other assets.
The following table summarizes the components of our securities portfolios as of the dates indicated:
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 and
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 previously
exercised its authority to extend the divestiture period for such pre-2014 investments to July 21, 2017. The Bank
divested its limited holdings of certain AFS securities in investment vehicles that met the definition of Covered
Funds either by the divestiture deadline in July 2017 or shortly thereafter with the exception of one private CMO
re-REMIC security which was written off in the first quarter of 2018, leaving the Bank zero exposure to Covered
Funds securities since that time.
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, 2018, the Bank did not have any
securities pledged with FHLB. However, the carrying value of securities held by FHLB as custodian totaled $2.93
billion. These securities were not pledged and can be used to pledge towards future borrowings, as necessary. As
of December 31, 2017, the Bank pledged $1.08 billion of securities with FHLB while the total carrying value of
securities held by FHLB as custodian was $2.24 billion.
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GrossGrossGrossGrossAmortizedUnrealized Unrealized FairAmortizedUnrealized Unrealized Fair(in thousands)CostGainsLossesValueCostGainsLossesValueAVAILABLE-FOR-SALE (1)HELD-TO-MATURITY(1)2017Equity securities represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. Effective January 1, 2018, we adopted ASU 201601 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we reclassified CRA securities from the available-for-sale category to other assets.December 31,2018
During the years ended December 31, 2018, 2017 and 2016, we recognized other-than-temporary impairment
losses on debt securities as summarized in the tables below. 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.
F-29
(in thousands)Number of SecuritiesTotal Other-than-temporaryImpairment LossesLess:Noncredit Portion Recognized in OCINet ImpairmentLosses Recognizedin Earnings (1)AVAILABLE-FOR-SALEAVAILABLE-FOR-SALEAVAILABLE-FOR-SALE(1)December 31, 2018The year ended December 31, 2018 includes losses on a CMO security that meets the defintion of Covered Funds under the Volcker Rule totaling $1,000. The year ended December 31, 2017 includes losses on CDOs and CMOs that meet the definition of Covered Funds under the Volcker Rule totaling $517,000 and $13,000, respectively. 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 $27,000, respectively. December 31, 2017December 31, 2016
The following table presents a roll forward of activity related to the credit component of other-than-temporary
impairments recognized in pre-tax earnings on debt securities held at period-end for which a portion of the
impairment was recognized in other comprehensive income (loss) at period-end:
When estimating the portion of other-than-temporary impairment loss attributable to credit, we use a discounted
cash flow model that considers credit enhancement and structural protection. The estimation of cash flow
incorporates numerous assumptions including default rates, severity estimates, recovery rates, prepayment
speeds and structural enhancement characteristics. Assumptions will vary based upon the specific underlying
characteristics and collateral profiles of the underlying securities. Specifically, assumptions are determined based
upon collateral vintage, borrower characteristics, geographical data and payment performance. Market data and
third-party inputs are utilized to validate assumptions. Subsequent assessments may result in additional estimated
credit losses on previously impaired securities. These additional estimated credit losses are recorded as
reclassifications from the portion of other-than-temporary impairment previously recognized in other
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(in thousands)Year ended December 31, 201813,032$ 15 1 (413) 12,635$ Year ended December 31, 201727,982$ - 633 (15,583) 13,032$ Year ended December 31, 201629,970$ 3 424 (2,415) 27,982$ (1)(2)(3)The cumulative credit component of other-than-temporary losses at December 31, 2017 includes $3,000 of losses on securities that meet the definition of Covered Funds under the Volcker Rule.(2)The cumulative credit component of other-than-temporary losses at December 31, 2018 includes $1,000 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, 2016 includes $13.8 million of losses on securities that meet the definition of Covered Funds under the Volcker Rule.(1)
comprehensive income (loss) to earnings in the period of such assessments. In our review of CMOs for other-
than-temporary impairment, we evaluated the collateral performance and structural credit enhancement
assumptions, along with other market considerations, for each security. In our review of bank-collateralized pooled
trust preferred securities for other-than-temporary impairment, we considered various annual default scenarios.
Additionally, the collateral was reviewed to determine if additional bank issuers should be assumed to be an
immediate default or would cure (resume paying interest) based on Fitch credit scoring, ratio of non-performing
assets to tangible common equity and loan loss reserves, capital levels, and FDIC quarterly trends. Based on this
review, we assumed that certain bank issuers on our watch list will default and others will cure in the future.
Utilizing our assumptions, we then discounted the cash flows to assess the amount of credit loss.
The following tables present information regarding AFS securities, categorized by type of security and length of
time that individual securities have been in a continuous unrealized loss position at the dates indicated. Unrealized
losses on other-than-temporarily impaired securities include noncredit impairments recorded in other
comprehensive income (loss).
F-31
FairUnrealizedFairUnrealizedFairUnrealized(in thousands)ValueLossesValueLossesValueLossesDecember 31, 2018Temporarily-impaired securitiesU.S. Treasury securities4,963$ (8) 12,875 (118) 17,838 (126) Residential mortgage-backed securities:U.S. Government Agency5,563 (26) 20,363 (780) 25,926 (806) Government-sponsored enterprises320,131 (3,315) 1,061,233 (43,956) 1,381,364 (47,271) Collateralized mortgage obligations:U.S. Government Agency48,944 (421) 149,795 (5,478) 198,739 (5,899) Government-sponsored enterprises240,140 (1,161) 2,808,972 (101,414) 3,049,112 (102,575) Private70,387 (820) 296,985 (8,206) 367,372 (9,026) Securities of U.S. states and political subdivisions:Municipal Bond - Taxable- - 6,554 (138) 6,554 (138) Other debt securities:19,700 (53) 74,532 (1,525) 94,232 (1,578) 198,691 (1,686) 163,619 (5,431) 362,310 (7,117) Pooled trust preferred securities- - 3,678 (653) 3,678 (653) Other358,753 (1,635) 156,121 (22,588) 514,874 (24,223) 1,267,272 (9,125) 4,754,727 (190,287) 6,021,999 (199,412) - - 506 (537) 506 (537) 1,143 (72) 5,948 (250) 7,091 (322) - - 275 (953) 275 (953) 4,166 (3) - - 4,166 (3) 5,309 (75) 6,729 (1,740) 12,038 (1,815) 1,272,581$ (9,200) 4,761,456 (192,027) 6,034,037 (201,227) 12 months or longerTotalLess than 12 months
F-32
FairUnrealizedFairUnrealizedFairUnrealized(in thousands)ValueLossesValueLossesValueLossesDecember 31, 2017Temporarily-impaired securitiesU.S. Treasury securities23,730$ (102) 996 (3) 24,726 (105) Residential mortgage-backed securities:U.S. Government Agency19,053 (210) 3,224 (144) 22,277 (354) Government-sponsored enterprises512,169 (4,369) 537,447 (13,444) 1,049,616 (17,813) Collateralized mortgage obligations:U.S. Government Agency79,591 (1,186) 77,200 (3,916) 156,791 (5,102) Government-sponsored enterprises1,463,939 (18,013) 1,658,095 (61,923) 3,122,034 (79,936) Private136,929 (781) 101,843 (1,658) 238,772 (2,439) Other debt securities:20,533 (59) 26,985 (468) 47,518 (527) 40,355 (201) 115,954 (1,625) 156,309 (1,826) Pooled trust preferred securities- - 3,958 (1,673) 3,958 (1,673) Other290,086 (315) 135,031 (8,793) 425,117 (9,108) Equity securities (1)- - 21,059 (1,183) 21,059 (1,183) 2,586,385 (25,236) 2,681,792 (94,830) 5,268,177 (120,066) - - 584 (856) 584 (856) 1,783 (37) 13,430 (396) 15,213 (433) - - 3,672 (1,621) 3,672 (1,621) 1,783 (37) 17,686 (2,873) 19,469 (2,910) 2,588,168$ (25,273) 2,699,478 (97,703) 5,287,646 (122,976) (1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. 12 months or longerTotalLess than 12 monthsTotal temporarily-impaired securitiesCollateralized mortgage obligations:Commercial mortgage-backed securitiesSingle issuer trust preferred & corporate debt securities Government-sponsored enterprises PrivateOther debt securities:Other-than-temporarily impaired securitiesPooled trust preferred securitiesTotal other-than-temporarily impaired securitiesTotal temporarily-impaired and other-than- temporarily impaired securitiesEquity securities represent Community Reinvestment Act (“CRA”) qualifying closedend bond fund investments. Effective January 1, 2018, we adopted ASU 2016-01 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we reclassified CRA securities from the available-for-sale category to other assets.
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).
The unrealized losses in our securities portfolio are primarily due to an increase in the federal funds target and
higher prevailing interest rates due to favorable economic growth.
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
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 as of December 31, 2018.
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FairUnrealizedFairUnrealizedFairUnrealized(in thousands)ValueLossesValueLossesValueLossesDecember 31, 2017December 31, 2018Less than 12 months12 months or longerTotal
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.
(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, 2018 and 2017, Signature Bank was in compliance with the FHLB’s minimum investment
requirement with stock investments of $264.9 million and $227.9 million, respectively, carried at cost on the
Consolidated Statements of Financial Condition. Collateral pledged for outstanding FHLB borrowings at December
31, 2018 and 2017 included $223.7 million and $188.8 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, 2018.
(6) Loans Held for Sale
Loans held for sale at December 31, 2018 and 2017 were $485.3 million and $432.3 million, respectively. Gains
on sales associated with the securitization of pooled loans and sale of mortgage loans for the years ended
December 31, 2018, 2017 and 2016 amounted to $4.9 million, $6.8 million and $5.1 million, respectively.
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA loans. Most SBA loans have adjustable rates and float at a spread over
prime and reset monthly or quarterly. The guaranteed portions of SBA loans are backed by the full faith and credit
of the U.S. Government and therefore carry a 0% risk weight for regulatory capital purposes.
We warehouse loans for generally up to 180 days until there are sufficient loans with similar characteristics to
securitize the pool. We may strip excess servicing from loans with different coupons to create a pool at a common
rate. This process results in the creation of two assets: a par pool, which is sold to accredited investors, and an
interest-only strip, which we retain as an available-for-sale security. In certain transactions, the Bank may also
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(in thousands)Amortized CostFair ValueAVAILABLE-FOR-SALEDue in one year or less557,562$ 533,387 Due after one year through five years308,714 307,218 Due after five years through ten years280,756 273,893 Due after ten years6,339,774 6,187,106 Total available-for-sale debt securities 7,486,806$ 7,301,604 HELD-TO-MATURITYDue in one year or less10,184$ 10,135 Due after one year through five years24,914 24,938 Due after five years through ten years68,612 68,735 Due after ten years1,779,823 1,741,390 Total held-to-maturity debt securities1,883,533$ 1,845,198 December 31, 2018
decide to hold a portion of the pooled security in our available-for-sale portfolio. 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:
As of December 31, 2018 and 2017, commercial and industrial loans include overdrafts of commercial deposit
accounts totaling $47.9 million and $53.8 million, respectively, and other consumer loans include overdrafts of
personal deposit accounts totaling $4.0 million and $9.5 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
generally include commercial loans with outstanding principal balances below $100,000, overdrafts, residential
mortgages, and consumer loans.
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December 31,December 31,(in thousands)20182017Mortgage loans:Multi-family residential property15,688,481$ 14,512,051 Commercial property10,309,837 8,902,027 1-4 family residential property620,486 621,377 Home equity lines of credit116,272 133,268 Acquistion, development and construction loans1,656,467 2,018,901 Total mortgage loans28,391,543 26,187,624 Other loans:Other commercial and industrial7,905,488 6,070,217 Taxi medallions88,511 309,894 Consumer9,038 15,310 Total other loans8,003,037 6,395,421 Net deferred fees and costs28,547 29,494 ALLL(230,005) (195,959) Net loans36,193,122$ 32,416,580
The following table summarizes our portfolio of commercial loans by credit rating as of the dates indicated:
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 and home equity lines of credit, though we continue to
service the existing portfolios. 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.
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PassSpecial MentionSubstandardDoubtful(in thousands)Rating 1-6Rating 7Rating 8Rating 9Non-ratedTotalDecember 31, 2018December 31, 2017
The following table summarizes our portfolio of consumer loans by performance status as of the dates indicated:
Loans to related parties include loans to directors and their related companies and our executive officers that are
made in the ordinary course of business. Related party loans totaled $1.4 million and $26.7 million at December
31, 2018 and 2017, respectively, and all related party loans are current as to payments.
F-37
(in thousands)PerformingNonperformingTotalDecember 31, 2018Residential mortgages87,848$ 3,033 90,881 Home equity lines of credit112,799 3,473 116,272 Other consumer loans9,038 - 9,038 Total consumer loans209,685$ 6,506 216,191 December 31, 2017Residential mortgages103,825$ 1,135 104,960 Home equity lines of credit129,376 3,892 133,268 Other consumer loans15,310 - 15,310 Total consumer loans248,511$ 5,027 253,538
The following table summarizes the delinquency and accrual status of our loan portfolio, excluding loans held for
sale, as of the dates indicated:
Nonaccrual loans at December 31, 2018 and December 31, 2017 totaled $108.7 million and $326.9 million,
respectively. At December 31, 2018, $88.5 million of nonaccrual loans were secured by taxi medallions. The
decrease in nonaccrual loans was primarily attributable to a $70.4 million write-down of New York City taxi
medallion loans as a result of further significant declines in the underlying taxi medallions’ collateral fair value that
occurred in the first quarter of 2018, as well as a $10.9 million write-down of Chicago taxi medallion loans due to a
decline in fair value. The collateral value declines impact the entire taxi medallion portfolio as all related loans
remain on nonaccrual. These nonaccrual loans are accounted for using the cost recovery method and, as such, all
interest and principal payments received are applied to each loan’s principal balance until the cost is recovered.
As a result, further contributing to this decrease is $66.9 million of full pay-offs and principal and interest payments
applied to the principal balance of taxi medallion nonaccrual loans. Our current strategy to hold the remaining taxi
medallion portfolio until maturity remains unchanged.
The reduction is also attributable to the repossession of $73.6 million in taxi medallion loans during the year,
including the reclassification of $10.1 million of nonaccrual loans in conjunction with the adoption of ASU 2014-09,
Revenue from Contracts with Customers, during the first quarter. See Note 2(t) for additional information regarding
the adoption of ASU 2014-09.
The aggregate decrease was partially offset by the addition of 24 commercial and industrial loan relationships
totaling $8.6 million and four loans secured by 1-4 family residential property totaling $3.8 million, as well as a
return to accrual status of five loans totaling $2.7 million (two home equity lines of credit and three commercial and
industrial loans).
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(in thousands)Past Due30-89 DaysPast Due90+ DaysTotalPast DueCurrentTotalLoansLoans Past Due 90+ Days & AccruingNon-accruing LoansDecember 31, 2018December 31, 2017
There were no commitments at December 31, 2018 to lend additional funds on nonaccrual loans. For further
discussion, see Note 8 to our Consolidated Financial Statements.
At December 31, 2018, loans past due 90 days or more and still accruing included one commercial real estate
loan totaling $5.0 million and six commercial and industrial loans totaling $2.0 million that are well secured and in
process of collection. At December 31, 2017, loans past due 90 days or more and still accruing included 14
commercial and industrial loans totaling $3.3 million, four loans secured by 1-4 family residential property totaling
$2.3 million, and one commercial real estate loan for $559,000 that are well secured and in process of collection.
As of December 31, 2018 and 2017, the Bank held residential consumer mortgage loans in the process of
foreclosure totaling $5.0 million and $8.2 million, respectively. The Bank did not hold any foreclosed residential
real estate at December 31, 2018 or 2017. Other repossessed assets as of December 31, 2018 and 2017 totaled
$51.6 million and $28.8 million, respectively. The December 31, 2018 repossessed asset balance principally
consists of taxi medallions. While the repossessed asset balance has increased, $27.4 million have been legally
sold and financed by the Bank. However, in accordance with the new revenue recognition standard, due to
uncertainty regarding collectability, these repossessed assets cannot be derecognized. See the Asset Quality
section within Management’s Discussion and Analysis for additional information regarding repossessed assets,
including related activity during the period.
As of December 31, 2018 and 2017, the Bank had pledged $7.75 billion and $6.25 billion, respectively, of
commercial real estate loans through a blanket assignment to secure borrowings from the Federal Home Loan
Bank (“FHLB”) to meet collateral requirements of $4.91 billion and $3.95 billion, respectively, on FHLB borrowings.
Commercial loans (including commercial and industrial loans and loans to commercial borrowers that are secured
by real estate) constitute a substantial portion of our loan portfolio. Substantially all of the real estate collateral for
the loans in our portfolio is located within the New York metropolitan area. As a result, our financial condition and
results of operations may be affected by changes in the economy and the real estate market of the New York
metropolitan area. A prolonged period of economic recession or other adverse economic conditions in the New
York metropolitan area may result in an increase in nonpayment of loans, a decrease in collateral value, and an
increase in our ALLL.
(8) Allowance for Loan and Lease Losses
The table below presents a summary by loan portfolio segment of our ALLL, loan loss experience, and provision
for loan and lease losses for the periods indicated:
The reduction in the charge-off and provision levels for the year ended December 31, 2018, compared to the same
period a year ago, is due to the decrease in the comparative taxi medallion value decline in each period. The
F-39
(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential MortgagesConsumer TotalFor the year ended December 31, 2018Beginning balance - ALLL151,680$ 1,521 38,285 1,553 2,784 136 195,959 Provision24,469 1,013 136,311 (113) 744 100 162,524 Charge-offs(518) - (139,805) (797) (641) (206) (141,967) Recoveries- - 12,822 552 38 77 13,489 Ending balance - ALLL175,631$ 2,534 47,613 1,195 2,925 107 230,005 For the year ended December 31, 2017Beginning balance - ALLL114,581$ 627 92,220 1,227 4,643 197 213,495 Provision37,225 894 225,585 901 (1,364) 56 263,297 Charge-offs(166) - (282,434) (1,148) (571) (218) (284,537) Recoveries40 - 2,914 573 76 101 3,704 Ending balance - ALLL151,680$ 1,521 38,285 1,553 2,784 136 195,959 For the year ended December 31, 2016Beginning balance - ALLL128,672$ 1,657 56,069 1,458 6,826 341 195,023 Provision(14,222) (999) 173,080 (2) (2,053) (30) 155,774 Charge-offs(170) (91) (141,720) (1,041) (151) (195) (143,368) Recoveries301 60 4,791 812 21 81 6,066 Ending balance - ALLL114,581$ 627 92,220 1,227 4,643 197 213,495 Non-rated loansCredit-rated loans (1)(1) For the year ended December 31, 2017 and 2016, the beginning balance of the ALLL and provision lines both include reclassifications of immaterial amounts amongst all categories of credit-rated loans related to Acqusition, Development and Construction loans. See Note 1 for further details.
decline in the taxi medallion value in the second quarter of 2017 was more significant than the first quarter of
2018. The increase in charge-off and provision levels for the year ended December 31, 2017 compared to the
same period in 2016 principally relates to the New York City (NYC) taxi medallion portfolio, partially offset by the
absence of the 2016 charge-off and provision activity related to the Chicago taxi medallion portfolio.
Over the last three years, the NYC and Chicago taxi medallion markets had been distressed and the underlying
collateral values had declined as a result of elevated risk premiums and the absence of new financing. However,
in Chicago, since the third quarter of 2017 transfer volumes have been consistent with historical levels and
transfer values are relatively stable. Therefore, the Bank has been exclusively utilizing observable public transfer
data to measure the related fair value of the underlying Chicago taxi medallions.
In NYC, during the first quarter of 2018, numerous transactions were noted ranging from approximately $120,000
to $400,000, and both revenues and observable market transfers declined significantly. Because the declines over
a short period were substantial, and based on other trends within the market providing additional evidence of
market illiquidity and deterioration at that time, management felt it necessary to reassess its model inputs and
assumptions. Following that review, most notably, management recalibrated its discount rate and growth rate
assumptions within its discounted cash flow model and began to weight cash sales more heavily when evaluating
observable transfers. Also reflected in the updated assumptions in the first quarter of 2018 were failed auction
activity and a significant increase in medallion supply due to anticipated credit union sales and/or auctions in the
first quarter of 2018. Both transfer prices and the discounted cash flow model valuation output were weighted to
derive an estimated fair value of $160,000, net of selling costs, which represented a significant decline from the
December 31, 2017 value.
Since then, the NYC Taxi & Limousine Commission (TLC) trip data has shown stabilization in revenue per
medallion, and transfer values have been relatively consistent. Therefore, the associated fair value has also
remained stable. In the fourth quarter, TLC trip data again supported stabilization. However, management noted a
recent increase and sustained level in observable market transfer volumes, as well as similar trends in our own
medallion sales activity. In fact, approximately 40% of the TLC published transfers in the fourth quarter of 2018 are
our own cash or financed sales. This represented a significant change from prior quarterly trends. Therefore, in the
fourth quarter, management changed its methodology from a weighted cash flow and observable data calculation,
to a full weight of observable transfers.
Management placed significant weight on our own transaction prices given transparency into our own deal terms.
Pursuant to ASC 820, Fair Value Measurement, the transaction prices utilized in the valuation also considered any
transaction price adjustments necessary. Non-Signature transfers were also incorporated into the valuation. For
non-Signature transactions, since we lack transparency into the deal terms, management determined the need to
apply estimated transaction price adjustments for consistency purposes as the presumption is certain term
concessions were likely. When considering all transfer levels, the estimated NYC taxi medallion fair value as of
December 31, 2018 was $160,000 net of selling costs, which is again consistent with the first quarter of 2018
valuation.
Additionally, for the year ended December 31, 2016, there 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. At the time, 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.
F-40
The following table presents our ALLL and outstanding loan balances by loan portfolio segment, based on the
methodology followed in determining the allowance:
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 TDRs, however, are reported as such for as
long as the loan remains outstanding.
F-41
(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential Mortgages (1)Consumer TotalAs of December 31, 2018As of December 31, 2017(1) Includes home equity lines of credit.Non-rated loansCredit-rated loans
The following table summarizes the recorded investment, unpaid principal balance, and related allowance for our
impaired loans as of the dates indicated:
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(in thousands)UnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceUnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceWith no related allowance recorded:Commercial loans secured by real estate:Commercial property3,512$ 3,512 - 9,961 9,961 - Multi-family residential property9,628 9,628 - - - - 1-4 family residential property3,703 3,703 - 4,236 4,236 - Commercial and industrial loans153,381 114,000 - 649,801 320,938 - Residential mortgages1,498 1,498 - - - - With an allowance recorded:Commercial loans secured by real estate:Commercial property271 271 135 - - - 1-4 family residential property1,800 1,800 630 - - - Commercial and industrial loans114,987 23,519 5,117 15,350 14,863 3,997 Residential mortgages1,743 1,534 767 1,790 1,134 582 Home equity lines of credit3,723 4,475 1,566 3,905 3,892 1,557 Total: Commercial loans secured by real estate18,914 18,914 765 14,197 14,197 - Commercial and industrial loans268,368 137,519 5,117 665,151 335,801 3,997 Residential mortgages3,241 3,032 767 1,790 1,134 582 Home equity lines of credit3,723 4,475 1,566 3,905 3,892 1,557 Total impaired loans294,246$ 163,940 8,215 685,043 355,024 6,136 December 31, 2018December 31, 2017
The following table summarizes the average recorded investment of impaired loans and interest income
recognized on impaired loans for the periods indicated:
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 troubled debt restructuring loans (“TDRs”). Our TDRs 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,
(iii) principal forgiveness or (iv) an extension of the loan’s contractual term.
The following table presents loans that were classified as TDRs during the years ended December 31, 2018,
2017, and 2016. 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:
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(in thousands)AverageRecordedInvestmentInterestIncomeRecognizedAverageRecordedInvestmentInterestIncomeRecognizedAverageRecordedInvestmentInterestIncomeRecognizedWith no related allowance recorded:Commercial loans secured by real estate:Commercial property4,825$ 49 7,680 235 4,464 192 Multi-family residential property1,926 1 - - - - 1-4 family residential property3,916 70 3,746 187 - - Commercial and industrial loans175,039 299 198,518 234 83,147 2,712 Residential mortgages599 - - - - - With an allowance recorded:Commercial loans secured by real estate:Commercial property234 - - - 4,434 130 Acquistion, development and construction loans100 - - - - - Multi-family residential property- - 623 - 3,113 107 1-4 family residential property1,454 - 33 - 860 - Commercial and industrial loans18,889 73 157,455 1,260 164,158 3,899 Residential mortgages1,610 - 1,994 - 2,827 24 Home equity lines of credit4,314 43 4,690 - 5,488 - Other consumer loans- - 1 - 7 - Total: Commercial loans secured by real estate12,455 120 12,082 422 12,871 429 Commercial and industrial loans193,928 372 355,973 1,494 247,305 6,611 Residential mortgages2,209 - 1,994 - 2,827 24 Home equity lines of credit4,314 43 4,690 - 5,488 - Other consumer loans- - 1 - 7 - Total 212,906$ 535 374,740 1,916 268,498 7,064 Years ended December 31,201820172016(dollars in thousands)Numberof LoansPre-Modification BalancePost-Modification BalanceNumberof LoansPre-Modification BalancePost-Modification BalanceNumberof LoansPre-Modification BalancePost-Modification BalanceCommercial loans secured by real estate:Commercial property--$ - 16,372 6,372 -- - Multi-family residential property19,644 9,628 -- - -- - 1-4 family residential property-- - 14,450 4,236 -- - Commercial and industrial loans:Commercial and industrial2236,229 33,882 711,504 3,845 1918,591 16,526 Taxi medallions9421,371 14,728 409212,068 133,853 9161,834 53,718 Consumer loans:Home equity lines of credit11,029 1,002 21,231 373 1962 940 Total11868,273$ 59,240 420235,625 148,679 11181,387 71,184 December 31, 2018December 31, 2017December 31, 2016
The following table summarizes how the TDRs loans recorded for the years ended December 2018, 2017, and
2016 were modified:
Our impaired loans at December 31, 2018 and 2017 include TDRs totaling $134.2 million and $220.3 million,
respectively. The decrease in TDRs was primarily driven by taxi medallion charge-offs of $49.9 million as a result
of further significant declines in the underlying collateral fair value in the first quarter of 2018, the foreclosure of
taxi medallion loans totaling $30.4 million, taxi medallion loan payoffs totaling $35.0 million, continued payment
reductions for existing TDRs totaling $13.7 million, and other loan portfolio TDR payoffs of $11.8 million. This was
partially offset by the restructure of 94 taxi medallion loans totaling $14.7 million, 22 other commercial and
industrial loans totaling $33.9 million, one commercial real estate loan totaling $9.6 million, and one home equity
line of credit totaling $1.0 million.
During the year of restructuring, we consider a TDR 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 TDRs, 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, 2018, we had three taxi medallion relationships and loans totaling $320,000 that were
modified as a TDR within the previous 12 months that subsequently defaulted on payments. As of December 31,
2017, we had 88 taxi medallion relationships and loans totaling $29.1 million that were modified as a TDR within
the previous 12 months that subsequently defaulted on payments.
For the years ended December 31, 2018, 2017 and 2016, we recorded interest income on impaired loans during
the period of impairment totaling $535,000, $1.9 million and $7.1 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 $8.2 million, $8.7 million, and $8.3 million for the years ended December 31, 2018,
2017 and 2016, respectively. Average impaired loans for the years ended December 31, 2018, 2017 and 2016
totaled $212.9 million, $374.7 million, and $268.5 million, respectively.
F-44
(in thousands)TermExtensionTerm Extension with Other Concession (1)Deferred Principal AmortizationDeferred Principal Amortizationwith OtherConcession (1)Rate ReductionTotalDecember 31, 2018Commercial loans secured by real estate:Multi-family residential property9,628$ - - - - 9,628 Commercial and industrial loans:Commercial and industrial21,161 4,599 - 8,122 - 33,882 Taxi medallions- 14,728 - - - 14,728 Consumer loans:Home equity lines of credit- - - 1,002 - 1,002 Total30,789$ 19,327 - 9,124 - 59,240 December 31, 2017Commercial loans secured by real estate:Commercial property-$ - 6,372 - - 6,372 1-4 family residential property4,236 - - - - 4,236 Commercial and industrial loans:Commercial and industrial3,845 - - - - 3,845 Taxi medallions- 133,853 - - - 133,853 Consumer loans:Home equity lines of credit- - - 373 - 373 Total8,081$ 133,853 6,372 373 - 148,679 December 31, 2016Commercial and industrial loans:Commercial and industrial1,863$ - 2,609 12,054 - 16,526 Taxi medallions- - 14,455 30,335 8,928 53,718 Consumer loans:Residential mortgages940 - - - - 940 Total2,803$ - 17,064 42,389 8,928 71,184 (1) Other concessions may include a reduction of the loan's interest rate, principal forgiveness and/or a term extension.
(9) Premises and Equipment
Premises and equipment are summarized as follows as of the dates indicated:
Depreciation and amortization expense totaled $14.0 million, $12.2 million and $10.1 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
(10) Deposits
The types of deposits are summarized as follows as of the dates indicated:
The aggregate amounts of time deposits including brokered time deposits in denominations of $100,000 or more
at December 31, 2018 and 2017 were $1.91 billion and $1.48 billion, respectively. Time deposit accounts with
balances of $250,000 or more totaled $1.41 billion and $886.3 million at December 31, 2018 and 2017,
respectively.
F-45
(in thousands)20182017Leasehold improvements75,122$ 74,147 Furniture, fixtures and equipment79,025 68,513 154,147 142,660 Less accumulated depreciation and amortization(95,096) (81,089) Premises and equipment, net59,051$ 61,571 December 31,(in thousands)20182017Non-interest-bearing demand12,015,841$ 11,308,414 NOW and interest-bearing demand4,395,550 3,655,699 Money market17,841,281 16,675,707 Time deposits1,377,517 956,418 Brokered deposits (1)748,584 843,589 Total deposits36,378,773$ 33,439,827 December 31,(1) Includes non-interest bearing deposits of $26,000 and $44.6 million as of December 31, 2018 and December 31, 2017, respectively.
At December 31, 2018, the scheduled maturities of time deposits are as follows:
At December 31, 2018 and 2017, we had approximately $49.7 million and $53.8 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 $6.0 million, $5.4 million and $5.3 million, respectively, for the years ended
December 31, 2018, 2017 and 2016.
(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:
During the years ended December 31, 2018, 2017, and 2016, we recorded interest expense on federal funds
F-46
(in thousands)Amount(1)(1) Includes brokered time deposits of $619.8 million.(dollars in thousands)20182017Federal Funds PurchasedYear-end balance670,000$ 715,000$ Maximum amount outstanding at any month-end708,000$ 715,000$ Average outstanding balance521,318$ 335,317$ Weighted-average interest rate paid2.07%1.16%Weighted-average interest rate at year-end2.59%1.58%Securities Sold Under Agreements to RepurchaseYear-end balance150,000$ 75,000$ Maximum amount outstanding at any month-end150,000$ 350,000$ Average outstanding balance97,534$ 228,342$ Weighted-average interest rate paid2.77%2.54%Weighted-average interest rate at year-end2.93%2.34%December 31,
purchased and securities sold under agreements to repurchase with brokers totaling $13.5 million, $9.70 million,
and $11.9 million, respectively.
The federal funds purchased at December 31, 2018 were overnight transactions. As of December 31, 2018, we
had repurchase agreements with brokers accounted for as secured borrowings totaling $150.0 million, among
which, $100.0 million is expected to mature in November 2019 and the remaining $50.0 million is expected to
mature in May 2020. As of December 31, 2017, we had repurchase agreements with brokers accounted for as
secured borrowings totaling $75.0 million with an expected maturity date of August 2018.
At December 31, 2018, securities with a fair value of $167.4 million and a carrying value of $170.2 million were
pledged to meet our collateral requirement of $160.5 million on repurchase agreements with brokers. At December
31, 2017, securities with a fair value of $131.0 million and a carrying value of $131.3 million were pledged to meet
our collateral requirement of $80.3 million on repurchase agreements with brokers.
Collateral for these types of transactions typically consists 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. As of December 31, 2018, all repurchase
agreements were collateralized with government-sponsored enterprise securities.
(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, 2018, we were in
compliance with this requirement.
As of December 31, 2018 and 2017, our FHLB borrowings only include advances. While historically we have also
had securities sold under repurchase agreements with FHLB, we had no such agreement outstanding as of
December 31, 2018 and 2017.
The following table provides a summary of FHLB borrowings at or for the years ended:
During the years ended December 31, 2018, 2017, and 2016, interest expense recorded on FHLB borrowings
totaled $92.6 million, $36.5 million, and $24.6 million, respectively.
As of December 31, 2018, $7.75 billion of commercial real estate loans pledged through a blanket assignment
were available to meet collateral requirements of approximately $4.91 billion on FHLB borrowings. As of
December 31, 2017, securities with a fair value of $1.07 billion and carrying value of $1.08 billion, and $6.25 billion
of commercial real estate loans pledged through a blanket assignment, were available to meet collateral
requirements of approximately $3.95 billion on FHLB borrowings.
F-47
(dollars in thousands)20182017FHLB AdvancesYear-end balance4,970,000$ 4,195,000$ Maximum amount outstanding at any month-end5,270,000$ 4,195,000$ Average outstanding balance4,455,001$ 2,560,791$ Weighted-average interest rate paid2.08%1.40%Weighted-average interest rate at year-end2.51%1.65%December 31,
FHLB advances as of December 31, 2018 have contractual maturities as follows:
At December 31, 2018, there are no long-term FHLB advances that are callable by the FHLB for redemption prior
to their maturity date.
(14) Subordinated Debt
On April 19, 2016, the Bank issued $260.0 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 $1.8 million.
(15)
Income Taxes
Provision for Income Taxes
The following table presents the components of income tax expense for the periods indicated:
F-48
(in thousands)Amount20193,625,000$ 20201,215,000 202180,000 202221,000 202329,000 Total FHLB advances4,970,000$ (in thousands)201820172016Income tax expense (benefit) reported in net income:FederalCurrent expense107,978$ 127,813 186,213 Deferred income tax expense (benefit)(8,468) 40,307 7,328 Total federal99,510$ 168,120 193,541 State and localCurrent expense58,764$ 2,115 66,198 Deferred income tax expense9,847 17,820 1,384 Total state and local68,611$ 19,935 67,582 TotalCurrent expense166,742$ 129,928 252,411 Deferred income tax expense 1,379 58,127 8,712 Total income tax expense reported in net income168,121$ 188,055 261,123 Income tax expense (benefit) reported in stockholders' equity:Unrealized gains (losses) on securities(25,146)$ (8,341) (32,035) Unrealized losses on cash flow hedges(974) - - Total income tax expense reported in stockholders' equity(26,120)$ (8,341) (32,035) Total income taxes142,001$ 179,714 229,088 Years ended December 31,
Deferred Tax Assets and Liabilities
The following table presents the significant components of our net deferred tax asset (liability) as of the dates
indicated:
At December 31, 2018, 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 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.
F-49
(in thousands)2018201767,977$ 56,587 82,204 57,253 11,583 10,917 Repossessed taxi medallion valuation reserve10,843 4,519 3,734 3,763 Depreciation - ordinary2,439 17 4,466 3,086 183,246 136,142 44,022 29,275 2,512 5,440 229,780 170,857 207,593 136,581 818 755 Deferred income- 23,967 11,939 11,535 220,350 172,838 9,430$ (1,981) Net deferred tax asset (liability)Total deferred tax assets recognized in earningsNet unrealized losses on securities available-for-saleNet unrealized losses on securities transferred to held-to-maturityTotal deferred tax assetsDEFERRED TAX LIABILITIESDepreciation - leased assetsPrepaid expensesOtherTotal deferred tax liabilitiesOtherDecember 31,DEFERRED TAX ASSETSAllowance for loan and lease lossesIncome on leased assetsWrite-down for other-than-temporary impairment of securitiesUnearned compensation - restricted stock
Effective Tax Rate
The following table presents a reconciliation of statutory federal income tax expense to the Bank’s combined
effective income tax expense for the periods indicated:
Unrecognized Tax Benefits
We recognized immaterial liabilities for unrecognized tax benefits related to uncertain tax positions as of
December 31, 2018. 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 2015 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,
2018 and 2017 is summarized as follows:
F-50
(dollars in thousands)Expense (Benefit)RateExpense (Benefit)RateExpense (Benefit)RateYears ended December 31,20182017201620182017Shares available for future awards at beginning of the year 1,558,973 1,763,026 Restricted stock Granted (443,167) (433,067)Forfeited 55,137 70,096 Shares sold to cover minimum tax withholding upon vesting 147,006 157,676 Treasury stock 366,098 1,242 Shares available for future awards at end of the year 1,684,047 1,558,973 Years ended December 31,
Restricted Stock
The following table summarizes information regarding outstanding grants of restricted stock for the years ended
December 31, 2018 and 2017:
The driver of the 2018 forfeiture is a Type III modification (improbable-to-probable vesting) of awards related to
three employees who will be required to provide consulting services to the Bank as non-employees over a two-
year vesting period. Similarly, the 2017 forfeiture is primarily related to the retirement of our Chief Credit Officer,
who will also be required to provide consulting services over a two-year period. The related vesting period for the
modified award is also two years. The modified awards are presented in the granted line item within the respective
tables above.
As of December 31, 2018, our total unrecognized compensation cost related to unvested restricted shares was
$76.0 million, which is expected to be recognized over a weighted-average period of 1.80 years. During the years
ended December 31, 2018, 2017, and 2016, we recognized compensation expense of $52.6 million, $46.4 million,
and $41.7 million, respectively, for restricted shares. The total fair value of restricted shares that vested during the
years ended December 31, 2018, 2017 and 2016 were $62.4 million, $59.5 million, and $58.5 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, 2018 and 2017:
F-51
SharesWeighted AverageGrant PriceSharesWeighted AverageGrant PriceOutstanding at beginning of the year 875,813 $ 131.28 926,123 $ 113.35 Granted 443,167 141.94 433,067 144.02 Vested (430,955) 118.68 (413,281) 106.01 Forfeited (55,137) 142.66 (70,096) 122.16 20182017Years ended December 31,20182017(in thousands)Details About AOCIAmountReclassifiedOut of AOCLAmountReclassifiedOut of AOCLAffected Line Item in theConsolidated Statement of IncomeNet unrealized gains on AFS securities $ 989 3,963 Net gains on sales of securities (16) (633)Net impairment losses on securities recognized in earningsTotal reclassifications, before tax 973 3,330 (287) (1,235)Income tax expenseTotal reclassifications, net of tax $ 686 2,095 Net Unrealized losses on derivatives (cash flow hedges)Reclassifications, before tax $ 4 - Net losses arising during the period (1) - Income tax expenseTotal reclassifications, net of tax $ 3 - Years ended December 31,
The following table presents changes in AOCL, net of tax, for the years ended December 31, 2018 and 2017:
The related tax effects allocated to debt securities and cash flow hedges in AOCL as of December 31, 2018 and
2017 are as follows:
F-52
(in thousands)AFSSecuritiesHTM SecuritiesTransferredfrom AFS Cash Flow HedgesTotalFor the year ended December 31, 2018Balance at December 31, 2017(58,767)$ (10,100) - (68,867) Opening retained earnings adjustments (1)1,183 - - 1,183 Net change in unrealized gain (loss)(75,431) - (2,327) (77,758) Amortization of net unrealized loss on securities transferred to HTM- 1,596 - 1,596 Amounts reclassified out of AOCL(686) - 3 (683) Net current period other comprehensive income (loss)(76,117) 1,596 (2,324) (76,845) Balance at December 31, 2018(133,701)$ (8,504) (2,324) (144,529) For the year ended December 31, 2017Balance at December 31, 2016(42,807)$ (11,907) - (54,714) Net change in unrealized gain (loss)(13,865) - - (13,865) Amortization of net unrealized loss on securities transferred to HTM- 1,807 - 1,807 Amounts reclassified out of AOCL(2,095) - - (2,095) Net current period other comprehensive income (loss)(15,960) 1,807 - (14,153) Balance at December 31, 2017(58,767)$ (10,100) - (68,867) (1) Effective January 1, 2018, we adopted changes in accounting for sale of repossessed assets pursuant to ASU 2014-09 (Amendments to Revenue from Contracts with Customers) and ASU 2016-01 (Amendments to Financial Instruments- Recognition and Measurement of Financial Assets). Accordingly, we recorded a $3.0 million decrease to retained earnings that included a reclassification of $1.2 million of unrealized losses related to equity securities from accumulated other comprehensive loss to retained earnings as a cumulative-effect adjustment.(in thousands)Gross AmountTax ComponentNet of TaxDecember 31, 2018Unrealized loss on AFS and HTM securites(215,966)$ (73,761) (142,205) Urealized loss on cash flow hedges(3,298) (974) (2,324) Balance at December 31, 2018(219,264)$ (74,735) (144,529) December 31, 2017Unrealized loss on AFS and HTM securites(117,683)$ (48,816) (68,867) Urealized loss on cash flow hedges- - - Balance at December 31, 2017(117,683)$ (48,816)$ (68,867)$
(18) Earnings Per Share
Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Unvested stock awards with non-
forfeitable rights to dividends, whether paid or unpaid, are considered participating securities and are included in
the calculation of EPS using the two class method whereby net income is allocated between common stock and
participating securities. Diluted earnings per common share is computed by dividing income allocated to common
stockholders for basic EPS, adjusted for earnings reallocated from participating securities, by the weighted
average number of common shares outstanding for the period for the dilutive effect of unvested stock awards
using the treasury stock method.
The following table shows the computation of basic and diluted earnings per common and common equivalent share
for the years indicated:
For the years ended December 31, 2018, 2017 and 2016, 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 2035. Our premises are used principally for private client offices and administrative
operations. Rental expense for our premises for the years ended December 31, 2018, 2017, and 2016 totaled
$30.0 million, $27.7 million and $25.1million, respectively.
The required minimum rental payments under the terms of the non-cancelable leases at December 31, 2018 are
summarized as follows:
F-53
(in thousands, except per share amounts)201820172016Net income 505,342$ 387,209 396,324 Less: Dividends paid on and earnings allocated to participating securities914 - - Earnings applicable to common stock504,428$ 387,209 396,324 Common and common equivalent shares:Weighted average common shares outstanding54,406 54,001 53,406 Weighted average common equivalent shares260 417 405 Weighted average common and common equivalent shares54,666 54,418 53,811 Basic earnings per share9.27$ 7.17 7.42 Diluted earnings per share9.23$ 7.12 7.37 Years ended December 31, (in thousands)Amount201925,750$ 202029,788 202130,580 202230,401 202330,246 Thereafter179,625 Total326,390$
(b) Information Technology Services Contracts
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 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, as well as other information technology contracts, at
December 31, 2018 are as follows:
F-54
(in thousands)Amount201919,242$ 202010,539 202110,539 2022759 2023759 Thereafter- Total41,838$
(c) Financial Instruments with 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.
The following table presents a summary of our commitments and contingent liabilities:
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, 2018 and December 31, 2017, our reserves for losses on unused commitments to
extend credit totaled $929,000 and $773,000, 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 client. This
liability is amortized over the term of the guarantee on a straight-line basis. At December 31, 2018 and December
31, 2017, we had deferred revenue for commitment fees paid for the issuance of standby letters of credit of $1.4
million as of both year-end dates.
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 $111,000 and $165,000 at December 31, 2018 and 2017, respectively. We recorded provisions for
losses related to standby letters of credit totaling $(54,000), $(34,000) and $64,000 for the years ended December
31, 2018, 2017 and 2016, respectively. During the years ended December 31, 2018 and 2017, there were no
charge-offs recorded on standby letters of credit.
At December 31, 2018 and 2017, we had commitments to sell loans totaling $5.5 million and $9.1 million,
respectively.
F-55
(in thousands)20182017Unused commitments to extend credit3,173,675$ 1,352,032 Financial standby letters of credit482,482 497,581 Commercial and similar letters of credit20,145 18,002 Other1,254 1,559 Total3,677,556$ 1,869,174 December 31,
(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) Derivative Instruments and Hedging Activities
The Company enters into derivative financial instruments to manage exposures that arise from business activities
that result in the receipt or payment of future known and uncertain cash amounts, the value of which are
determined by interest rates. The Company’s derivative financial instruments are used to manage differences in
the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected
cash payments principally related to the Company’s floating rate borrowings and fixed-rate loan portfolio.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage
its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate
swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges
involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate
payments over the life of the agreements without exchange of the underlying notional amount.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the
derivative is recorded in Accumulated other comprehensive income (loss) and subsequently reclassified into
interest expense in the same period during which the hedged transaction affects earnings.
During 2018, the Company entered into an interest rate swap with a notional of $250.0 million to hedge the
interest rate risk in the cash flows on the hedged forecasted issuance of fixed-rate borrowings. Based on the
Company’s current plans and intentions, it is probable that the hedged forecasted transitions will occur.
The following table presents the effect of cash flow hedge accounting on Accumulated other comprehensive
income (loss) during the years ended December 2018, 2017 and 2016.
Gains (losses) included in the Consolidated Statements of Income related to interest rate derivatives designated
as cash flow hedges during the year ended December 31, 2018 was $4,000 and zero for the years ended
December 31, 2017, and 2016. Amounts reported in Accumulated other comprehensive income (loss) related to
derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate
liabilities. The Company estimates that an additional $300,000 will be reclassified as a decrease to interest
expense in 2019.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain prepayable fixed-rate assets due to changes in
benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on
these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated
as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company
receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional
F-56
201820172016(in thousands)
amount. Gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in Interest income for Loans and leases, net.
During 2018, the Company entered into interest rate swaps with a total notional of $650.0 million to hedge certain
fixed-rate commercial real estate loans. For the year, the fixed-rate payment related to the net settlement of these
interest rate swaps was in excess of the floating rate received. As such, Interest Income from Loans and leases was
reduced by $850,000, net, for the year ended December 31, 2018. Based on the current market expectation for
interest rate hikes, the Company expects this impact to ultimately result in an increase to interest income.
As of December 31, 2018, the following amounts were recorded on the balance sheet related to cumulative basis
adjustment for fair value hedges. The Company did not have any derivative instruments that were designated as
accounting hedges as of December 31, 2017.
Non-designated Hedges
From time to time, the Bank has entered into risk participation agreements with external lenders where they are
sharing their risk of default on the interest rate swaps on participated loans. We either pay or receive a fee
depending on the participation type. Risk participation agreements are credit derivatives not designated as
hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities.
Changes in the fair value in credit derivatives are recognized directly in earnings.
The Bank also executes interest rate swaps with customers to facilitate their respective risk management
strategies. These swaps with customers are simultaneously offset by swaps that the Bank executes with a third
party, such that the Bank minimizes its net risk exposure resulting from such transactions. As the swaps
associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of
both the customer swaps and the offsetting swaps are recognized directly in earnings.
The following table presents the fair value of the Company’s derivative financial instruments, as well as their
classification on the Consolidated Statement of Financial Condition at December 31, 2018 and December 31,
2017 respectively:
F-57
Line Item in the Consolidated Statement of Financial Condition in Which the Hedge Item is includedCarrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged AssetsLoans and leases, net (1)(1) These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2018, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.78 billion; the cumulative basis adjustments associated with these hedging relationships was $4.7 million; and the amount of the designated hedged items was $645.3 million.
We centrally clear our derivatives with our third party counterparties through the Chicago Mercantile Exchange
(“CME”) by posting required initial and variation margins. CME legally characterizes variation margin payments for
centrally cleared derivatives as settlements of the derivatives’ exposures rather than collateral. As a result, the
variation margin payment and the related derivative instruments are considered a single unit of account for
accounting and financial reporting purposes. The Bank’s clearing agent for interest rate and derivative contracts
centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate
derivative contracts the Bank clears though the CME are reported at a fair value of approximately zero at
December 31, 2018.
The effect of gain or (loss) from derivatives designated as fair value hedges on the Consolidated Statements of
Income for the years ended December 31, 2018, 2017 and 2016 were as follows:
The following table presents the effect of derivatives not designated as hedging instruments on the Consolidated
Statements of Income for the years ended December 31, 2018, 2017 and 2016:
F-58
(in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair ValueDecember 31, 2018Derivatives designated as hedging instruments Interest Rate ContractsOther Assets-$ Other Liabilities105 Total derivatives designated as hedging instruments-$ 105 Derivatives not designated as hedging instrumentsInterest Rate ContractsOther Assets3,517$ Other Liabilities855 Other Contracts (1)Other Assets 112 Other Liabilities 78 Total derivatives not designated as hedging instruments 3,629$ 933 December 31, 2017Derivatives designated as hedging instruments Interest Rate ContractsOther Assets-$ Other Liabilities- Total derivatives designated as hedging instruments-$ - Derivatives not designated as hedging instrumentsInterest Rate ContractsOther Assets2,373$ Other Liabilities2,500 Other Contracts (1)Other Assets - Other Liabilities 200 Total derivatives not designated as hedging instruments 2,373$ 2,700 (1) Other contracts include risk participation agreements and foreign exchange contracts.Fair Values of Derivative InstrumentsAsset DerivativesLiability Derivatives(in thousands)201820172016Years, ended December 31,(in thousands)201820172016Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on DerivativeInterest Rate ContractsOther income / (expense)Other Contracts (1)Other income / (expense)80 66 Total165$ 67 140 Years ended December 31,Amount of Gain or (Loss) Recognized in Income on Derivative(1) Other contracts include risk participation agreements and foreign exchange contracts.
(21) 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.
As of December 31, 2018 and 2017, 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, 2018:
The capital amounts and ratios presented in the following table demonstrate we were “well capitalized” as of
December 31, 2017:
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 are subject to the prior approval of the 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 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.
Because of the expected savings from the recently enacted Tax Cuts and Jobs Act of 2017, we declared our
inaugural quarterly cash dividend of $0.56 per share, or a total of $31.0 million, which was paid on August 15,
2018 to our common shareholders of record at the close of business on August 1, 2018. The Bank declared its
F-59
(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)5,040,828$ 13.41%3,006,522 8.00%3,758,153 10.00%Tier 1 capital (to risk-weighted assets)4,551,609 12.11%2,254,892 6.00%3,006,522 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,551,609 12.11%1,691,169 4.50%2,442,800 6.50%Tier 1 leverage capital (to average assets)4,551,609 9.70%1,876,893 4.00%2,346,116 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)4,553,605$ 13.32%2,735,682 8.00%3,419,603 10.00%Tier 1 capital (to risk-weighted assets)4,099,327 11.99%2,051,762 6.00%2,735,682 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,099,327 11.99%1,538,821 4.50%2,222,742 6.50%Tier 1 leverage capital (to average assets)4,099,327 9.72%1,687,292 4.00%2,109,115 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized
second cash dividend of $0.56 per share, which was paid on November 15, 2018 to common shareholders of
record at the close of business on November 1, 2018. On January 17, 2019, the Bank declared its third cash
dividend of $0.56 per share, which was paid on February 15, 2019 to common shareholders of record at the close
of business on February 1, 2019.
In addition, as stated in Recent Highlights, on October 17, 2018, Bank stockholders approved our common stock
repurchase program which provides the Bank the ability to repurchase common stock from shareholders in the
open market up to an amount of $500.0 million. During the fourth quarter in 2018, the Bank repurchased 358,492
shares of common stock for a total of $41.8 million. Therefore, as of December 31, 2018, the remaining program
balance is $458.2 million.
Any future determination to pay dividends or buy back shares 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, commercial real estate concentration, contractual restrictions, business prospects and other factors
that the Board of Directors considers relevant. Share buybacks are also subject to shareholder and regulatory
approval, which were received for the repurchase program of up to $500.0 million in October and November 2018,
respectively.
F-60
(22) Segment Reporting
On an annual basis, we reevaluate our segment reporting conclusions. Based on our internal operating structure
and the relative significance of the specialty finance business, we determined our operations are organized into
two reportable segments representing our core businesses – Commercial Banking and Specialty Finance.
Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and
commercial deposit gathering activities.
Specialty Finance consists principally of financing and leasing products, including equipment, transportation, taxi
medallion, commercial marine, municipal and national franchise financing and/or leasing.
Public companies are required to report certain financial and descriptive information about reportable segments.
Segment information is reported using a “management approach” that is based on the way management
organizes the segments for purposes of making operating decisions and assessing performance.
Management’s accounting process uses various estimates and allocation methodologies to measure the
performance of the segments. To determine financial performance for each segment, the Company allocates
funding costs and certain non-interest expenses to each segment, as applicable. Management does not consider
income tax expense when evaluating segment profitability and, therefore, it is not disclosed in the tables below.
Instead, the Bank’s income tax expense is calculated and evaluated at a consolidated level.
The following table presents financial data of our reportable segments (intersegment assets have not been
eliminated):
F-61
(in thousands)201820172016Commercial BankingInterest income1,622,902$ 1,391,792 1,235,781 Interest expense409,933 232,584 169,909 Provision for (recovery of) loan and lease losses28,707 44,283 (20,174) Non-interest income18,738 31,486 39,293 Non-interest expense432,819 392,041 353,481 Income (loss) before income taxes770,181 754,370 771,858 Total assets47,594,348$ 43,388,741 39,081,992 Specialty FinanceInterest income146,700$ 117,053 109,578 Interest expense60,682 38,675 28,208 Provision for (recovery of) loan and lease losses133,817 219,014 175,948 Non-interest income4,564 4,579 3,491 Non-interest expense53,483 43,049 23,324 Income (loss) before income taxes(96,718) (179,106) (114,411) Total assets4,357,754$ 4,063,495 3,440,329 At or for the years ended December 31,
The following table provides reconciliations of net interest income, provision for (recovery of) loan and lease losses,
non-interest income, non-interest expense, income (loss) before income taxes, and total assets for our reportable
segments to the Consolidated Financial Statement totals:
F-62
(in thousands)201820172016Net interest income:Commercial Banking1,212,969$ 1,159,208 1,065,872 Specialty Finance86,018 78,378 81,370 Consolidated1,298,987$ 1,237,586 1,147,242 Provision for (recovery of) loan and lease losses:Commercial Banking28,707$ 44,283 (20,174) Specialty Finance133,817 219,014 175,948 Consolidated162,524$ 263,297 155,774 Non-interest income:Commercial Banking18,738$ 31,486 39,293 Specialty Finance4,564 4,579 3,491 Eliminations(24) (24) (34) Consolidated23,278$ 36,041$ 42,750$ Non-interest expense:Commercial Banking432,819$ 392,041 353,481 Specialty Finance53,483 43,049 23,324 Eliminations(24) (24) (34) Consolidated486,278$ 435,066$ 376,771$ Income (loss) before income taxes:Commercial Banking770,181$ 754,370 771,858 Specialty Finance(96,718) (179,106) (114,411) Consolidated673,463$ 575,264 657,447 Total assets:Commercial Banking47,594,348$ 43,388,741 39,081,992 Specialty Finance4,357,754 4,063,495 3,440,329 Eliminations (4,587,286) (4,334,516) (3,474,710) Consolidated47,364,816$ 43,117,720 39,047,611 (1) Eliminations related to intercompany funding.At or for the years ended December 31,
(23) Quarterly Data (unaudited)
F-63
(dollars in thousands, except per share amounts)March 31June 30September 30December 312018 QUARTERInterest income397,071$ 416,804 434,228 460,817 Interest expense78,924 95,792 109,432 125,785 Net interest income 318,147 321,012 324,796 335,032 Provision for loan and lease losses140,762 7,970 7,351 6,441 Net interest income after provision for loan and lease losses177,385 313,042 317,445 328,591 Non-interest income7,201 5,615 4,543 5,919 Other-than-temporary impairment losses on securities, net(16) - - - Non-interest income excluding other-than- temporary impairment losses on securities7,218 5,615 4,543 5,919 Non-interest expense137,334 112,593 117,208 119,143 Income before taxes47,252 206,064 204,780 215,367 Income tax expense (benefit)12,781 51,479 49,334 54,527 Net income34,471$ 154,585 155,446 160,840 Basic earnings per common share0.64$ 2.84 2.84 2.94 Diluted earnings per common share0.63$ 2.83 2.84 2.94 2017 QUARTERInterest income350,605$ 361,937 370,669 386,958 Interest expense48,850 54,695 61,851 67,187 Net interest income 301,755 307,242 308,818 319,771 Provision for loan and lease losses19,630 187,590 14,340 41,737 Net interest income after provision for loan and lease losses282,125 119,652 294,478 278,034 Non-interest income9,875 9,550 8,119 8,497 Other-than-temporary impairment losses on securities, net(159) (81) (361) (32) Non-interest income excluding other-than- temporary impairment losses on securities10,034 9,631 8,480 8,529 Non-interest expense103,200 116,274 105,628 109,964 Income before taxes188,800 12,928 196,969 176,567 Income tax expense (benefit)54,886 (1,030) 72,498 61,701 Net income 133,914$ 13,958 124,471 114,866 Basic earnings per common share2.49$ 0.26 2.30 2.12 Diluted earnings per common share2.48$ 0.26 2.29 2.11
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Exhibit No.
Exhibit Index
Exhibit
3.1
Restated Organization Certificate. (Incorporated by reference to Signature Bank’s Quarterly Report
on Form 10-Q for the period ended June 30, 2005.)
3.2
Certificate of Amendment 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
Certificate of Amendment to the Bank's Restated Organization Certificate. (Incorporated by reference
from Annex A to the 2017 Definitive Proxy Statement on Schedule 14A, filed with the Federal Deposit
Insurance Corporation on March 10, 2017.)
3.4
Amended and Restated By-laws of the Registrant. (Incorporated by reference to Signature Bank’s
Current Report on Form 8-K filed on January 23, 2018.)
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.)
10.1
Signature Bank Amended and Restated 2004 Long-Term Incentive Plan. (Incorporated by reference
from Appendix B to the 2018 Definitive Proxy Statement on Schedule 14A, filed with the Federal
Deposit Insurance Corporation on April 25, 2018.)
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.)
10.13 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.)
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.
As of March 1, 2019, Signature Bank has the following significant subsidiaries:
SUBSIDIARIES OF SIGNATURE BANK
EXHIBIT 21.1
SubsidiaryState or JurisdictionUnder Which OrganizedSignature Preferred Capital, Inc.New YorkSignature Financial, LLCNew 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,
2018;
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, 2019
/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,
2018;
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, 2019
/s/ VITO SUSCA
Vito Susca
Executive Vice President and Chief Financial Officer
Certification
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of
title 18, United States Code), each of the undersigned officers of Signature Bank, a New York bank (the "Company"),
does hereby certify, to the best of such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2018 (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, 2019
Dated: March 1, 2019
/s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
/s/ VITO SUSCA
Vito Susca
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of
the Form 10-K or as a separate disclosure document.
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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. In 2018,
the Bank expanded its footprint on the West Coast with the opening of its fi rst full-service
private client banking offi ce in San Francisco. Th e Bank primarily serves privately owned
businesses, their owners and senior managers. Signature Bank off ers a broad range of
business and personal banking products and services as well as investment, brokerage, asset
management and insurance products and services through its subsidiary, Signature Securities
Group Corporation, a licensed broker-dealer, investment adviser and member FINRA/SIPC.
In addition, Signature Bank’s wholly owned specialty fi nance subsidiary, Signature Financial
LLC, provides equipment fi nancing and leasing.
In December 2018, Signature Bank unveiled its revolutionary digital payments platform,
Signet™, designed to enable real-time payments for its commercial clients. Th e Signet Platform,
which leverages blockchain technology, allows Signature Bank’s commercial clients to make
payments in U.S. dollars, 24 hours a day, seven days a week, 365 days a year. Transactions
made on the Signet Platform settle in real time, are safe and secure, and incur no transaction
fees. Signature Bank is the fi rst FDIC-insured bank to launch a blockchain-based digital
payments platform. Signet is the fi rst such platform to be approved for use by the New York
State Department of Financial Services.
F I N A N C I A L H I G H L I G H T S
(in thousands)
Total assets
Total loans
Total deposits
2014
2015
2016
2017
2018
$ 27,318,640
33,450,545
39,047,611
43,117,720
47,364,816
17,857,708
23,792,564
29,043,165
32,612,539
36,423,127
22,620,275
26,773,923
31,861,260
33,439,827
36,378,773
Total average deposits
19,931,415
25,293,565
29,747,824
33,158,234
35,143,194
Shareholders’ equity
2,496,238
2,891,834
3,612,264
4,031,691
4,407,140
Net interest income aft er provision
for loan and lease losses
770,041
932,187
991,468
974,289
1,136,463
Non-interest income
34,982
37,104
42,750
36,041
23,278
Non-interest expense
293,244
341,214
376,771
435,066
486,278
Income before income taxes
511,779
628,077
657,447
Net income
$ 296,704
373,065
396,324
575,264
387,209
673,463
505,342
C O M P A N Y P R O F I L E
C O R P O R A T E I N F O R M A T I O N
BOA R D O F D I R E C T O R S
S T O C K H O L D E R I N F O R M AT I O N
Scott A. Shay
Co-founder & Chairman of
the Board of Directors
Signature Bank
Kathryn A. Byrne, CPA
Partner
MAZARS USA 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
President
Pegasus Financial Concierge
Jeffrey W. Meshel
Co-founder
Paradigm Capital Corp.
John Tamberlane
Co-founder & Vice Chairman
Signature Bank
S E N I O R M A N AG E M E N T
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
Eric R. Howell
Executive Vice President -
Corporate & Business Development
Peter S. Quinlan
Executive Vice President &
Treasurer
Vito Susca
Executive Vice President &
Chief Financial Offi cer
Thomas Kasulka
Executive Vice President &
Chief Lending Offi cer
Michael Sharkey
Senior Vice President &
Chief Technology Offi cer
Brian Twomey
Senior Vice President &
Chief Credit Offi cer
Signature Bank
565 Fift h Avenue
New York, NY 10017
646-822-1500
866-SIG-LINE (866-744-5463)
www.signatureny.com
Counsel
Paul, Weiss, Rifk ind, Wharton & Garrison LLP
285 Avenue of the Americas
New York, NY 10019
212-373-3000
Independent Auditors
KPMG LLP
345 Park Avenue
New York, NY 10154-0102
212-758-9700
Stock Transfer Agent & Registrar
American Stock Transfer
6201 15th Avenue
Brooklyn, NY 11219
718-921-8200
Stock Trading Information
Th e Bank’s common stock is traded on
the Nasdaq Global Select Market under
the symbol SBNY.
Annual Meeting
Th e annual meeting of stockholders will be
held on April 18, 2019, 9:00 AM local time, at:
Th e Roosevelt Hotel
45 East 45th Street
New York, NY 10017
212-661-9600
Form 10-K
A copy of Signature Bank’s Annual Report
on Form 10-K fi led with the FDIC is
available without charge by download from
www.signatureny.com, or by written request to:
Signature Bank
Attention: Investor Relations
565 Fift h Avenue
New York, NY 10017
Certain statements in this Annual Report, and certain oral state-
ments 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 Litiga-
tion 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. Th e
Bank’s actual results, performance and achievements may diff er
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. For
those statements, 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
December 31, 2018, included herein.
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565 Fift h Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com
2 0 18 A N N U A L R E P O R T
LOC AT IONS
Manhattan
261 Madison Avenue
485 Madison Avenue
71 Broadway
565 Fift h Avenue
950 Th ird Avenue
200 Park Avenue South
1020 Madison Avenue
50 West 57th Street
2 Penn Plaza
111 Broadway
(Accommodation Offi ce)
Brooklyn
26 Court Street
6321 New Utrecht Avenue
97 Broadway
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
Long Island
900 Stewart Avenue, Garden City
53 North Park Avenue, Roczkville Centre
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
California
201 Mission Street, San Francisco
SBA Institutional Trading & Sales
9 Greenway Plaza, Suite 3120
Houston, TX 77046
Signature Securities Group
1177 Avenue of the Americas
New York, NY 10036
Signature Financial LLC
225 Broadhollow Road, Suite 132W
Melville, NY 11747
Seattle National Originations Offi ce
12100 NE 195th Street, Suite 135
Bothell, WA 98011
Signature Public Funding Corp.
600 Washington Avenue, Suite 305
Towson, MD 21204