2 0 1 9 A N N U A L R E P O R T
C O M P A N Y P R O F I L E
Signature Bank (Nasdaq:SBNY), member FDIC, is a full-service commercial
bank with 31 private client offi ces located throughout the New York metropolitan area as
well as in San Francisco, California. Th e Bank primarily serves privately owned businesses,
their owners, and their senior managers. Signature Bank off ers a broad range of business and
personal banking products and services, as well as investment, brokerage, asset management,
and insurance products and services through its subsidiary, Signature Securities Group
Corporation, a licensed broker-dealer, investment adviser, and member FINRA/SIPC. In
addition, Signature Bank’s wholly owned specialty fi nance subsidiary, Signature Financial
LLC, provides equipment fi nancing and leasing.
F I N A N C I A L H I G H L I G H T S
(in thousands)
Total assets
Total loans
2015
2016
2017
2018
2019
$ 33,450,545
39,047,611
43,117,720
47,364,816
50,616,434
23,792,564
29,043,165
32,612,539
36,423,127
39,109,623
Total deposits
26,773,923
31,861,260
33,439,827
36,378,773
40,383,207
Total average deposits
25,293,565
29,747,824
33,158,234
35,143,194
38,055,001
Shareholders’ equity
2,891,834
3,612,264
4,031,691
4,407,140
4,769,823
Net interest income aft er provision
for loan and lease losses
932,187
991,468
974,289
1,136,463
1,288,957
Non-interest income
37,104
42,750
36,041
23,278
Non-interest expense
341,214
376,771
435,066
486,278
Income before income taxes
628,077
657,447
575,264
Net income
$ 373,065
396,324
387,209
673,463
505,342
27,948
529,269
787,636
588,926
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 Offi cer;
Scott A. Shay, Chairman of the Board; and,
John Tamberlane, Vice Chairman
As an institution born from entrepreneurial roots, Signature Bank’s signifi cant growth
from $50 million to $50 billion in assets has resulted from its steadfast commitment to
deliver exceptional client care through a distinctive single-point-of-contact model. Our
foundation was built upon the provision of highly personalized care and service, delivered
by teams of experienced private client banking professionals.
Th is cohesive, client-focused structure has been the hall-
mark of our banking franchise since our inception in 2001
and continues to distinguish Signature Bank from other
institutions, among clients and bankers alike. Our model
encourages both the growth and retention of our client base.
Remaining true to our founding philosophy of catering to
the commercial market, while employing a client-centric
team approach, has enabled the Bank to realize consistent
and signifi cant organic growth.
As we enter our 20th year in business, this will continue to
drive our future success.
Since our founding, the Bank has achieved extraordinary
growth across all metrics we consider key to the institu-
tion, including deposits, loans and earnings. We attained
an astounding average annual growth rate of 44 percent in
assets throughout the past two decades.
As a result of the eff orts of our nearly 100 private client
banking teams, specialty divisions and wholly owned
subsidiaries, Signature Bank remains among the leading
deposit franchises in the country, as evidenced by deposit
growth of 11 percent in 2019.
We created a culture of growing organically, meaning our
clients chose us to meet their banking needs. Th ey recog-
nize the diff erence in the Signature Bank experience, and
they stay with us over the long term. Th e longevity of our
clients, along with the retention of our colleagues – many
of whom have been with the Bank since day one – is a testa-
ment to the reputation we have garnered by providing
unequaled levels of fi nancial care and service. Th is has
allowed Signature Bank to continually stand out in a satu-
rated commercial banking arena.
Expanding Our Roots
We entered 2019 with a mission to transform our balance
sheet and deliver steady growth. Th is objective embod-
ied an ambitious, yet realistic, set of key goals, including
further balance sheet diversifi cation, a decrease in the
sensitivity of our earnings to changing interest rates, and
strengthening the Bank’s liquidity position. Signature
Bank ended the year making significant headway
towards achieving all these goals. Th is was accomplished
by generating core deposits through our investments in
both our experienced banking team network as well as
enhancing the infrastructure needed to best facilitate
unparalleled client care.
Our investment in banking teams throughout our history
has been both signifi cant and impressive. Most recently,
Signature Bank’s Fund Banking Division, appointed in
2018 to provide financing and banking services to the
private equity industry, positively impacted 2019 loan
growth and was the largest contributor to our Commercial
& Industrial (C&I) loan portfolio for the year. Th is divi-
sion will continue to remain impactful in the years ahead,
and is currently comprised of 11 professionals nationwide.
Our Venture Banking Group, which joined in early 2019
with 30 seasoned bankers, shares our relationship-based
commercial banking philosophy and will help further
2 0 1 9 A N N U A L R E P O R T
1
differentiate Signature Bank in the industry. The team
serves venture capital fi rms and the portfolio companies in
which they invest, and their arrival marked our entry into
serving banking clients throughout this fast-growing inno-
vation economy. Finally, our newly appointed Specialized
Mortgage Servicing Banking team, whose focus is on
servicing commercial and residential mortgage servicers
among other related companies, began contributing to
deposit growth at year-end, aft er joining in July 2019.
Th e Bank experienced a strong year in 2019 in terms of
overall deposit growth. Th e $4.0 billion increase in depos-
its for the year was the largest rise in the past three. Th e
2019 third quarter was a record one, in which we posted
2019 third quarter was a record one, in which we posted
$1.75 billion in average deposit growth. Th e realization
$1.75 billion in average deposit growth. Th e realization
of these achievements was due to the deposit-generating
of these achievements was due to the deposit-generating
eff orts of our traditional private client banking teams,
eff orts of our traditional private client banking teams,
coupled with our West Coast expansion efforts, and
coupled with our West Coast expansion efforts, and
the recent onboarding of our specialty, niche business
the recent onboarding of our specialty, niche business
lines. Together, these teams drove deposit growth which
lines. Together, these teams drove deposit growth which
surpassed our expansion in loans, resulting in the Bank’s
surpassed our expansion in loans, resulting in the Bank’s
improved liquidity position.
An important factor aff ecting our 2019 loan growth was
An important factor aff ecting our 2019 loan growth was
the contribution of C&I lending. Th is was a dramatic shift
the contribution of C&I lending. Th is was a dramatic shift
from the Bank’s dominant Commercial Real Estate (CRE)
from the Bank’s dominant Commercial Real Estate (CRE)
growth in the past. Th is change continues to fuel our trans-
growth in the past. Th is change continues to fuel our trans-
formation strategy and is driven by all of our C&I lending
formation strategy and is driven by all of our C&I lending
categories, off ering diversity with respect to both industry
categories, off ering diversity with respect to both industry
and geography. Th ese lending categories include contri-
and geography. Th ese lending categories include contri-
butions from the Fund Banking Division, the Venture
butions from the Fund Banking Division, the Venture
Banking Group, our specialty fi nance subsidiary, Signature
Banking Group, our specialty fi nance subsidiary, Signature
Financial LLC, our Asset-Based Lending (ABL) team, and
Financial LLC, our Asset-Based Lending (ABL) team, and
the many legacy C&I teams spread throughout the Bank’s
the many legacy C&I teams spread throughout the Bank’s
New York footprint.
Th e Bank’s focus on C&I lending served as the catalyst to
Th e Bank’s focus on C&I lending served as the catalyst to
loan growth and resulted in less exposure to fl uctuations
loan growth and resulted in less exposure to fl uctuations
in interest rates. Variable-rate loans have meaningfully
in interest rates. Variable-rate loans have meaningfully
increased to 20 percent of our total loan portfolio, up
increased to 20 percent of our total loan portfolio, up
from 12 percent one year ago. Since our CRE portfolio
from 12 percent one year ago. Since our CRE portfolio
is mainly comprised of fi xed-rate assets, the fl oating-rate
is mainly comprised of fi xed-rate assets, the fl oating-rate
nature of our C&I loans originated over the course of 2019
nature of our C&I loans originated over the course of 2019
are complementary and provide balance as we strive to
are complementary and provide balance as we strive to
evolve our asset mix over the long term. Th e addition of
fl oating-rate assets is helping to stabilize revenues, should
interest rates change over time. Additionally, our C&I lend-
ing verticals off er many opportunities to capture a greater
percentage of fee income that tends to be more stable. We
saw early results of this in 2019.
In addition to the new business lines, which are national in
scope, 2019 also made way for further geographic expan-
sion beyond our New York City roots. We opened a West
Coast fl agship offi ce in downtown San Francisco, which
is now home to five private client banking teams. We
also extended the reach of Signature Financial through
the addition of executive sales offi cers and leaders in new
geographic markets. Currently, Signature Financial has a
presence in 23 states.
Moreover, Signature Bank continued making advance-
ments in technology to benefi t the changing needs of our
clients. We listen closely to our clients and aim to keep up
with the evolving landscape so they can be well positioned
for success in today’s rapidly paced, ever-changing business
environment.
The Bank values the investments it makes in technology
and new systems today, better positioning it for tomorrow.
To this end, in 2019, we instituted a cloud-based system
to assist in paperless loan documentation, which will
better facilitate the aforementioned geographic expan-
sion the Bank is undergoing. We also continued investing
in our payments architecture platform and new foreign
exchange system.
At the onset of 2019, Signet™, the Bank’s proprietary, block-
chain-based digital payment platform, which aff ords clients
the ability to make USD payments in real time 24/7/365,
began gaining traction following its January 1st, 2019 debut.
Several ecosystems have been onboarded onto the platform,
such as those engaged in digital assets (e.g., exchanges,
over-the-counter brokers, and market makers), wholesale
energy, air cargo and fuel distribution, precious metals, and
commercial real estate.
Lastly, we endeavor to enhance both our current product
off erings as well as explore possibilities for new ones. We
want to ensure our clients have a complete tool kit of prod-
ucts and services available to them, all of which potentially
lead to greater fee income opportunities for the Bank.
2
Net Income
(in millions)
Loans
(in billions)
Average Deposits
(in billions)
588.9
505.3
396.3
387.2
373.1
39.1
36.4
32.6
29.0
23.8
38.1
35.1
33.2
29.7
25.3
The Climb to $50 Billion
Signature Bank truly demonstrated its ability to
execute during 2019, delivering yet another solid
year of strong performance.
For the year ended December 31, 2019, net income
grew 16.5 percent, or $83.6 million, to $588.9
million, or $10.87 diluted earnings per share,
versus $505.3 million, or $9.23 diluted earnings
per share, in 2018. Th e increase in net income for
2019 is mainly the result of growth in net interest income,
fueled by strong average deposit and loan growth, along
with a stabilization of net interest margin (NIM). In fact,
the fourth quarter of 2019 was the fi rst one in which core
NIM expanded since 2017, marking an important trend
reversal aft er a 10-quarter decline.
15
Overall, 2019 deposit growth from 2018 was $4.0 billion,
or an 11.0 percent increase, with deposits reaching $40.38
billion at year-end. Average total deposits for 2019 were
$38.06 billion, growing $2.92 billion, or 8.3 percent,
versus average total deposits of $35.14 billion, for 2018.
Additionally, non-interest-bearing deposits expanded $1.0
billion, or 8.3 percent, representing 32.2 percent of total
deposits. Our ability to continually grow non-interest-bear-
ing deposits, which mostly span the operating accounts of
our clients, demonstrates the strength of our institution.
In 2019, Signature Bank’s loan portfolio increased $2.69
billion, or 7.4 percent, to $39.11 billion, versus loans
of $36.42 billion, for 2018. Th e 2019 growth in loans is
primarily attributable to growth in C&I loans, including
specialty fi nance. Total C&I loans expanded $3.9 billion, or
48.8 percent, to $11.89 billion at year-end 2019. Conversely,
CRE loans declined $1.08 billion, to $26.57 billion, as of
December 31, 2019. The de-emphasis on CRE growth
resulted in a decrease in our concentration in that area to
480 percent, which dramatically fell from its peak of 593
percent at year-end 2015. Non-accrual loans at December
31, 2019 were $57.4 million, representing 0.15 percent of
total loans, and 0.11 percent of total assets, versus non-
accrual loans of $108.7 million, or 0.30 percent of total
loans, at December 31, 2018.
Th e Bank’s capital position remained strong in 2019. Th e
$200.0 million subordinated debt issuance completed
in the 2019 fourth quarter further boosted our already-
robust capital position. Th e Bank’s capital ratios were
16
17
YEAR
18
19
15
16
18
19
17
YEAR
15
16
18
19
17
YEAR
all well in excess of regulatory requirements. Th e Bank’s
tier 1 leverage, common equity tier 1 risk-based, tier 1
risk-based, and total risk-based capital ratios were 9.60
percent, 11.62 percent, 11.62 percent, and 13.32 percent,
respectively, as of December 31, 2019. Th e Bank’s risk-
based capital ratios continue to refl ect the relatively low
risk profi le of our balance sheet. Th e tangible common
equity ratio, which we defi ne as the ratio of total tangi-
ble common shareholders’ equity to total tangible assets,
remained strong at 9.34 percent.
Th e Bank continues to emphasize its focus on increasing
shareholder value by returning capital to its shareholders.
In 2019, the Bank declared a quarterly cash dividend of
$0.56 per share, or $2.24, annually. Furthermore, the Bank
repurchased 1.9 million shares of common stock in 2019, for
a total of $237.3 million.
In summary, our financial position and balance sheet
continued to strengthen throughout 2019. Earnings per
share increased 18 percent versus 2018 while our return
on equity was 12.83 percent. Concurrently, we diversi-
fied our credit exposure through growth in C&I loans,
decreased our interest rate risk by adding floating-rate
loans, optimized our liquidity position by reducing our
loan-to-deposit ratio, and used excess deposit flows to
signifi cantly pay down borrowings by $1.30 billion. Finally,
our effi ciency ratio held at a very low 39.51 percent, despite
a considerable investment in new teams and technology.
We believe our focus on a balanced approached to growth
through the continued investment in seasoned banking
teams is what brought us to $50 billion in assets and is
laying the groundwork for our future.
2 0 1 9 A N N U A L R E P O R T
3
Sowing Seeds for the Next $50 Billion
2019 proved to be a notable year of growth and several
fi rsts. We are extremely proud of achieving the milestone
of reaching $50 billion organically in total assets in just
under 19 years in operation, from our start of $50 million.
We believe this to be a feat no other comparable institution
has ever accomplished.
Th roughout 2019, Signature Bank was recognized in several
areas worth highlighting:
• For the fifth consecutive year, the Cigna Well-Being
Award was bestowed upon the Bank for demonstrating
a strong commitment to improving the health and well-
being of our colleagues through our novel and expansive
workplace wellness program.
• For the ninth consecutive year, the Bank was included on
the annual Forbes Best Banks in America list.
• Th e New York legal community chose Signature Bank
as #1 in the Business Bank, Private Bank and Attorney
Escrow Services categories of the New York Law Journal’s
2019 “Best of” 10th annual reader survey. We ranked in
the top three in the Business Bank category for 10 consec-
utive years. With this year’s ranking, Signature Bank once
again earned a place in New York Law Journal’s Hall of
Fame, which features only those entities that placed in
“Best of” for at least three of the past four years.
• For the second consecutive year, the national legal
community voted Signature Bank #2 in the U.S. in three
categories of Th e National Law Journal’s 2020 “Best of”
annual reader survey, including Business Bank, Private
Bank, and Attorney Escrow Services.
Bank’s web site at https://investor.signatureny.com. In this
detailed report, we take the opportunity to emphasize our
commitment to several key audiences and factors, includ-
ing our colleagues, good corporate citizenship, responsible
lending practices, initiatives put forth companywide to
contribute to environmental sustainability, and consider-
ation of all our stakeholders, as upheld by our responsibility
to sound corporate governance.
As we enter into our 20th year in operation, we honor
all stakeholders who continue to make an imprint on
Signature Bank’s success. We are grateful for the outstand-
ing and unrelenting efforts of our 1,500 colleagues
nationwide. Th eir dedication to our clients has clearly made
our relationship-based model fl ourish. We are indebted
to our clients for their loyalty to this franchise and their
personal bankers. We also extend our deepest thanks to
our diverse Board of Directors for their guidance, and to
our shareholders for the trust they place in our leadership,
the Board, and this thriving institution.
Signature Bank will continue to seek ways to remain
relevant to our clients amid this ever-changing finan-
cial environment and technology-based economy. We
will always stay nimble and prepared to meet our clients’
evolving needs. By adhering to and relying upon our core
founding values and approach, we stand ready to enter
another phase of growth and welcome a new goal of reach-
ing the next asset milestone. We promise to maintain the
depositor-fi rst-and-foremost commitment upon which the
Bank was established and to which we have remained dedi-
cated for the past 19 years.
We believe the best is yet to come for Signature Bank.
• Th e Bank also ranked in the Top 40 of the Largest Banks
Respectfully,
in the U.S. by S&P Global*.
We are proud to announce the upcoming issuance of our
inaugural Environmental, Social, and Governance report.
Th is can be found in the investor relations section of the
Scott A. Shay
Chairman of the Board
* Source: S&P Global Market Intelligence, as of December 31, 2019. Excludes
other deposit-taking non-branch companies such as broker-dealers, credit card
companies, insurers, and processors.
Joseph J. DePaolo
President and
Chief Executive Offi cer
4
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, 2019
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
Common Stock, $0.01 par value
Trading
Symbol(s)
SBNY
Name of each exchange on which registered
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 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.
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, 2019 was $6.42 billion.
As of February 27, 2020, the Registrant had outstanding 53,361,371 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for Annual Meeting of Stockholders to be held April 22, 2020. (Part III)
SIGNATURE BANK
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
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
Page
7
36
58
59
60
60
61
63
65
108
110
110
111
114
114
114
114
114
114
115
116
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
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;
changes in U.S. trade policies, including the imposition of tariffs;
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;
4
a downturn in the economy and the real estate market of the New York metropolitan area or on the West
Coast;
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;
5
technological changes;
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;
fluctuations 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 31 private client offices located throughout the New
York metropolitan area, Connecticut, and San Francisco. The Bank’s growing network of private client banking
teams serves the needs of privately owned businesses, their owners and senior managers.
Through our Signature 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 $50.62 billion in assets, $40.38 billion in deposits,
$39.11 billion in loans, $4.77 billion in equity capital and $3.67 billion in other assets under management as of
December 31, 2019. We intend to continue our growth and maintain our position as a premier relationship-based
financial services organization in the New York metropolitan area, Connecticut, 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
Subordinated Debt Offering
On November 1, 2019, the Bank completed a public offering of $200.0 million aggregate principal amount of
Fixed-To-Floating Rate Subordinated Notes due November 1, 2029 (the “Notes”). The Notes accrue interest at a
fixed rate of 4.125% for the first five years until November 2024. After this date and for the remaining five years of
the Notes’ term, interest will accrue at a floating rate of LIBOR plus 255.9 basis points. Additionally, during the
floating rate period and at the Bank’s option, the Notes can be prepaid by the Bank. Net proceeds from this
offering will be used for general corporate purposes and to repurchase our common stock.
7
Business Expansion: Fund Banking, Venture Capital, Banking Services to Mortgage Servicing Clients &
West Coast Flagship
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.
In March 2019, the Bank announced its entry into venture banking with the hiring of a twenty plus person team to
serve venture capital firms and the portfolio companies in which they invest. The group has experts strategically
placed in key geographic markets throughout the country with a focus on technology and life science businesses.
In July 2019, the Bank announced the establishment of its mortgage servicing banking initiative with the
appointment of the new Kanno-Wood team, specializing in providing treasury management product and services
to residential and commercial mortgage servicers. The Bank also added a fifth private client banking team to our
San Francisco office, which was opened in February 2019 and marked the commencement of our West Coast
operations. The office is located in the heart of the city’s financial district and serves as our flagship location on the
West Coast.
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.
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 regulatory approvals, which
were received for the repurchase program of up to $500 million in November 2018. We received shareholder and
regulatory approval to continue the program in 2019. To date, the Bank has repurchased a total of 2,296,585
shares at an average price of $121.6, or an aggregate purchase amount of $279.1 million since we started the
repurchase program in the fourth quarter of 2018, leaving $220.9 million remaining under the current authorization.
On February 19, 2020, the Board of Directors approved an amendment to the stock repurchase program that
restored the Bank’s share repurchase authorization to an aggregate purchase amount of up to $500.0 million,
effectively increasing the stock repurchase program by $279.1 million. The amended stock repurchase program
is currently awaiting shareholder and regulatory approval.
Common Stock Dividend
The Bank has declared and paid a quarterly cash dividend of $0.56 per share, or a total of approximately $31.0
million, each quarter beginning with the third quarter of 2018 through the third quarter of 2019. On January 15,
2020, the Bank declared its fourth quarter 2019 cash dividend of $0.56 per share or a total of $30.0 million, to be
paid on or after February 14, 2020 to common shareholders of record at the close of business on January 31,
2020.
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,
commercial real estate concentration, contractual restrictions, business prospects and other factors that the Board
of Directors considers relevant.
8
Core Deposit Growth
During 2019, our deposits grew $4.0 billion, or 11.0 %, to $40.38 billion. Deposits at December 31, 2019 included
$2.96 billion of time deposits compared to $2.13 billion at year-end 2018. Core deposits, which exclude time
deposits and brokered deposits, increased $3.17 billion, or 9.3%, during 2019 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 as well as on the West Coast, 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 32.2% of our total deposits and time
deposits accounting for 5.9% of our total deposits as of December 31, 2019. Our average cost for total deposits
was 1.16% for the year ended December 31, 2019.
Strategic Hires
During 2019, we increased our network of seasoned banking professionals by adding four private client banking
teams and several new banking group directors, including the addition of the aforementioned Fund Banking
Division, Venture Capital team and the Specialized Mortgage Servicing Banking team. Our full-time equivalent
number of employees grew from 1,393 to 1,472 during 2019.
Private Client Banking Teams and Offices
As of December 31, 2019, we had 98 private client banking teams located throughout the New York metropolitan
area, Connecticut 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 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 31 private client offices in the New York metropolitan area, Connecticut as well as 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.
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. The Specialized Mortgage Servicing Banking team
specializes in providing treasury management product and services to residential and commercial mortgage
servicers.
9
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.
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.
10
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. We have also invested in our information technology infrastructure over the last
two years with the implementation of a new commercial loan servicing platform, a foreign exchange system, and
Signet. In addition, most of our private client offices have an investment group director or team that provides
brokerage and/or insurance services, as necessary. We believe our existing infrastructure (physical and systems
infrastructure, as well as people) can accommodate additional growth without substantial additional support area
personnel or significant spending on technology and operations in the medium term.
Be committed to a sound risk management process while focusing on profitability
Risk management is an important element of our business. We evaluate the inherent risks that affect our
business, including interest rate risk, credit risk, operational risk, regulatory risk, and reputation risk. We have a
Chief Risk Officer whose responsibility is the oversight of our risk management processes. Additionally, members
of our senior management group have significant experience in risk management, credit, operations, finance and
auditing. We have put internal controls in place that help to mitigate the risks that affect our business. In addition,
we have policies and procedures that further help mitigate risk and regulatory requirements that mandate that we
evaluate, test and opine on the effectiveness of internal controls. No system of internal control or policies and
procedures will ever totally eliminate risk. However, we believe that our risk management processes will help keep
our risks to a manageable level.
Maintain an appropriate balance between cost control, incentive compensation and business expansion
initiatives
We have established an internal approval process for capital and operating expenses. We maintain cost control
practices and policies to increase efficiency of operations. A key expense for financial service companies is
compensation. Controlling this expense is an important element in keeping overall expenses down. Our group
directors and their teams receive base salaries and benefits; however, a significant portion of their compensation
is variable and based upon the profit generated from the business they create. This variable compensation model
helps us control expenses as employees do not receive variable compensation unless revenue is generated.
Virtually all expenditures (both current and capital) in excess of certain thresholds must be approved by a member
of senior management and are reviewed and approved by our Purchasing and Capital Expenditures Committee,
which includes our Chief Operating Officer and our Chief Financial Officer.
We make extensive use of outsourcing to provide cost-effective operational support with service levels consistent
with large-bank operations. We focus on our financial services business and have outsourced many of our key
banking and brokerage systems to third-party providers. This has several advantages for an institution like ours,
including the ability to cost-effectively utilize the latest technology to better serve, and stay focused on, the needs
of our clients. Our key outsourcing partners include Fidelity Information Services and National Financial Services
(the brokerage and investments systems division of Fidelity Investments). We maintain management oversight of
these providers. Each of these providers was the subject of a due diligence investigation prior to their selection
and continues to be reviewed on an on-going basis by Vendor Management.
11
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.
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.
In August 2018, the Bank paid its inaugural quarterly cash dividend to common shareholders. The Bank
has declared and paid a quarterly cash dividend of $0.56 per share, or a total of approximately $31.0
million, each quarter beginning with the third quarter of 2018 through the third quarter of 2019. On
January 15, 2020, the Bank declared its fourth quarter 2019 cash dividend of $0.56 per share to be paid
on or after February 14, 2020 to common shareholders of record at the close of business on January 31,
2020.
In October 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, 2019, the Bank repurchased 2,296,585 shares of common stock for a total of $279.1
million. As of December 31, 2019, the remaining program balance was $220.9 million.
On February 19, 2020, the Board of Directors approved an amendment to the stock repurchase program
that restored the Bank’s share repurchase authorization to an aggregate purchase amount of up to
$500.0 million, effectively increasing the stock repurchase program by $279.1 million. The amended
stock repurchase program is currently awaiting shareholder and regulatory approval.
In November 2019, the Bank issued $200.0 million of subordinated debt.
12
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;
Venture banking products for technology and life science entrepreneurs throughout all stages of their life
cycles;
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 a 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.
13
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 2019, 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 and, further, with the addition of the Specialized
Mortgage Servicing Banking team. 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:
14
(dollars in thousands)AmountPercentageAmountPercentage912,372$ 2.26%861,292 2.37%12,029,609 29.79%11,154,549 30.65%74,950 0.19%26 0.00%39,964 0.10%35,289 0.10%5,068,290 12.55%4,360,261 11.99%Brokered NOW35,522 0.09%2,215 0.01%334,062 0.83%283,941 0.78%3,699,199 9.16%3,669,637 10.09%15,339,660 37.98%13,887,703 38.17%Brokered money market accounts480,245 1.19%126,559 0.35%476,360 1.18%271,194 0.75%1,314,013 3.25%1,106,323 3.04%578,961 1.43%619,784 1.70%40,383,207$ 100.00%36,378,773 100.00%12,941,981$ 32.05%12,015,841 33.02%5,108,254 12.65%4,395,550 12.09%19,372,921 47.97%17,841,281 49.04%1,790,373 4.43%1,377,517 3.79%1,169,678 2.90%748,584 2.06%40,383,207$ 100.00%36,378,773 100.00%5,127,895$ 12.70%4,837,412 13.31%34,085,634 84.40%30,792,777 84.63%1,169,678 2.90%748,584 2.06%40,383,207$ 100.00%36,378,773 100.00%(1) Non-interest bearing.(2) Includes non-interest bearing deposits of $74.9 million and $26,000 as of December 31, 2019 and December 31, 2018, respectively.Personal demand deposit accounts (1)Business demand deposit accounts (1)Rent securityPersonal NOWBusiness NOWBrokered demand deposit accounts (1)20192018December 31,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 2019, 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 are 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 97% of our funded
loans are secured by collateral. Unsecured loans are typically made to individuals with substantial net worth.
Commercial and Industrial Loans
Our 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, 2019, funded C&I loans totaled approximately 27% 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, 2019:
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, 2019, funded
real estate loans totaled approximately $28.38 billion, representing approximately 72% of our total funded loans.
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Industry Classifications(dollars in thousands)Loan AmountPercentageFinancial Services4,731,860$ 39.78%Transportation Services1,210,638 10.18%Building and Construction Contractors829,322 6.98%Real Estate and Real Estate Management806,453 6.78%Manufacturing791,051 6.65%Accommodation and Food Services484,739 4.08%Professional Services446,234 3.75%Private Households437,534 3.68%Health Services334,984 2.82%Wholesale Trade322,137 2.71%Retail Trade282,403 2.38%Public Administration253,773 2.13%Educational Services225,668 1.90%Audio/Video Services175,774 1.48%Business Services152,987 1.29%Recreational Services132,818 1.12%Utilities91,210 0.77%Mining63,495 0.53%Membership Organizations48,190 0.41%Automotive Services33,924 0.29%Agriculture23,642 0.20%Taxi Medallions6,897 0.06%Personal Services4,024 0.03%Total11,889,757$ 100.00%
The following table shows the distribution of our real estate loans by collateral type as of December 31, 2019:
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, 2019, our commitments under letters of credit totaled approximately
$555.0 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, 2019, our consumer loans totaled $9.6 million, representing less than 0.05% of
our total funded loans.
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Loans Secured by Real Estate(dollars in thousands)Loan AmountPercentageMulti-family residential property15,101,727$ 53.21%Commercial property11,400,595 40.17%Acquisition, development and construction loans1,270,095 4.47%1-4 family residential property506,515 1.78%Home equity lines of credit105,379 0.37%Total28,384,311$ 100.00%
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, 2019, we had $290.6 million in SBA loans held for sale, representing approximately 0.7% of our
total funded loans, compared to $485.3 million at December 31, 2018.
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, 2019, the carrying amount of
our SBA excess servicing strip assets totaled $182.6 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.
Marketplace
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 $1.9 trillion in total deposits, as of June 30, 2019 –
approximately 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 $385.4 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, 2019, we operated 31 private client offices in the New York metropolitan area, Connecticut,
and San Francisco. These 31 offices housed a total of 98 private client banking teams. In 2019, four private client
banking teams joined including the Venture Banking group and Specialized Mortgage Servicing Banking team. As
part of the continuing development of our business strategy, we expect to add additional private client banking
teams in 2020. We believe these additional teams will allow us to expand our current operations in the New York
metropolitan area, as well as on 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, 2019, we had 1,472 full-time equivalent employees, 899 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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The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provided the federal
banking agencies with additional latitude to monitor the systemic safety of the financial system and take
responsive action, which have, and could continue to 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. See “—
Deposit Premiums and Assessments.”
The FDIC, as a supervisory matter, expects us to have governance, internal control, compliance, and supervisory
programs consistent with our size and activities. The Bank surpassed $50 billion in total consolidated assets as of
December 31, 2019. As the Bank continues to grow, the FDIC will generally expect us to develop and implement
enhanced governance, internal control, compliance, and supervisory programs, to implement select banking
regulations that apply to an institution of our size or structure, and to incur the costs to implement, staff, and
maintain those programs. For instance, the FDIC’s regulations under the Federal Deposit Insurance Act (“FDI
Act”) require insured depository institutions with $50 billion or more in total assets, including the Bank (to the
extent that the Bank continues to report total assets in such amount for four quarters) to periodically submit
resolution plans to the FDIC to address procedures for the resolution of the institution in the event of its failure. In
June 2019, the FDIC issued an advance notice of proposed rulemaking regarding potential amendments to such
requirements. Under the proposal, the FDIC would establish tiered resolution planning requirements based on
factors including asset size and complexity, among others, and would revise the frequency and content of plan
submissions for larger, more complex institutions that would remain subject to resolution planning requirements
under the amended regulations. The FDIC has requested public comment on whether the $50 billion asset
threshold should continue to apply in light of the modifications to Dodd-Frank Act resolution planning
requirements, which are discussed below. The prospects and timing for the adoption of a final rule, as well as the
potential application of any final rule to the Bank, are uncertain at this time.
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 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 October 15, 2019, the FDIC adopted a final rule implementing portions of the Economic Growth Act which,
among other things, raised the minimum asset threshold for covered banks to conduct stress tests from $10 billion
to $250 billion in total consolidated assets. As a result of this final rule, Signature Bank no longer will be subject to
the stress testing requirements established by the Dodd-Frank Act until it accumulates $250 billion in total
consolidated assets. See “—Capital Planning and Stress Testing.” However, 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.
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. Specifically, for banking organizations that maintain between
$100 billion and $250 billion in total consolidated assets, the Federal Reserve can subject such banking
organizations to enhanced prudential standards, including the requirements described above, if such organizations
also maintain $75 billion or more in weighted average short-term wholesale funding, non-bank assets, off-balance
sheet exposures, or cross-border exposures. These requirements were implemented by a final rule adopted by the
federal banking agencies in November 2019.The regulatory relief mandated by the Economic Growth Act and its
implementing regulations 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 have now issued certain corresponding guidance and/or 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;
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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. As noted, the direct or indirect activities conducted by a state bank as
principal are similarly generally limited to those of a national bank; however, the FDIC may, in certain cases,
approve of a bank’s direct or indirect conduct of otherwise impermissible activities. For instance, an insured state
bank may establish a subsidiary to engage in an activity that generally is not permissible for the parent bank, such
as owning and investing equity securities as principal, provided that the activity does not propose a significant risk
to the Deposit Insurance Fund (the “DIF”) and the bank is in compliance with applicable regulatory capital
standards.
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 has declared and paid a quarterly cash dividend of $0.56 per share, or approximately
$31.0 million, each quarter beginning with the third quarter of 2018 through the third quarter of 2019. On January
15, 2020, the Bank declared its fourth quarter 2019 cash dividend of $0.56 per share to be paid on or after
February 14, 2020 to common shareholders of record at the close of business on January 31, 2020.
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 $500.0
million. Share buybacks are also subject to regulatory approval, which were received for the repurchase program
of up to $500.0 million in November 2018. We received shareholder and regulatory approval to continue the
program in 2019. To date the Bank has repurchased 2,296,585 shares of common stock for a total of $279.1
million. As of December 31, 2019, the remaining program balance was $220.9 million. On February 19, 2020, the
Board of Directors approved an amendment to the stock repurchase program that restored the Bank’s share
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repurchase authorization to an aggregate purchase amount of up to $500.0 million, effectively increasing the stock
repurchase program by $279.1 million. The amended stock repurchase program is currently awaiting shareholder
and regulatory approval.
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.
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, 2019, our total risk-based capital ratio was 13.32%, and our Tier 1 risk-based capital ratio was
11.62%. 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, 2019, our leverage capital ratio was 9.60%. 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, 2019, our common equity Tier 1 capital ratio was 11.62%.
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.
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
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credit growth. However, the final rules apply the countercyclical buffer only to “advanced approaches banks” (i.e.,
banking organizations with $250 billion or more in total assets or $100 billion or more in total consolidated assets
and $75 billion or more in short-term wholesale funding, non-bank assets, off-balance sheet exposures, or cross-
border 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 approaches rules.” 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 November 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 July 2019, the federal banking agencies adopted a final rule simplifying certain aspects of the capital rules, the
key elements of which apply solely to banking organizations that are not subject to the advanced approaches
capital rule. Under the final rule, non-advanced approaches banking organizations, such as Signature Bank, will
apply a simpler regulatory capital treatment for MSAs; certain DTAs arising from temporary differences;
investments in the capital of unconsolidated financial institutions other than those currently applied; and capital
issued by a consolidated subsidiary of a banking organization and held by third parties (often referred to as
minority interest) that is includable in regulatory capital. Specifically, the final rule eliminates: (i) the capital rule’s
10.0% 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 form of common
stock; (ii) the aggregate 15.0% common equity tier 1 capital deduction threshold that subsequently applies on a
collective basis across such items; (iii) the 10.0% 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 will no longer have distinct treatments for significant and non-significant investments in the capital of
unconsolidated financial institutions, but instead will 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 25.0% of common equity tier 1 capital.
Relatedly, in December 2019, the federal banking agencies issued a final rule on the capital treatment of HVCRE
exposures which brought the regulatory definition of HVCRE exposure in line with the statutory definition of
HVCRE ADC in the Economic Growth Act. The final rule also clarifies the capital treatment for loans that finance
the development of land under the revised HVCRE exposure definition and establishes the requirements for
certain exclusions from HVCRE exposure capital treatment.
The Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred
to as “Basel IV,” in December 2017. 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
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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.
Current Expected Credit Loss Treatment
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. We plan to utilize the three year phase-
in option as stipulated by the final rule.
In October 2019, four federal banking agencies issued a request for comment on a proposed interagency policy
statement on the new CECL methodology. The policy statement proposes to harmonize the agencies’ policies on
allowances for credit losses with the FASB’s new accounting standards. Specifically, the statement (1) updates
concepts and practices from prior policy statements issued in December 2006 and July 2001 and specifies which
prior guidance documents are no longer relevant; (2) describes the appropriate CECL methodology, in light of
Topic 326, for determining allowances for credit losses (“ACLs”) on financial assets measured at amortized cost,
net investments in leases, and certain off-balance sheet credit exposures; and (3) describes how to estimate an
ACL for an impaired available-for-sale debt security in line with Topic 326. The proposed policy statement would
be effective at the time that each institution adopts the new standards required by the FASB.
We are finalizing the impact the CECL model will have on our accounting and related disclosures. Based on an
analysis performed on our loan portfolio as of December 31, 2019, we expect an increase in our reserve for credit
losses ranging from 15% to 20%. The final number will be dependent on the refinement of certain assumptions,
predominantly related to our qualitative adjustments, which we are currently finalizing and expect to be completed
in the coming weeks. The increase will result in a one-time cumulative-effect adjustment to our allowance for loan
and lease losses, and a corresponding decrease to retained earnings as of the January 1, 2020 effective date.
Any future quarterly changes to our allowance will depend on the state of the economy, forecasted
macroeconomic conditions, and the composition of our loan portfolio at that time.
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,
2019, 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.
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We will be categorized as “adequately capitalized” if we have (i) a total risk-based capital ratio of 8.0% or greater;
(ii) a Tier 1 risk-based capital ratio of 6.0% or greater; (iii) a common equity Tier 1 capital ratio of 4.5% or greater;
and (iv) a leverage ratio of 4.0% or greater (3.0% if we are rated in the highest supervisory category).
We will be categorized as “undercapitalized” if we have (i) a total risk-based capital ratio that is less than 8.0%;
(ii) a Tier 1 risk-based capital ratio that is less than 6.0%; (iii) a common equity Tier 1 capital ratio that is less than
4.5%; or (iv) a leverage ratio that is less than 4.0%.
We will be categorized as “significantly undercapitalized” if we have (i) a total risk-based capital ratio that is less
than 6.0%; (ii) a Tier 1 risk-based capital ratio that is less than 4.0%; (iii) a common equity Tier 1 capital ratio that
is less than 3.0%; or (iv) a leverage ratio that is less than 3.0%.
We will be categorized as “critically undercapitalized” and subject to provisions mandating appointment of a
conservator or receiver if we have a ratio of “tangible equity” to total assets that is 2.0% or less. “Tangible equity”
generally includes core capital plus cumulative perpetual preferred stock.
In addition to measures taken under the PCA provisions, insured banks may be subject to potential actions by the
federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the issuance of cease and desist orders, the imposition of civil money penalties,
the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders
against “institution-affiliated” parties, and termination of insurance of deposits. The 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.
Capital Planning and Stress Testing
As discussed above, the Economic Growth Act raised the asset threshold for required Dodd-Frank Act Stress
Tests (“DFAST”) from $10 billion to $250 billion for insured depository institutions and bank holding companies
and made the requirement “periodic” rather than “annual.” 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, Section
214 of the Economic Growth Act and its implementing regulations prohibit 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. As discussed above, these requirements were modified in certain aspects by the Economic
Growth Act and its implementing regulations. Under its stress testing regulations, the FDIC requires 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. This process involves the input
of Senior Management, Risk Management, and Finance, along with third-party consultants. The Risk Committee
of the Board of Directors receives quarterly updates as to the progress and challenges in complying with this new
regulatory requirement.
Although Signature Bank will continue to monitor and stress test its capital in a manner consistent with the safety
and soundness expectations of the federal banking agencies and in accordance with applicable internal
processes, due to the above-described changes to the DFAST requirements, Signature Bank will no longer be
required to file and report annual company-run stress tests until the revised minimum asset threshold is reached.
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The Volcker Rule
Section 619 of the Dodd-Frank Act, known as 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). The federal banking agencies, the
Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”)
adopted a final rule implementing the Volcker rule in December 2013. Banks were required to conform their
activities and investments to the requirements of the final rule by July 21, 2015. The final rule also requires 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 July
2019, the federal banking agencies, the SEC and the CFTC adopted a final rule implementing these changes.
In addition, in May 2018 the federal banking agencies, the SEC and the CFTC published a notice of proposed
rulemaking to simplify and tailor several compliance requirements the Volcker Rule. 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.
In October 2019, the agencies adopted a final rule modifying the Volcker Rule’s implementing regulations to
impose certain simplified and streamlined compliance requirements. Among other things, the final rule: (i) revises
the regulatory definition of “trading account” by establishing a new presumption regarding the application of the
“short-term intent” prong of the definition, clarifying that firms that are subject to the “market risk capital rule” prong
are not subject to the short-term intent prong, and allowing firms to opt into the market risk rule prong; (ii) revises
the regulatory definition of “trading desk” by adopting a multi-factor definition based on the same criteria typically
used to establish trading desks for other operational, management, and compliance purposes; (iii) revises the
exclusion from the regulatory definition of “proprietary trading” for liquidity management and adopts several new
exclusions (including those for error trades and error-correcting trades, customer-driven matched swap
transactions, mortgage servicing assets and mortgage servicing rights hedging activities, and purchasing or selling
financial instruments that would not be accounted for as trading assets or liabilities on applicable reporting forms);
(iv) streamlines applicable exemptions for underwriting and market-making related activities, risk-mitigating
hedging activities, and activities conducted solely outside the United States; (v) tailors compliance program
obligations based principally on trading assets and liabilities and eliminates the CEO attestation requirement for all
banking entities except those with significant trading assets and liabilities (firms with $20 billion or more in trading
assets and liabilities will be subject to heightened compliance requirements); and (vi) revises the metrics reporting
obligation requirements to eliminate certain metrics, require reporting on a quarterly schedule, and to apply only to
banking entities that have significant trading assets and liabilities. The final rule also adopted limited modifications
to the Volcker Rule’s “covered fund” prohibitions; however, the banking agencies have indicated their intention to
issue a separate proposed rulemaking to address those provisions in greater detail. The final rule became
effective on January 1, 2020 and the compliance date for the final rule is January 1, 2021.
Deposit Account Restrictions
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
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commence offering interest on demand deposits to compete for clients. As of December 31, 2019, $13.02 billion,
or 32.2%, 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.
Interstate Branching
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. In addition, to the
extent permitted under the New York Banking Law and applicable host state law, the Bank is permitted to
establish non-branch offices in other states, such as loan production offices or representative offices. 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 branches or other offices. In February 2019, the Bank officially 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 of 1974 (“ECOA”), TILA,
the Truth in Savings Act, the Home Mortgage Disclosure Act (“HMDA”), RESPA, 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.
Further to this point, in April 2019, the DFS announced the creation of a new Consumer Protection and Financial
Enforcement Division with responsibility for protecting and educating consumers and investigating consumer fraud
and financial crimes.
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. The CFPB historically has been active in bringing enforcement actions against banks
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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 and regulatory agencies, including the DFS, also have been
increasingly active in this area with respect to institutions over which they have jurisdiction.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting,
executive compensation, and enhanced and timely disclosure of corporate information. As directed by the
Sarbanes-Oxley Act, our Chief Executive Officer and Chief Financial Officer are required to certify that our
quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC
under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are
responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over
financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of
Directors about our internal control over financial reporting; and they have included information in our quarterly
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 December 2019, the OCC and the FDIC released a notice of proposed rulemaking representing the first major
revision of the federal interagency CRA regulations in nearly 25 years. Among other things, the revision would
create objective numerical metrics for quantifying CRA performance, procedures to facilitate the identification of
qualifying CRA activities, and, in the case of institutions with a majority of their deposits outside of traditional,
facilities-based assessment areas, assessment areas based on the locations of significant levels of retail domestic
deposits. The proposed revision would impose significant additional reporting and information collection
requirements on covered institutions. The prospects and timing of any future action on this rulemaking are
uncertain at this time, particularly since the CRA regulations of the financial institution regulatory agencies have
traditionally been uniform and the Federal Reserve is not a party to the rulemaking.
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 ECOA, the Fair Housing Act of 1968, and, at the state level, Section
296-A of the New York Executive Law. These laws generally 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; however, such coordination has been less extensive under the current leadership of the DOJ
and the CFPB. The extent to which coordination between the two agencies will occur in the future 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.
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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.
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.
In December 2019, three federal banking agencies and the Treasury Department’s Financial Crimes Enforcement
Network (“FinCEN”) issued a joint statement clarifying the compliance procedures and reporting requirements that
banks must follow for customers engaged in the growth or cultivation of hemp, including a clear statement that
banks need not file a Suspicious Activity Report (“SAR”) on customers engaged in the growth or cultivation of
hemp in accordance with applicable laws and regulations. This statement does not apply to cannabis-related
business; therefore, the statement pertains only to customers who are lawfully growing or cultivating hemp and are
not otherwise engaged in unlawful or suspicious activity.
Cybersecurity and Data Privacy
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. If adopted as proposed, these enhanced standards would apply to depository institutions, and
depository institution holding companies with total consolidated assets of $50 billion or more, including the Bank.
However, the federal banking agencies have not yet taken further action on these proposed standards and it is not
clear whether the asset threshold set in the advanced notice of proposed rulemaking, among other aspects of the
proposal, would be included in any future rulemaking.
The Bank is also subject to New York cybersecurity and data privacy laws and regulations, including the
cybersecurity requirements for financial services companies established by the DFS and the New York State
security breach notification law, which was amended and expanded in July 2019. The DFS’s cybersecurity
regulations require banks, insurance companies, and other financial services institutions regulated by the DFS to
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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. The Bank must certify its
compliance with the cybersecurity regulations to the DFS on an annual basis. In addition, the “SHIELD Act,” which
was enacted in July 2019, amended New York’s existing data breach notification law to expand the scope of
protected “private information” and reportable data security breaches and to require covered institutions to adopt
reasonable data security safeguards.
Transactions with Related Parties
Transactions between banks and their affiliates are limited by Sections 23A and 23B of the Federal Reserve Act.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the
bank. In a holding company context, the parent bank holding company and any companies which are controlled by
such parent holding company are affiliates of the bank.
Generally, Sections 23A and 23B of the Federal Reserve Act and Regulation W (i) limit the extent to which the
bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of
such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates
to an amount equal to 20% of such institution’s capital stock and surplus and (ii) require that all such transactions
be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to
non-affiliates. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a
guarantee and other similar transactions. In addition, loans or other extensions of credit by the financial institution
to the affiliate are required to be collateralized in accordance with the requirements set forth in Section 23A of the
Federal Reserve Act. For purposes of the above, an “affiliate” does not include a subsidiary of the bank, unless the
subsidiary is a financial subsidiary or a subsidiary formed under Section 24 of the FDI Act for the purpose of
holding and investing as principal in equity securities, 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
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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. In May 2019, the Federal Reserve
published a notice of proposed rulemaking to codify and simplify its interpretations and opinions regarding
regulatory presumptions of control. The adoption of a final rule likely would have a meaningful impact on control
determinations related to investments in banks and bank holding companies, investments by bank holding
companies in nonbank companies, and bank merger and acquisition activity; however, the prospects and timing
for the adoption of final rule are uncertain.
Incentive Compensation
Guidelines adopted by the federal banking agencies pursuant to the FDI Act prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal
shareholder.
In June 2010, the federal banking agencies jointly adopted the Guidance on Sound Incentive Compensation
Policies intended to ensure that banking organizations do not undermine the safety and soundness of such
organizations by encouraging excessive risk-taking. This guidance, which covers all employees that have the
ability to expose the organization to material amounts of risk, either individually or as part of a group, is based
upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide
employee incentives that appropriately balance risk in a manner that does not encourage employees to expose
their organizations to imprudent risk, (ii) be compatible with effective controls and risk management, and (iii) be
supported by strong corporate governance, including active and effective oversight by the organization’s board of
directors. Any deficiencies in the Bank’s compensation practices could lead to supervisory or enforcement actions
by the FDIC.
Section 956 of the Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint
regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, such
as us, having at least $1 billion in total assets that encourage inappropriate risk-taking by providing an executive
officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could
lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines
requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The federal banking
agencies proposed such regulations in April 2011 and issued a second proposed rule in April 2016. The second
proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total
consolidated assets, 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 $1.0
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.
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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. The DOL has stated that
it is reconsidering its regulatory options in light of the court’s decision and the rulemaking remains on the DOL’s
active regulatory agenda. To the extent that the DOL proceeds with a new rulemaking, Signature Securities likely
will undertake certain measures to comply with the rule on a transitional basis; however, to date, our brokerage
and investment advisory services and activities have not been affected by the DOL’s rulemaking initiative. On
June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”). Reg BI establishes a “best interest” standard
of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of
any securities transaction or investment strategy involving securities, including recommendations of types of
accounts. The new rule requires Signature Securities to review and possibly modify our compliance activities,
which is causing us to incur certain additional compliance 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
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 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,
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the total base assessment rates for large and highly complex institutions range from one 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 included 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.
All FICO bonds matured by the first half of 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. We reached $50 billion in total
consolidated assets as of December 31, 2019, therefore we will lose full deductibility of our entire FDIC
assessment expense in 2020. This disallowance has been phased in over the last two years.
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
with a relatively simple business model, Signature Bank, at its asset size of $50.62 billion as of December 31,
2019, 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,” which is broadly defined under the
FDI Act and existing 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. The Economic Growth Act established 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.
In January 2015, the FDIC issued guidance on brokered deposits regulation, 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 DIF. 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. In December 2019, the
FDIC issued a notice of proposed rulemaking on its brokered deposits regulation. The proposal aims to clarify and
modernize the FDIC’s existing regulatory framework. Notable aspects of the proposal include provisions (i)
defining the operative prongs of the definition of “deposit broker,” (ii) creating three general tests to determine the
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application of the “primary purpose” exception to such definition, (iii) establishing an application process for entities
seeking to rely upon the “primary purpose” exception, and (iv) permitting wholly-owned subsidiaries of insured
depository institutions to take advantage of exception for insured depository institutions with respect to funds
placed with such institution (the so-called “own bank” exception). The prospects and timing for the adoption of a
final rule are uncertain at this time.
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 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, 2018, our
ratio of total commercial real estate loans to total risk-based capital was 551.0%, and as of December 31, 2019,
that ratio had decreased to 480.2%. From December 31, 2016 to December 31, 2019, the outstanding balance of
our commercial real estate loan portfolio increased $3.67 billion, or 16.0%. 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.
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 (the “Committee”) also shifted, resulting in a
different focus for that Committee’s legislative and oversight agendas. With the Committee largely having
completed its “must pass” work on expiring authorizations (e.g., Export-Import Bank reauthorization) in 2019, we
anticipate that the Committee will devote substantial attention in 2020 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, as is the truncated legislative calendar due to 2020 being a
presidential election year.
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ITEM 1A. RISK FACTORS
If any of the following risks actually occur, our business, financial condition or operating results could be materially
adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. As a result, we cannot predict every risk factor, nor can we
assess the impact of all of the risk factors on our businesses or to the extent to which any factor, or combination of
factors, may impact our financial condition and results of operations.
Market and Liquidity Risks Related to Our Business
Volatility in global financial markets might continue and the federal government may continue to take
measures to intervene.
The federal government may, in response to economic downturns, take significant measures in the area of
financial policy and banking regulation that may impact our business and the markets in which we compete. These
have included such measures as the enactment of the Emergency Economic Stabilization Act of 2008 and the
Dodd-Frank Act, taken in response to the financial crisis that began in late 2007, as well as the adoption of
accommodative monetary policy. Federal financial regulators also may take a variety of regulatory and supervisory
actions in respect of banks and other financial institutions in response to such events. Although the U.S. and
global financial markets have been relatively stable in recent years, credit and capital markets have continued to
experience periods of disruption and inconsistency following adverse changes in the global economy. We cannot
predict the federal government’s responses to any further dislocation and instability in the global economy, and
potential future government responses and changes in law or regulation may affect our business, results of
operations and financial conditions.
Additionally, economic conditions throughout the world remain uncertain. Concerns about the European Union
(“EU”), including Britain’s departure from the EU (“Brexit”) and the stability of the EU’s sovereign debt, have
caused uncertainty and disruption for financial markets globally. The ultimate effects of 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. Global volatility may also produce exchange rate
fluctuations and currency devaluations that negatively affect our business. 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.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely
impact our business, financial condition and results of operations.
There continues to be discussion and dialogue regarding potential changes to U.S. trade policies, legislation,
treaties and tariffs with countries such as China and those located in the EU. Tariffs and retaliatory tariffs have
been imposed, and additional tariffs and retaliatory tariffs have been proposed. Such tariffs, retaliatory tariffs or
other trade restrictions on products and materials that our customers import or export could cause the prices of our
customers’ products to increase, which could reduce demand for such products, or reduce our customers’
margins, and adversely impact their revenues, financial results and ability to service debt. This, in turn, could
adversely affect our financial condition and results of operations. In addition, to the extent changes in the political
environment have a negative impact on us or on the markets in which we operate our business, results of
operations and financial condition could be materially and adversely impacted in the future. It remains unclear
what the U.S. government or foreign governments will or will not do with respect to tariffs already imposed,
additional tariffs that may be imposed, or international trade agreements and policies.
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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:
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 federal government shutdown in 2019
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.
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. Although the Federal Reserve cut its benchmark short-
term interest rate three times in 25 basis point increments in 2019, reversing nearly all of 2018’s rate increases of
100 basis points; interest rates have moved above their recent historical lows after the Financial crisis of 2007 due
to the rate increases since 2016; specifically, one 25 basis point increase in fiscal 2016 and three 25 basis point
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increases in fiscal 2017. 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
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. 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 Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering
committee comprised of large U.S. financial institutions, is considering replacing the U.S. dollar LIBOR with a new
index calculated by short-term repurchase agreements, backed by U.S. Treasury securities ("SOFR"). Because of
the difference in how it is constructed, SOFR may diverge significantly from LIBOR in a range of situations and
market conditions. SOFR is observed and backward looking, which stands in contrast with LIBOR under the
current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert
judgment of submitting panel members. Given that SOFR is an overnight secured rate backed by government
securities, it will be a rate that does not take into account bank credit risk or term (as is the case with LIBOR).
SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial
institutions. The American Financial Exchange (“AFX”) has also created the American Interbank Offered Rate
(“Ameribor”) as another potential replacement for LIBOR. Ameribor is calculated daily as the volume-weighted
average interest rate of the overnight unsecured loans on AFX. Because of the difference in how it is constructed,
Ameribor may diverge significantly from LIBOR in a range of situations and market conditions. It remains to be
seen whether SOFR and/or Ameribor are accepted by financial markets and the Bank’s counterparties and
customers as a replacement benchmark rate for LIBOR. 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.
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On December 23, 2019, the DFS issued an industry letter directing all DFS-supervised institutions, including the
Bank, to submit a written response to the DFS by February 7, 2020 describing the institution’s plans to address the
risks posed to the institution as a result of the phasing out of LIBOR. Among other things, such plans were
required to address programs used by the institution to identify, monitor and manage financial and non-financial
risks, processes for analyzing alternative benchmark rates, processes and plans for operational readiness and
communications to customers and counterparties, and the governance and oversight framework employed by the
institution. On January 23, 2020, the DFS issued an update to the aforementioned industry letter and extended the
submission deadline to March 23, 2020. The Bank plans to submit our risk management plan to the DFS by the
extended deadline in March 2020.
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 credit
related impairments as a charge to current earnings resulting from the decline in the fair value of these securities.
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 early 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. As of December 31, 2019, we held approximately
$45.5 million in repossessed taxi medallions. If the market value of our taxi medallions declines significantly, our
business would be materially adversely affected.
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.
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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
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.
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The vast majority of our business operations and substantially all of our real estate collateral are
concentrated in the New York metropolitan area, and a downturn in the economy and the real estate
market of the New York metropolitan area, as well as changes in rent regulation laws, may have a material
adverse effect on our business.
As of December 31, 2019, approximately 72% 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, specifically the Housing Stability and Tenant Protection Act of 2019 which became effective in
September 2019. The new rent regulation law repealed vacancy decontrol and high-income deregulation,
reformed rent increases for capital improvements, and capped the maximum rent increase for rent-controlled
tenants. In the late second and early third quarter of 2019, the Bank completed an assessment of the potential
impact of this new rent regulation law on its existing multi-family borrowers and evaluated its current underwriting
standards related to potential future multi-family borrowers and enacted risk rating changes, as deemed
necessary. A prolonged period of economic recession or other adverse economic and political conditions in the
New York metropolitan area may result in an increase in nonpayment of loans, a decrease in collateral value, and
an increase in our ALLL.
In addition, our geographic concentration in the New York metropolitan area heightens our exposure to future
terrorist attacks or other disasters, which may adversely affect our business and that of our clients and result in a
material decrease in our revenues. Future terrorist attacks or other disasters cannot be predicted, and their
occurrence can be expected to further negatively affect the U.S. economy generally and specifically the regional
market in which we operate.
In February 2019, the Bank opened a full service branch office in San Francisco, CA, the Bank’s first brick-and-
mortar office on the West Coast. The same economic risk factors that apply to the portion of our business
concentrated in the New York metropolitan area also apply to our business operations on the West Coast. Our
overall risk exposure will increase as our business operations in that region continue to expand.
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.
Strategic Risks Related to Our Business
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;
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identify and attract new banking group directors and teams;
identify and pursue suitable opportunities for opening new banking locations; and
maintain sufficient capital to satisfy regulatory requirements.
Failure to manage our growth effectively could have a material adverse effect on our business, future prospects,
financial condition or results of operations and could adversely affect our ability to successfully implement our
growth strategy.
We may be unable to successfully integrate new business lines into our existing operations.
During 2013, we added a team focused on asset-based lending, marking our entry into that arena, in order to
diversify revenue streams and further broaden our offerings to middle market commercial clients. Subsequently, in
2014, we expanded the product lines of Signature Financial, 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.
To further lay the necessary groundwork for future growth, we launched several new businesses and executed
certain key initiatives since 2018, including the launch of a Fund Banking Division in October 2018, and our digital
payments platform, Signet, in January 2019, which enables real-time payments between our commercial clients. In
addition we announced our entry into venture banking in March 2019, and established our mortgage servicing
banking initiative in July 2019 with the appointment of the new Kanno-Wood team, specializing in providing
treasury management product and services to residential and commercial mortgage servicers.
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.
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 February
2019. 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
42
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 the “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.
As noted above, the Bank launched its proprietary commercial payments platform, Signet, in 2019. The platform
utilizes a blockchain infrastructure that enables the Bank’s customers to make payments in U.S. dollars in real-
time, without the assistance of third-party intermediaries, through an asset tokenization and redemption process.
Our future success will depend, in part, upon our ability to continue to address the needs of our clients by using
innovative technologies to provide products and services that will satisfy client demands for convenience and
security, as well as to create additional efficiencies in our operations. New technologies, such as the blockchain
and stablecoin technologies used by the 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, financial, and regulatory 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.
Historically there has been significant government intervention in the banking industry. In response to the
economic crisis of 2008, the federal government took extraordinary measures to stabilize the financial system,
including through 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 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
43
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
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.
Operational Risks Related to Our Business
We are vulnerable to downgrades in credit ratings for securities within our investment portfolio.
Although approximately 99.3% of our portfolio of investment securities was rated investment grade or better as of
December 31, 2019, 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.
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, 2019, 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
44
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.
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
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
45
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
ASU 2016-13 may result in a significant change in how we recognize credit losses and, while impact upon
adoption is not expected to be material, the standard may have a material impact on our financial condition or
results of operations prospectively depending on existing macroeconomic conditions or our portfolio mix and
exposure.
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 $4.14 billion at December 31, 2019. 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, 2019, we held $127.3 million of FHLB
stock. As of December 31, 2019, the Bank had pledged $7.82 billion of commercial real estate loans through a
blanket assignment to secure borrowings from the FHLB to meet collateral requirements of $4.35 billion on FHLB
borrowings. While not pledged, FHLB held also $539.5 million of securities as of December 31, 2019 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
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.
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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.
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 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
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.
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 has declared and paid a quarterly cash dividend of $0.56 per share each quarter since
the third quarter of 2018. On January 15, 2020, the Bank declared its fourth quarter 2019 cash dividend of $0.56
per share or a total of $30.0 million, to be paid on or after February 14, 2020 to common shareholders of record at
the close of business on January 31, 2020.
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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 $500.0
million. Share buybacks are also subject to regulatory approval, which were received for the repurchase program
of up to $500.0 million in November 2018. We received shareholder and regulatory approval to continue the
program in 2019. To date the Bank has repurchased 2,296,585 shares of common stock for a total of $279.1
million. As of December 31, 2019, the remaining program balance was $220.9 million. On February 19, 2020, the
Board of Directors approved an amendment to the stock repurchase program that restored the Bank’s share
repurchase authorization to an aggregate purchase amount of up to $500.0 million, effectively increasing the stock
repurchase program by $279.1 million. The amended stock repurchase program is currently awaiting shareholder
and regulatory approval.
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 certain
conditions. 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.”
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 and Fitch Ratings Inc. are the full-service rating agencies (the “Rating Agencies”) that
provide us with deposit and debt ratings which evaluate liquidity, asset quality, capital adequacy and earnings. The
Rating Agencies continuously evaluate these ratings based on a number of factors, including standalone financial
strength, as well as factors not entirely within our control, such as the Rating Agencies’ respective 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 2019 issuance of $200.0 million aggregate principal amount of Fixed-To-Floating Rate
Subordinated Notes, 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
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.
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
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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.
The Financial Accounting Standards Board’s ASU 2016-13 will result in a change in how we recognize
credit losses and may prospectively 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 will require us to 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 became effective on April 1, 2019. In addition, proposed guidance clarifying the final rule was issued in
October 2019. The proposed guidance will clarify the state of existing agency guidance and describe the
appropriate CECL methodology for determining allowances for credit losses on specific assets, including net
investments in leases, impaired available-for-sale debt securities, etc. The proposed guidance will become
effective when each institution adopts the new standards required by FASB.
We plan to elect the three year phase-in option. Based on an analysis performed on our loan portfolio as of
December 31, 2019, we expect an increase in our allowance for loan and lease losses ranging from 15% to 20%.
The final number will be dependent on the refinement of certain assumptions, predominantly related to our
qualitative adjustments, which we are currently finalizing and expect to be completed in the coming weeks. The
increase will result in a one-time cumulative-effect adjustment to our allowance for loan and lease losses, and a
corresponding decrease to retained earnings as of the January 1, 2020 effective date. Any future quarterly
changes to our allowance will depend on the state of the economy, forecasted macroeconomic conditions, and the
composition of our loan portfolio at that time.
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
49
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.
FDIC insurance premiums fluctuate materially, which could negatively affect our profitability.
The FDIC insures deposit accounts at certain financial institutions, including Signature Bank. Under FDIC
regulations, we are required to pay premiums to the Deposit Insurance Fund (“DIF”) to maintain our deposit
accounts’ required insurance. After the passage of the Dodd-Frank Act, the FDIC adopted new rules that redefined
how deposit insurance assessments are calculated. The FDIC utilizes a risk-based premium system in which an
institution pays premiums for deposit insurance on the institution’s average consolidated total assets minus
average tangible equity. For large insured depository institutions, generally defined as those with at least $10
billion in total assets, the assessment rate schedules combine regulatory ratings, PCA capital evaluations, and
financial measures into two scorecards, one for most large insured depository institutions and another for highly
complex insured depository institutions, to calculate assessment rates. A highly complex institution is generally
defined as an insured depository institution with more than $50 billion in total assets that is controlled by a parent
company with more than $500 billion in total assets. 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). 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.
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.
Government and Regulation Risks Related to Our Business
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.
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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. In June 2019, the SEC adopted Regulation Best Interest, which,
among other things, established a new standard of conduct for a broker-dealer to act in the best interest of a retail
customer when providing investment advice about securities. The new regulation requires Signature Securities to
review and possibly modify its compliance activities, including its policies, procedures and controls, which is
causing us to incur certain additional costs. 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.
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, the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Economic
Growth Act”) and the promulgation of its implementing regulations 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.
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
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banking industry or the securities industry, among other penalties.
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.”
The Dodd-Frank Act may continue to affect our results of operations, financial condition or liquidity.
The Dodd-Frank Act 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
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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. In October 2019, the federal banking agencies, the SEC and the CFTC adopted a
final rule modifying the Volcker Rule’s implementing regulations to impose certain simplified and streamlined
compliance requirements. Notably, the final rule will reduce compliance requirements for firms that do not have
significant trading assets and liabilities (i.e., less than $20 billion in trading assets and liabilities). The final rule
became effective on January 1, 2020 and the compliance date for the final rule is January 1, 2021. See
“Regulation and Supervision –The Volcker Rule.”
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, 2019, $1.17 billion, or 2.9% of our
total deposit account balances consisted of brokered deposits, an increase of $421.1 million or 56.3% when
compared to $748.6 million at the end of the prior year. Acceptance or renewal of “brokered deposits” is regulated
by the federal banking agencies, including 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
2019, the FDIC issued a notice of proposed rulemaking on its brokered deposits regulation. The proposal aims to
clarify and modernize the FDIC’s existing regulatory framework and would establish new standards and processes
for determining whether an entity qualifies as a “deposit broker” (and therefore whether the placement of funds by
the entity with a depository institution, or the entity’s facilitation of the placement of deposits with the depository
institution, would render such funds brokered deposits), as well as the application of certain exceptions to that
definition established under the Federal Deposit Insurance Act and the FDIC’s regulations. We cannot predict the
prospects and timing of any final rule to codify updates to the existing regulations governing brokered deposits, nor
can we predict the extent to which any final rule will have a significant impact on the Bank’s sources of funding and
operations. 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.
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 surpassed
$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 $50.62 billion as of December 31, 2019. As
the Bank continues to grow, 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
53
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 Economic Growth Act enacted in 2018 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.
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.
The financial services industry, as well as the broader economy, may be subject to new legislation,
regulation, and government policy.
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 also shifted, resulting in a different focus for
that Committee’s legislative and oversight agendas. With the Committee largely having completed its “must pass”
work on expiring authorizations (e.g., Export-Import Bank reauthorization) in 2019, we anticipate that the
Committee will devote substantial attention in 2020 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, as is the truncated legislative calendar due to 2020 being a presidential election year.
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, repurchase shares, 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, 2019, $13.02 billion, or 32.2%, of our total
54
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.
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
55
and control systems. Although we expect that, where cybersecurity incidents are due to client failure to maintain
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.
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
56
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.
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.
57
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
58
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 or contracted
for use at various terms and rates. Many of the lease contracts include modest annual escalation agreements.
For additional information on our lease commitments, see Note 21 to the Consolidated Financial Statements.
59
Number of OfficesPrincipal OfficeManhattan, NY1Private Client OfficesManhattan, NY9Brooklyn, NY4Queens, NY4Bronx, NY1Staten Island, NY2Nassau County, NY5Suffolk County, NY2Westchester County, NY2Greenwich, CT1San Francisco, CA1Representative and Client Accommodation OfficesManhattan, NY1Brooklyn, NY1Atlanta, GA1Chicago, IL1Denver, CO1Durham, NC1Fulton, MD1Houston, TX1Operations and SupportManhattan, NY3Nassau County, NY1Signature Securities Group CorporationPrincipal Office and OperationsManhattan, NY1Signature FinancialPrincipal OfficeMelville, NY1National Sales OfficeBothell, WA1Sales OfficesBethel, CT1El Dorado Hills, CA1Littleton, CO1Norwell, MA1Prairie, MN1Woodstock, GA1Signature Public Funding Corp.Principal OfficeTowson, MD1 Total Locations54LocationSignature Bank
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.
60
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,
2019, 55,427,631 shares of our common stock were issued and 53,519,644 shares were outstanding.
On December 31, 2019, the last reported sale price of our common stock was $136.61 and there were five 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 22, 2020 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, 2014. 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.
61
50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00December 31,2014December 31,2015December 31,2016December 31,2017December 31,2018December 31,2019Signature BankStandard & Poor's 500 IndexICB 8300 Banks IndexDecember 31,2014December 31,2015December 31,2016December 31,2017December 31,2018December 31,2019Signature Bank100.00 121.76 119.24 108.97 81.62 108.46 Standard & Poor's 500 Index100.00 99.27 108.74 129.86 121.76 156.92 ICB 8300 Banks Index100.00 102.21 129.34 153.13 128.02 175.61
Unregistered Sales of Equity Securities
During the fourth quarter of 2019, we issued an aggregate of 23,711 shares of our common stock to certain
participants under our Amended and Restated 2004 Equity Incentive Plan (the “Equity Incentive Plan”) as a result
of the granting of restricted shares pursuant to the Equity Incentive Plan in reliance on the exemption provided by
Section 3(a)(2) of the Securities Act of 1933.
Dividends
The Bank has declared and paid a quarterly cash dividend of $0.56 per share, or a total of approximately $31.0
million, each quarter beginning on the third quarter of 2018 through the third quarter of 2019. On January 15,
2020, the Bank declared its fourth quarter 2019 cash dividend of $0.56 per share to be paid on or after February
14, 2020 to common shareholders of record at the close of business on January 31, 2020. 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. To date the Bank has repurchased 2,296,585 shares of common stock for a total of $279.1 million. As of
December 31, 2019, the remaining program balance was $220.9 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.
On February 19, 2020, the Board of Directors approved an amendment to the stock repurchase program that
restored the Bank’s share repurchase authorization to an aggregate purchase amount of up to $500.0 million,
effectively increasing the stock repurchase program by $279.1 million. The amended stock repurchase program
is currently awaiting shareholder and regulatory approval.
During the quarter ended December 31, 2019, we purchased 722,420 shares of common stock at the average
price of $123.77 per share. The following table summarizes the Bank’s common stock repurchases for the quarter
ended December 31, 2019 under the original authorization:
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(dollars in thousands except price per share)Total number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programsMaximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programsOctober 117,317 $ 121.32 117,317 $ 296,041 November 548,003 124.44 548,003 227,846 December 57,100 122.42 57,100 220,856 Total shares repurchased 722,420 $ 123.77 722,420
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)
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20192018201720162015SELECTED OPERATING DATA1,911,676$ 1,708,920 1,470,169 1,317,151 1,106,948 600,083 409,933 232,583 169,909 129,847 1,311,5931,298,987 1,237,586 1,147,242 977,101 22,636 162,524 263,297 155,774 44,914 1,288,9571,136,463 974,289 991,468 932,187 - (16) (633) (427) (963) 27,94823,278 36,041 42,750 37,104 529,269486,278 435,066 376,771 341,214 787,636673,463 575,264 657,447 628,077 198,710168,121 188,055 261,123 255,012 588,926$ 505,342 387,209 396,324 373,065 10.92$ 9.27 7.17 7.42 7.35 10.87$ 9.23 7.12 7.37 7.27 Dividends per common share2.24$ 1.12 - - - 50,616,434$ 47,364,816 43,117,720 39,047,611 33,450,545 7,143,8647,301,604 6,953,719 6,335,347 6,240,761 2,101,9701,883,533 1,996,376 2,038,125 2,133,144 290,593485,305 432,277 559,528 456,358 38,859,63436,193,122 32,416,580 28,829,670 23,597,541 249,989230,005 195,959 213,495 195,023 40,383,20736,378,773 33,439,827 31,861,260 26,773,923 4,748,2636,048,174 5,242,381 3,200,488 3,537,163 4,769,823 4,407,140 4,031,691 3,612,264 2,891,834 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
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201920182017201620153,673,228$ 3,784,716$ 3,607,453$ 3,354,085$ 5,207,906$ 48,382,997$ 44,434,158$ 40,174,810$ 36,004,958$ 29,962,220$ 1,4721,3931,3051,2181,12231 313030291.20%1.12%0.95%1.09%1.23%12.83%11.98%10.13%12.19%13.85%3.95%3.85%3.66%3.66%3.69%3.96%3.85%3.67%3.66%3.69%1.37%1.01%0.64%0.52%0.47%2.71%2.92%3.08%3.19%3.26%2.72%2.93%3.09%3.19%3.26%39.51%36.78%34.16%31.66%33.64%0.01%0.38%0.92%0.52%0.07%0.64%0.63%0.60%0.74%0.82%435.86%211.69%59.94%135.49%271.22%0.15%0.30%1.00%0.54%0.30%0.21%0.34%0.83%0.46%0.22%9.60%9.70%9.72%9.61%8.87%11.62%12.11%11.99%11.92%11.33%11.62%12.11%11.99%11.92%11.33%13.32%13.41%13.32%13.46%12.10%9.33%9.37%9.38%8.93%8.88%9.25%9.27%9.31%8.88%8.88%55,428 54,406 54,001 53,406 50,739 89.12$ 80.07$ 73.33$ 66.15$ 56.81$ Yield on average interest-earning assets, tax-equivalent basis (1)Net interest margin, tax-equivalent basis (1)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)(1) Based on the 21 percent U.S. federal statutory tax rate for 2018 and after; 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. (2) The efficiency ratio is considered a non-GAAP financial 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.(3) As part of the final rules implementing Basel III regulatory capital reforms, a new common equity Tier 1 risk-based capital ratio was added to existing minimum capital requirements as of January 1, 2015.Average equity to average assetsReturn 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 assetsPrivate client offices(4) This ratio is considered to be a non-GAAP financial measure and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. We believe this non-GAAP ratio, when viewed together with the corresponding ratios calculated in accordance with GAAP, provides meaningful supplemental information regarding our performance.At or for the years ended December 31,Full-time employee equivalentsAverage interest-earning assetsAssets under managementNon-accrual loans to total loansALLL to non-accrual loansALLL to total loansNet interest marginAverage rate on deposits and borrowings
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 $50.62 billion in assets, $40.38 billion in deposits, $39.11 billion in loans, $4.77 billion in equity
capital and $3.67 billion in other assets under management as of December 31, 2019.
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 relatively low efficiency ratio of
39.51% for the year ended December 31, 2019, considering the increase in salaries and benefits from the
significant hiring of private client baking teams, including 50 plus professionals added for the Fund Banking
Division, the Venture Banking Group and the Specialized Mortgage Servicing Banking Team.
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, Connecticut,
and the West Coast. Since the commencement of our operations, we have successfully recruited and retained
more than 590 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.
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New Accounting Standards
(i) Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 470), Simplifying the Accounting for
Income Taxes. The ASU eliminates certain exceptions related to the rate approach for intraperiod tax allocation,
the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for
outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The
guidance is effective for fiscal years beginning after December 15, 2020. The Company is currently assessing the
impact to its Consolidated Financial Statements; however, the impact is not expected to be material.
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. Subsequent to year
end, the Company adopted this ASU as of January 1, 2020. The amendments on the range and weighted average
of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description
of measurement uncertainty are applied prospectively. The amendments that are to be applied retrospectively are
not applicable to us. Beginning with our first quarter 2020 filing, the adoption of this standard will not have a
material impact on our disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments ("CECL"), further amended by ASU 2019-04, Codification Improvements to
Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments. Topic 326 is intended to improve financial reporting by requiring earlier recognition of credit losses on
loans, held-to-maturity (HTM) securities, loan commitments and certain other financial assets and off-balance
sheet exposures. It replaces the current incurred loss impairment model that recognizes losses when a probable
threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset
is originated or purchased. 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 in each subsequent period for
changes in credit risk. The new CECL credit losses standard also expands the disclosure requirements regarding
an entity’s assumptions, models, and methods for estimating the ALLL. Notably, public entities are 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).This guidance becomes effective for SEC filers that are not eligible to be smaller
reporting companies for interim and annual periods beginning after December 15, 2019.
Subsequent to year-end, the Company adopted the above mentioned ASUs related to Financial Instruments –
Credit Losses (Topic 326) as of January 1, 2020, using a modified retrospective approach. Our implementation
process included scoping, segmentation and the design of a methodology appropriate for the respective segment.
The process also included the development of loss forecasting models as well as the incorporation of qualitative
adjustments for model limitations. Evaluation of technical accounting topics, updates to our allowance policy
documentation, governance and reporting, processes and related internal controls, as well as overall operational
readiness were significant activities completed throughout 2019 in preparation for adoption.
Our CECL methodology involves the following key factors and assumptions:
a historical loss period, which represents a full economic credit cycle utilizing internal loss experience, as
well as industry and peer historical loss data;
a single economic forecast scenario;
an initial reasonable and supportable forecast period of two to three years, determined based on
management’s current review of macroeconomic factors and the reliability of extended economic
forecasts over different time horizons;
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a reversion period (after the reasonable and supportable forecast period) using a straight-line approach
that extends through the shorter of one year or the end of the remaining contractual term; and
expected prepayment rates based on our historical experience.
The Company is substantially complete with its evaluation of the effect that Topic 326 will have on the
consolidated financial statements. Management is currently finalizing calculations related to our qualitative
adjustments. We expect it to be completed in the coming weeks. Based on several analyses performed in the third
and fourth quarters of 2019, as well as an implementation analysis utilizing existing exposures and forecasts of
macroeconomic conditions as of year end, the overall impact of adoption is estimated to be an increase of 15% to
20% in the allowance for credit losses. This increase will be reflected as a cumulative-effect adjustment that
decreases beginning retained earnings, net of income taxes.
Further amending the new credit losses standard, the FASB issued ASU 2019-05, Financial Instruments—Credit
Losses (Topic 326): Targeted Transition Relief in May 2019 and ASU 2019-11, Codification Improvements to
Topic 326, Financial Instruments – Credit Losses in November 2019. ASU 2019-05 provides entities that have
certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at
Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial
Instruments—Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of
Topic 326. The fair value option election does not apply to held-to-maturity debt securities. This ASU has the same
effective date as the new credit loss standard. Subsequent to year end, we adopted this ASU in conjunction with
the adoption of ASU 2016-13 with no election of the fair value option.
The amendments in ASU 2019-11 provide several narrow-scope changes to the new credit losses standard,
including one requiring entities to include certain expected recoveries of the amortized cost basis in the allowance
for credit losses for purchased credit-deteriorated assets (PCDs), transitions relief, disclosure related to accrued
interest receivables, financial assets secured by collateral maintenance provisions, and others. The standard
shares the same effective date as the new credit loss standard. We adopted this ASU in conjunction with the
adoption of ASU 2016-13 and the impact of this update is included in the assessment of the overall impact of
Topic 326 above.
The cumulative-effect adjustment to retained earnings for our change in the allowance for credit losses upon
adoption will have an effect on our capital and decrease our regulatory capital amounts and ratios. Federal
banking regulatory agencies have provided relief for an initial capital decrease at transition by allowing a phased-in
adoption over three years, on a straight-line basis, which we elected.
(ii) Recently 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.
However, for equity-classified awards for which a measurement date has not been previously established upon
adoption date, they are to be measured on the basis of their adoption-date fair-value. The Standard requires a
cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. The
Company adopted ASU 2018-07 as of January 1, 2019 with no impact to its 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. 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
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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, the FASB issued ASU 2018-20 in December 2018 and ASU 2019-01, Leases (Topic
842), in March 2019, to provide certain clarifications on lessor accounting. Specifically, ASU 2018-20 allows
lessors to make an accounting policy election to not evaluate whether sales taxes and other similar taxes are
lessor costs; it 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. ASU 2019-01, Leases (Topic 842), provides guidance on
determining the fair value of the underlying asset by lessors that are not manufacturers or dealers, at its cost, less
any volume or trade discounts, as long as there isn’t significant amount of time between acquisition of the asset
and lease commencement. In addition, ASU 2019-01 clarifies that lessors in the Scope of ASC 942, Financial
Services – Depository and Lending, must classify principal payments received from sales-type and direct financing
leases in investing activities in the statement of cash flows.
The Company adopted all above-mentioned ASUs related to Leases (Topic 842) as of their effective date, January
1, 2019. We elected the transition option as provided in ASU 2018-11 to initially apply the new leases standard
upon adoption. In addition, we elected the transition practical expedient package which did not require
reassessment of: 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 adoption date. From the lessee
perspective, no embedded leases were identified. As such, upon adoption we recognized a Right of Use (“ROU’)
asset of $232.4 million and a lease liability of $247.1 million primarily related to existing real estate operating
leases as of January 1, 2019. The ROU and lease liability recognition impact changed by a marginal amount from
our Form 10-K disclosure for the year ended December 31, 2018. This was due to updated information received
subsequent to our Form 10-K filing related to the timing of cash receipt of an estimated lease incentive.
From the lessor perspective, the related accounting is unchanged, except that certain initial direct costs are no
longer eligible for capitalization. Additionally, for the Company’s existing lessor leases modified following adoption
and new leases executed after January 1, 2019, the classification of 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. This has no implications on the associated accounting, but impacts the associated disclosure.
Therefore, the associated impact of this standard on the Consolidated Financial Statements as it relates to lessor
contracts was minimal. See Note 21 to our Consolidated Financial Statements for further discussion.
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
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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. The impact of adoption to the Consolidated Financial Statements was immaterial.
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 April 2019, the FASB issued ASU 2019-04, Amendments to new standards on credit losses, derivatives and
hedging, and financial instruments. Amendments related to Topic 815, Derivatives and Hedging, include providing
entities the option to begin to amortize a fair value hedge basis adjustment before the fair value hedging
relationship is discontinued. The basis adjustment should be fully amortized by the hedged item’s assumed
maturity date if such election is made. For entities that have adopted the amendments in ASU 2017-12 as of the
issuance date of ASU 2019-04, the effective date is as of the beginning of the first annual period after the issuance
of this ASU, which was January 1, 2020 for the Company. Given that we early adopted 2017-12, we had the
option to either retrospectively apply all amendments in ASU 2019-04 as of the date we early adopted ASU 2017-
12 (April 2018) or prospectively apply all amendments as of the date of adoption of ASU 2019-04. We elected to
retrospectively apply the amendments in ASU 2019-04 related to derivative and hedging as of the date we early
adopted 2017-12. However, since we did not make the election to begin amortization of fair value hedge basis
adjustments prior to the hedging relationship being discontinued, the amendments issued in ASU 2019-04 related
to derivatives and hedging had no impact to our 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 were to 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
69
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,
2019 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
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 resulting 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 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, Federal Reserve Bank and
Federal Home Loan Bank stock are not in scope of the ASU and 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, 2019 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
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,
70
in total, the initial adoption 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.
Results of Operations
The following is a discussion and analysis of our results of operations for the year ended December 31, 2019
compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the
year ended December 31, 2017.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Net Income
Net income for the year ended December 31, 2019 was $588.9 million, or $10.87 diluted earnings per share,
compared to $505.3 million, or $9.23 diluted earnings per share, for the year ended December 31, 2018. The
increase was primarily due to a decrease of $140.0 million in the provision for loan losses, nearly all attributable to
the NYC taxi medallion portfolio. This overall increase was partially offset by an increase of $43.0 million in non-
interest expense attributable to the significant hiring of the aforementioned new banking teams and a $30.6 million
increase in income taxes as a result of higher earnings for the year ended December 31, 2019, compared to the
same period last year.
The returns on average shareholders’ equity and average total assets for the year ended December 31, 2019
were 12.83% and 1.20%, respectively, compared to 11.98% and 1.12% for the year ended December 31, 2018.
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(in thousands)20192018Interest income1,911,676$ 1,708,920Interest expense600,083409,933Net interest income before provision for loan and lease losses1,311,5931,298,987Provision for loan and lease losses22,636162,524Non-interest income:Net impairment losses on securities recognized in earnings- (16) Total non-interest income27,94823,278Non-interest expense529,269486,278Income tax expense198,710168,121Net income588,926$ 505,342Years 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, 2019 and 2018:
72
(dollars in thousands)Average BalanceInterest Income/ ExpenseAverage Yield/ RateAverage BalanceInterest Income/ ExpenseAverage Yield/ RateINTEREST-EARNING ASSETSShort-term investments1,007,237$ 21,1272.10%463,7998,9251.92%Investment securities9,561,736306,3033.20%9,392,563299,6973.19%Commercial loans, mortgages and leases (1)(2)37,449,1991,575,0744.21%33,972,4591,383,5314.07%Residential mortgages and consumer loans (1)212,2549,4634.46%230,7279,7194.21%Loans held for sale152,5714,9783.26%374,61010,8632.90%Total interest-earning assets48,382,9971,916,9453.96%44,434,1581,712,7353.85%Non-interest-earning assets788,789611,430Total assets49,171,786$ 45,045,588 INTEREST-BEARING LIABILITIESInterest-bearing depositsNOW and interest-bearing demand4,297,419$ 82,1801.91%3,661,84952,4261.43%Money market19,103,463299,8741.57%17,878,509207,6901.16%Time deposits2,498,19058,6762.35%1,648,43329,1321.77%Non-interest-bearing demand deposits12,155,929- - 11,954,403- - Total deposits38,055,001440,7301.16%35,143,194289,2480.82%Subordinated debt291,53216,0455.50%257,748 14,573 5.65%Other borrowings5,516,093143,3082.60%5,073,852106,1122.09%Total deposits and borrowings43,862,626600,0831.37%40,474,794409,9331.01%Other non-interest-bearing liabilitiesand shareholders' equity5,309,1604,570,794Total liabilities and shareholders' equity49,171,786$ 45,045,588 OTHER DATANet interest income / interest rate spread (2)1,316,8622.59%1,302,8022.84%Tax-equivalent adjustment(5,269) (3,815) Net interest income, as reported1,311,5931,298,987Net interest margin2.71%2.92%Tax-equivalent effect0.01%0.01%Net interest margin on a tax-equivalent basis (2)2.72%2.93%Ratio of average interest-earnings assetsto average interest-bearing liabilities110.31%109.78%(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 periods presented. 20192018Years 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, 2019 was $1.31 billion, an increase of $12.6 million, or
1.0%, over the year ended December 31, 2018. The increase in net interest income for 2019 was largely driven by
increases in average interest-earning assets. However, this increase was partially offset by an increase in average
deposits of $2.91 billion for the year ended December 31, 2019. In addition the average cost of funds increased
by 36 basis points to 1.37% for the year ended December 31, 2019, compared to 1.01% in the prior year due to
the higher interest rate environment and increased deposit competition. These same factors contributed to the 21
basis point decline in net interest margin on a tax-equivalent basis to 2.72% for the year ended December 31,
2019, when compared to the same period last year.
Total investment securities averaged $9.56 billion for the year ended December 31, 2019, compared to $9.39
billion for the year ended December 31, 2018. The overall yield on the securities portfolio for the year ended
December 31, 2019 was 3.20%, slightly higher when compared to the 3.19% of previous year due to lower
reinvestment yields and higher premium amortization as a result of the recent rate cuts by the Federal Reserve.
Our portfolio primarily consists of high quality and highly-rated mortgage-backed securities, commercial mortgage-
backed securities, and collateralized mortgage obligations issued by government agencies, government-
sponsored enterprises, and private issuers. We mitigate extension risk through our overall strategy of purchasing
relatively stable duration securities that, by their nature, have lower yields. At December 31, 2019, the baseline
73
(in thousands)Change Due to RateChange Due to VolumeTotal ChangeINTEREST INCOMEShort-term investments1,744$ 10,458 12,202 Investment securities1,208 5,398 6,606 Commercial loans, mortgages and leases (1)49,952 141,591 191,543 Residential mortgages and consumer loans522 (778) (256) Loans held for sale554 (6,439) (5,885) Total interest income53,980 150,230 204,210 INTEREST EXPENSEInterest-bearing depositsNOW and interest-bearing demand20,655 9,099 29,754 Money market77,954 14,230 92,184 Time deposits14,527 15,017 29,544 Total interest-bearing deposits113,136 38,346 151,482 Subordinated debt(438) 1,910 1,472 Other borrowings27,947 9,249 37,196 Total interest expense140,645 49,505 190,150 Net interest income(86,665)$ 100,725 14,060 Year ended December 31,2019 vs. 2018(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 periods presented.
average duration of our investment securities portfolio was approximately 2.59 years, compared to 3.33 years at
December 31, 2018.
Total commercial loans, mortgages and leases averaged $37.45 billion for the year ended December 31, 2019, an
increase of $3.48 billion or 10.2% over the year ended December 31, 2018. The average yield on this portfolio
increased 14 basis points to 4.21% when compared to the year ended December 31, 2018, primarily due to
increased market rates. Prepayment penalty income was $14.8 million for the year ended December 31, 2019,
compared to $28.7 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 $152.6 million and
$374.6 million for the years ended December 31, 2019 and 2018, respectively.
Average total deposits and borrowings increased $3.39 billion, or 8.4%, to $43.86 billion during the year ended
December 31, 2019, compared to $40.47 billion for the previous year. Overall cost of funding was 1.37% during
2019, increasing 36 basis points from 1.01% in 2018, primarily due to the increase in market interest rates and
increased deposit competition in 2019.
For the year ended December 31, 2019, average non-interest-bearing demand deposits were $12.16 billion,
compared to $11.95 billion for the year ended December 31, 2018, an increase of $201.5 million, or 1.7%. Non-
interest-bearing demand deposits continue to comprise a significant component of our deposit mix, representing
32.2% of all deposits at December 31, 2019. Additionally, average NOW and interest-bearing demand and money
market accounts totaled $23.40 billion for the year ended December 31, 2019, an increase of $1.86 billion, or
8.6%, over the year ended December 31, 2018. 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 environment and the increase in the federal funds rate over the last year, our funding cost for
money market accounts increased to 1.57% for the year ended December 31, 2019 compared to 1.16% for the
prior year. Our funding cost for NOW and interest-bearing demand accounts was 1.91% for the year ended
December 31, 2019 compared to 1.43% for the year ended December 31, 2018.
Average time deposits, which are relatively short-term in nature, totaled $2.50 billion for the year ended December
31, 2019 and carried an average cost of 2.35% in 2019, up 58 basis points from 1.77% in 2018. 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, 2019, average total borrowings were $5.81 billion, compared to $5.33 billion for
the previous year, an increase of $476.0 million or 8.9%. The increase in average total borrowings, when
compared to the previous year, reflects funding needs as a result of our continued loan growth. Considering the
significant deposit growth in the year, particularly the second half of the year, we expect this average balance to
decline as we continue to fund a larger portion of our loan portfolio with deposits. At December 31, 2019 total
borrowings represent approximately 10.5% of all funding liabilities, compared to 14.3% at December 31, 2018.
The average cost of our total borrowings was 2.75% for 2019, up 49 basis points from 2.26% in 2018. The
increase in the average cost of borrowings primarily reflects higher replacement rates for both matured and new
term borrowings.
74
Provision and Allowance for Loan and Lease Losses
Our provision for loan and lease losses was $22.6 million for the year ended December 31, 2019, compared to
$162.5 million for the prior year, a decrease of $139.9 million, or 86.1%, primarily due to the absence of significant
charge-offs taken in the first quarter of last year related to a significant decline in the NYC taxi medallion collateral
value. Since that time, we have experienced continued taxi medallion recoveries and relatively consistent
collateral valuation attributable to the continued stabilization of the taxi medallion market, as well as continued
successful paydown and payoff settlement negotiations with our borrowers.
Our ALLL increased $ 20.0 million to $250.0 million at December 31, 2019 from $230.0 million at December 31,
2018, primarily as a result of loan growth.
For additional information about the provision for loan and lease losses and the ALLL, see the discussion of asset
quality and the ALLL 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, 2019, non-interest income was $27.9 million, an increase of $4.7 million, or
20.1%, when compared with 2018. The increase was primarily attributable to a $4.1 million increase in gains on
sale of loans, as well as a $7.4 million increase in other non-interest income revenue streams, such as foreign
currency transaction gains and fees and service charges, and a $1.4 million increase in commissions due to the
continued growth of our business. The increase was partially offset by an additional $8.2 million 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 tax
rate.
Non-Interest Expense
Non-interest expense increased $43.0 million, or 8.8%, to $529.3 million for the year ended December 31, 2019
from $486.3 million for the year ended December 31, 2018. The increase was primarily driven by an increase of
$33.0 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 $8.5 million in occupancy and equipment cost as a result of our expanded real estate
75
(dollars in thousands)LoanAmountAllowance AmountAllowanceas a % of Loan AmountLoan AmountAllowance AmountAllowanceas a % of Loan AmountMortgage loans:Multi-family residential property15,101,727$ 91,641 0.61%15,688,481 99,964 0.64%Commercial property10,199,293 60,248 0.59%10,309,837 63,328 0.61%1-4 family residential property506,515 2,844 0.56%620,486 3,424 0.55%Home equity lines of credit105,379 2,324 2.21%116,272 2,035 1.75%Acquisition, development and construction loans1,270,095 10,820 0.85%1,656,467 12,339 0.74%Other commercial loans:Specialty finance4,596,932 38,092 0.83%4,050,321 22,925 0.57%Fund banking4,421,961 21,085 0.48%647,927 2,618 0.40%Commercial and industrial2,863,967 22,687 0.79%3,207,240 21,714 0.68%New York City taxi medallions586 - 0.00%72,639 - 0.00%Chicago taxi medallions6,311 - 0.00%15,553 1,538 9.89%Philadelphia taxi medallions- - 0.00%319 13 4.08%Other loans:Consumer 9,605 248 2.58%9,038 107 1.18%Total39,082,371$ 249,989 0.64%36,394,580 230,005 0.63%December 31, 20192018
footprint and a $17.4 million total increase in information technology and depreciation and amortization expenses
due to the continued growth of our business, as well as our continued investment in our information technology
infrastructure. The increase is partially offset by a $4.5 million decrease in other general and administrative
expenses principally due to the absence of fair value adjustments related to repossessed NYC taxi medallions
recorded during the same period last year, as well as an increase in cash management and client related
expenses from additional client activity as a result of our growth. Further offsetting the increase is a decrease of
$12.8 million in FDIC assessment fees due to the discontinuance of mandated surcharges after the Deposit
Insurance Fund (“DIF”) ratio exceeded the required ratio of 1.35% in the second half of 2018.
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, 2019, our total unrecognized compensation cost related to unvested restricted shares was
$73.0 million, which is expected to be recognized over a weighted-average period of 1.77 years. During the years
ended December 31, 2019 and 2018, we recognized compensation expense of $55.4 million and $52.6 million,
respectively, for restricted shares. The total fair value of restricted shares that vested during the years ended
December 31, 2019 and 2018 was $50.0 million and $62.4 million, respectively.
Income Taxes
We recognized income tax expense for the year ended December 31, 2019 of $198.7 million reflecting an effective
tax rate 25.2%, compared to $168.1 million for the year ended December 31, 2018 reflecting an effective tax rate
of 25.0%.
76
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:
77
(in thousands)Commercial BankingSpecialty FinanceEliminations (1)ConsolidatedNet interest income1,208,015$ 103,578 - 1,311,593 Provision for (recovery of) loan and lease losses10,366 12,270 - 22,636 Total non-interest income19,924 8,048 (24) 27,948 Total non-interest expense489,875 39,418 (24) 529,269 Income (loss) before income taxes727,698 59,938 - 787,636 Total assets 50,758,257$ 4,861,690 (5,003,513) 50,616,434 (1) Eliminations related to intercompany funding.Year ended December 31, 2019(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
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 remained relatively stable at $1.21 billion for the year ended December
31, 2019 with a decrease of $5.0 million, or 0.4%, when compared to the prior year. The decrease was primarily
due to an increase in the cost of funds as a result of increased deposit competition, an increase in average
borrowings, and an increase in borrowing replacement rates, as well as the impact of excess cash balances from
significant deposit flows.
The provision for loan and lease losses decreased $18.3 million, or 63.9%, to a $10.4 million reserve build,
compared to a $28.7 million reserve build in the prior year. This decrease was primarily due to a change in the
loan growth mix compared to the same period last year. In 2019, the fund banking loan growth was more
significant due to the Bank’s strategy to increase floating rate assets and reduce its commercial real estate
portfolio concentration. Based on historical loss experience and associated risk ratings, fund banking loans have a
lower loss rate compared to commercial real estate loans and, therefore, the current year provision is lower than
the prior year. Further contributing to this decrease was a decline in qualitative reserves primarily related credit
concentration factors due to the aforementioned reduction in commercial real estate concentration throughout
2019. 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 $489.9 million for the year ended December 31, 2019, an increase of $57.1 million, or
13.2%, when compared to $432.8 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 costs, information technology expenses and other general and administrative expenses, which were
also attributable to the continued growth of our business.
The increase of $3.17 billion in total assets, or 6.6%, from $47.59 billion as of December 31, 2018 to $50.76 billion
as of December 31, 2019 was primarily attributable to growth in our fund banking loan portfolio, partially offset by a
reduction in our commercial real estate loan portfolio in line with the Bank’s strategy to increase floating rate
assets and reduce its commercial real estate concentration in 2019.
78
(in thousands)20192018Net interest income1,208,015$ 1,212,969 Provision for (recovery of) loan and lease losses10,366 28,707 Total non-interest income19,924 18,738Total non-interest expense489,875 432,819 Income (loss) before income taxes727,698 770,181 Total assets50,758,257$ 47,594,348 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 $103.6 million for the year ended December 31, 2019, an increase of
$17.6 million when compared to $86.0 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 the
increase in the business’ overall asset yields.
The provision for loan and lease losses decreased $121.5 million, or 90.8%, to $12.3 million for the year ended
December 31, 2019 from $133.8 million for the year ended December 31, 2018. The decrease was primarily due
to a relatively stable NYC taxi medallion collateral value in 2019, compared to a significant decline in the related
value during the first quarter of 2018. 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 $39.4 million for the year ended December 31, 2019, a decrease of $14.1 million, or
26.3%, when compared to $53.5 million for the same period a year ago, nearly all due to the absence of 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.
The increase of $503.9 million in total assets, or 11.6%, from $4.36 billion as of December 31, 2018 to $4.86
billion as of December 31, 2019 was primarily attributable to growth in our equipment leasing portfolios, partially
offset by the sale of non-accrual taxi medallion loans and equipment loans in 2019.
79
(in thousands)20192018Net interest income103,578$ 86,018 Provision for (recovery of) loan and lease losses12,270 133,817 Total non-interest income8,048 4,564Total non-interest expense39,418 53,483 Income (loss) before income taxes59,938 (96,718) Total assets4,861,690$ 4,357,754 Years ended December 31,
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 $51.2 million in non-interest expense attributable to the addition of new private client banking
teams, as well as an increase in costs in our risk management and compliance related activities. The returns on
average shareholders’ equity and average total assets for the year ended December 31, 2018 were 11.98% and
1.12%, respectively, compared to 10.13% and 0.95% for the year ended December 31, 2017.
80
(in thousands)20182017Interest income1,708,920$ 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:
81
(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%40,174,8101,474,0333.85%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%256,95314,5355.66%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 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 the 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 $8.95
billion for the year ended December 31, 2017. The overall yield on the securities portfolio for the year ended
December 31, 2018 was 3.19%, higher when compared to the 3.01% of previous year due to higher reinvestment
yields and lower premium amortization due to slower prepayment speeds. Our portfolio primarily consists of high
quality and highly-rated mortgage-backed securities, commercial mortgage-backed securities, and collateralized
mortgage obligations issued by government agencies, government-sponsored enterprises, and private issuers.
We mitigate extension risk through our overall strategy of purchasing relatively stable duration securities that, by
82
(in thousands)Change Due to RateChange Due to VolumeTotal ChangeINTEREST INCOMEShort-term investments3,892$ 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 5,836117,419 Subordinated debt(7) 45 38 Other borrowings31,50428,389 59,893 Total interest expense143,080 34,270 177,350 Net interest income(63,934)$ 125,286 61,352 (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. 2018 vs. 2017Year ended December 31,
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.
83
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 $15.1 million in other general and administrative expenses, primarily as a result of
84
(dollars in thousands)LoanAmountAllowance AmountAllowanceas a % of Loan AmountLoan AmountAllowance AmountAllowanceas a % of Loan AmountMortgage loans:Multi-family residential property15,688,481$ 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 commercial loans:Specialty finance4,050,321 22,925 0.57%3,495,577 17,952 0.51%Fund banking647,927 2,618 0.40%196,376 666 0.34%Commercial and industrial3,207,240 21,714 0.68%2,378,264 21,219 0.89%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%Other loans: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
$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
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.
85
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:
86
(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 $47.59 billion
as of December 31, 2018 was primarily attributable to growth in our commercial real estate loan portfolio.
87
(in thousands)20182017Net interest income1,212,969$ 1,159,208 Provision for (recovery of) loan and lease losses28,707 44,283 Total non-interest income18,73831,486 Total non-interest expense432,819392,041 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 $4.36 billion
as of December 31, 2018 was primarily attributable to growth in our equipment leasing portfolios, partially offset by
the reduction of taxi medallion balances due to charge-offs and the application of principal and interest payments
to the related nonaccrual loan balances.
88
(in thousands)20182017Net interest income86,018$ 78,378 Provision for (recovery of) loan and lease losses133,817219,014 Total non-interest income4,5644,579 Total non-interest expense53,48343,049 Income (loss) before income taxes(96,718) (179,106) Total assets4,357,754$ 4,063,495 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, 2019, our total securities portfolio was $9.25 billion and primarily consisted of mortgage-backed
securities (“MBSs”) and collateralized mortgage obligations (“CMOs”) issued by U.S. Government agencies
($560.5 million), government-sponsored enterprises ($6.84 billion), and private issuers ($635.5 million). As of
December 31, 2019, 92.6% of our securities portfolio had a AAA credit rating, 96.8% had a credit rating of A or
better, and 99.3% was rated investment grade or better. Overall, our securities portfolio had a weighted average
duration of 2.59 years and a weighted average life of 4.02 years as of December 31, 2019. 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, 2019, the net unrealized loss on securities, net of tax effect, was $30.0 million as reflected in
accumulated other comprehensive loss, compared to a net unrealized loss of $142.2 million at December 31, 2018
due to the prevailing interest rate environment. The fair value of our AFS securities is affected by several factors,
including (i) credit spreads, (ii) the interest rate environment, (iii) unemployment rates, (iv) delinquencies and
defaults on the mortgages underlying such obligations, (v) changes in interest rates resulting from expiration of the
fixed rate portion of adjustable rate mortgages, (vi) changing home prices, (vii) market liquidity for such
obligations, and (viii) uncertainties with respect to government-sponsored enterprises such as Fannie Mae and
Freddie Mac, which guarantee many of the debt securities we own. The estimated effect of possible changes in
interest rates on our earnings and equity is discussed in “Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.”
We continue to closely monitor the securities in our investment portfolio, and other than those securities for which
we have recorded other-than-temporary impairment losses, we believe the declines in fair value are temporary.
We have no intent to sell these securities, and we believe it is not more likely than not that we will be required to
sell these investments before recovery of their amortized cost basis. In the event these securities demonstrate an
adverse change in expected cash flows and we no longer expect to recover the amortized cost basis or if we
change our intent to hold these securities, we would recognize additional other-than-temporary impairment losses
through earnings.
89
The following table summarizes the components of our securities portfolios as of the dates indicated:
90
AmortizedFairAmortizedFairAmortizedFair(in thousands)CostValueCostValueCostValueAVAILABLE-FOR-SALEU.S. Treasury securities20,000$ 20,139 32,954 32,894 24,831 24,726 Residential mortgage-backed securities:U.S. Government Agency40,662 41,335 44,196 43,707 32,260 32,282 Government-sponsored enterprises1,399,324 1,409,745 1,558,689 1,513,294 1,505,352 1,494,890 Collateralized mortgage obligations:U.S. Government Agency304,978 303,272 244,772 239,343 249,906 245,724 Government-sponsored enterprises3,608,196 3,574,086 3,984,361 3,889,617 3,787,233 3,713,775 Private632,662 633,706 478,399 470,132 401,343 399,684 Securities of U.S. states and political subdivisions:Municipal Bond - Taxable9,883 10,058 6,692 6,554 7,506 7,550 Other debt securities:Commercial mortgage-backed securities81,570 81,461 111,409 109,988 127,791 128,213 Single issuer trust preferred & corporate debt securities498,241 506,037 450,305 444,324 398,157 400,823 Pooled trust preferred securities20,621 20,591 20,675 20,928 21,159 18,356 Collateralized debt obligations- - - - - - Other570,357 543,434 554,354 530,823 474,691 466,636 Equity securities (1)- - - - 22,243 21,060 Total available-for-sale7,186,494$ 7,143,864 7,486,806 7,301,604 7,052,472 6,953,719 HELD-TO-MATURITYResidential mortgage-backed securities:U.S. Government Agency29,962$ 30,042 35,566 34,424 43,322 43,197 Government-sponsored enterprises317,270 319,379 335,969 325,912 378,149 376,570 Collateralized mortgage obligations:U.S. Government Agency165,757 164,058 178,851 173,139 207,027 203,631 Government-sponsored enterprises1,534,876 1,542,352 1,264,876 1,241,933 1,297,857 1,284,875 Private1,748 1,836 2,437 2,453 2,985 3,002 Other debt securities:Commercial mortgage-backed securities4,371 4,345 17,570 17,542 17,916 18,206 Single issuer trust preferred & corporate debt securities47,986 53,529 48,257 49,788 48,529 52,980 Other- - 7 7 591 626 Total held-to-maturity2,101,970$ 2,115,541 1,883,533 1,845,198 1,996,376 1,983,087 (1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments. Effective January 1, 2018, we adopted AU 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 31,201920182017
The following table presents the credit rating distribution of our securities portfolio as of December 31, 2019:
The following table provides the estimated change in fair value of our debt securities for various interest rate
shocks as of December 31, 2019:
91
Percentage ofCredit RatingPortfolioAAA92.61%AA 1.17%A3.04%BBB2.51%Below BBB0.67%Total100.00%Interest Rate ShockEstimated FairValue Change-100 basis points1.89%+100 basis points(1.72%)+200 basis points(6.02%)+300 basis points(10.49%)+400 basis points(14.97%)
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, 2019. Due to prepayments of collateral underlying the
securities, actual maturity may differ from contractual maturity.
92
(dollars in thousands)Amortized CostFair ValueAverage YieldLess than one yearU.S. Treasury securities20,000$ 20,139 2.64%Mortgage-backed securities- - 0.00%Collateralized mortgage obligations100 112 4.64%Other securities 40,655 40,909 3.74%Total60,755$ 61,160 3.38%One year to less than five yearsMortgage-backed securities1,259 1,307 3.59%Collateralized mortgage obligations26,451 26,501 3.15%Other securities356,513 363,474 3.22%Total384,223$ 391,282 3.21%Five years to less than 10 yearsMortgage-backed securities5,123$ 5,239 3.46%Collateralized mortgage obligations308,734 310,407 3.05%Other securities391,107 390,415 3.54%Total704,964$ 706,061 3.32%10 years and longerMortgage-backed securities1,780,836$ 1,793,955 2.91%Collateralized mortgage obligations5,912,932 5,882,290 2.73%Securities of U.S. states and political subdivisions9,883 10,058 3.13%Other securities434,871 414,599 2.89%Total8,138,522$ 8,100,902 2.89%All maturitiesU.S. Treasury securities20,000$ 20,139 2.64%Mortgage-backed securities1,787,218 1,800,501 2.92%Collateralized mortgage obligations6,248,217 6,219,310 2.74%Securities of U.S. states and political subdivisions9,883 10,058 3.13%Other securities 1,223,146 1,209,397 3.99%Total9,288,464$ 9,259,405 2.94%
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 $2.49 billion to $39.40 billion at December 31, 2019 from $36.91 billion at December 31,
2018. Our total loan-to-deposit ratio, excluding loans held for sale, decreased to 96.8% at December 31, 2019
from 100.1% at December 31, 2018.
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 and $933.7 million, as of December 31, 2016, and 2015, 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 amount reclassified was $619.9 million as of December 31, 2015.
Substantially all of the collateral for our loans secured by real estate is located within the New York metropolitan
area. As a result, our financial condition and results of operations may be affected by changes in the economy and
the real estate market of the New York metropolitan area. A prolonged period of economic recession or other
adverse economic conditions in the New York metropolitan area may result in an increase in nonpayment of loans,
a decrease in collateral value, and an increase in our ALLL.
We only securitize the U.S. Government guaranteed portion of SBA loans, and we have not securitized any of our
loans secured by real estate. As a result, we have not made any representations to, and do not have obligations
to, third-party purchasers regarding any such loans.
At December 31, 2019, loans fully secured by cash and marketable securities represented 0.37% of outstanding
loan balances. The SBA portfolio, consisting only of the guaranteed portion of the SBA loans, represented 0.63%
of outstanding loan balances. Our fully unsecured loan portfolio represented 2.72% of our total outstanding loan
portfolio at December 31, 2019. We generally limit unsecured lending for consumer loans to private clients who we
believe possess ample net worth, liquidity and repayment capacity. The remainder of our loan portfolio is secured
by real estate, company assets, personal assets and other forms of collateral.
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(dollars in thousands)Amount%Amount%Amount%Amount%Amount%Mortgage loans:Multi-family residential property15,101,727$ 38.38%15,688,481 42.59%14,512,051 44.02%13,504,619 45.74%11,201,592 46.34%Commercial property10,199,293 25.92%10,309,837 27.99%8,902,027 27.00%7,606,868 25.77%6,109,635 25.27%1-4 family residential property506,515 1.29%620,486 1.68%621,377 1.88%529,228 1.79%533,416 2.21%Home equity lines of credit105,379 0.27%116,272 0.32%133,268 0.40%148,094 0.50%163,191 0.68%Acquisition, development and construction loans1,270,095 3.23%1,656,467 4.50%2,018,901 6.12%1,799,848 6.10%1,009,666 4.18%Other loans:Specialty finance4,596,932 11.68%4,050,321 11.00%3,495,576 10.60%2,740,745 9.28%2,290,175 9.47%Fund banking4,421,961 11.24%647,927 1.75%196,376 0.61%51,815 0.18%- 0.00%Commercial and industrial2,863,967 7.28%3,207,240 8.71%2,378,264 7.21%2,000,575 6.78%1,661,947 6.87%Taxi medallions6,897 0.02%88,511 0.24%309,895 0.94%627,399 2.13%793,699 3.28%Commercial - SBA guaranteed portion263,171 0.67%442,078 1.20%387,012 1.17%502,240 1.70%401,084 1.66%Consumer9,605 0.02%9,038 0.02%15,310 0.05%10,268 0.03%9,714 0.04%Sub-total / Total39,345,542 100.00%36,836,658 100.00%32,970,057 100.00%29,521,699 100.00%24,174,119 100.00%Premiums, deferred fees and costs54,674 71,774 74,759 80,994 74,803 Total39,400,216$ 36,908,432 33,044,816 29,602,693 24,248,922 December 31,20172016201520192018
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, 2019 and
2018.
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:
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(in thousands)PerformingNonperformingTotalDecember 31, 2019Residential mortgages74,794$ 3,565 78,359 Home equity lines of credit101,904 3,475 105,379 Other consumer loans9,605 - 9,605 Total consumer loans186,303$ 7,040 193,343 December 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 (in thousands)Within One YearOne to Five YearsAfter FiveYearsTotalLoan TypeCommercial and industrial98,672$ 8,493,650 3,297,435 11,889,757 Acquisition, development and construction loans31,558 1,036,381 202,156 1,270,095 Total130,230$ 9,530,031 3,499,591 13,159,852 As of December 31, 2019
The following table presents commercial and industrial loans and acquisition, development and construction loans
at fixed and variable rates contractually maturing after December 31, 2020:
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.
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(in thousands)FixedVariableTotalLoan TypeCommercial and industrial5,454,098$ 6,336,987 11,791,085 Acquisition, development and construction loans637,351 601,186 1,238,537 Total6,091,449$ 6,938,173 13,029,622
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, 2019 consisted of one commercial real estate loan totaling $22.8
million, commercial and industrial loans totaling $16.5 million, home equity lines of credit totaling $2.6 million and
commercial loans secured by 1-4 family residential property totaling $2.1 million. Other significant nonaccrual
loans include $6.9 million in loans secured by taxi medallions (commercial and industrial loans), comprised of New
York City medallion related loans totaling $586,000 and Chicago medallion related loans totaling $6.3 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, 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.
The decline in nonaccrual taxi medallion loans compared to the prior year is principally due to the repossession of
taxi medallions, loan settlements, as well as the 2019 sale of NYC taxi medallion nonaccrual loans totaling $46.4
million. See Note 7 for further information.
Nonaccrual investment securities at December 31, 2019 consisted of one bank-collateralized pooled trust
preferred security totaling $750,000. This security was classified as nonperforming because of delinquent
payments as a result of payment deferrals. Nonaccrual investment securities at December 31, 2018 consisted of
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(dollars in thousands)20192018201720162015Nonaccrual assets:LoansTaxi medallions1,974$ 15,904 121,464 85,357 28,755 Other46,457 13,868 13,297 15,086 17,651 Troubled debt restructured loansTaxi medallions4,923 72,607 188,430 50,010 20,354 Other4,001 6,273 3,727 7,125 5,145 Investment securities, at fair value750 275 75 662 629 Other repossessed assetsTaxi medallions45,546 49,660 28,583 19,580 1,872 Other1,283 1,939 250 53 454 Total nonperforming assets104,934$ 160,526 355,826 177,873 74,860 Accruing troubled debt restructured loans67,560$ 55,288 28,106 88,158 160,899 Accruing loans past due 90 days or more (1):Loans (2)2,300$ 7,833 6,331 55,951 3,525 Loans held for sale (3)-$ 922 37 795 2,436 Other taxi medallion loans 30-89 days past due maturity (4)-$ - - 24,564 4,939 Asset Quality Ratios:Total nonaccrual loans to total loans0.15%0.30%1.00%0.54%0.30%Total nonperforming assets to total assets0.21%0.34%0.83%0.46%0.22%ALLL to nonaccrual loans435.86%211.69%59.94%135.49%271.22%(3) Accruing loans held for sale past due 90 days or more are comprised of U.S. Government guaranteed SBA loans.(4) Considered impaired as of December 31, 2016.December 31,(2) 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.(1) See Note 7 for full delinquency status of our loan portfolio.
one bank-collateralized pooled trust preferred security totaling $275,000. This security was classified as
nonperforming because of delinquent payments as a result of payment deferrals.
At December 31, 2019, loans past due 90 days or more and accruing included three commercial and industrial
loans totaling $2.2 million that are well secured and in process of collection. 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.
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, 2019 and December 31, 2018 totaled $46.8 million and $51.6 million,
respectively. The decrease is primarily driven by the sale of $19.2 million of repossessed assets, partially offset by
the repossession of $16.7 million of collateral related to commercial and industrial loans, primarily taxi medallions,
as well as $2.0 million in fair value adjustments due to the marginal decline in asset values during 2019.
As of December 31, 2019, repossessed assets included medallions totaling $32.4 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.
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, 2019, $8.4 million of payments have been
received to date leaving the remaining net exposure for these medallions at $24.0 million. In total, including both
repossessed taxi medallions and loans, remaining taxi medallion portfolio net exposure totals $34.8 million in NYC
and $9.0 million in Chicago.
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, 2019, 2018, and 2017, our ALLL totaled $250.0 million, $230.0 million, and $196.0 million, respectively, which
represents 0.64%, 0.63%, and 0.60% of total loans and leases (excluding loans held for sale), respectively. For a
summary of our accounting methodologies relating to the ALLL, see Note 2(g) for our accounting policies related
to the ALLL.
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, 2019, 2018, and 2017, we recorded provisions of $22.6 million, $162.5 million, and
$263.3 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. See Note 8 for additional information regarding the
period over period provision for loan and lease losses fluctuations.
The decrease in the provision for the year ended December 31, 2019, when compared to the prior year, was
primarily due to the stable taxi medallion collateral value for the first three quarters of 2019, compared to a
significant decline in the related value during the first quarter of 2018. Further contributing to the decline is a 2019
second quarter sale of nonaccrual NYC taxi medallions totaling $46.4 million in nonaccrual loans and $4.6 million
in repossessed taxi medallions, which resulted in a recovery of $5.1 million during the second quarter of 2019.
While previous years were defined by distress and illiquidity in the taxi medallion market, since the significant
decline in collateral value in the first quarter 2018, the NYC Taxi & Limousine Commission (TLC) trip data had
shown stabilization in revenue per medallion, and transfer values had been relatively consistent and the
associated fair value had remained stable at $160,000 prior to September 30, 2019. In the fourth quarter of 2019,
while NYC taxi medallion transfer volumes remained high, the transfer prices showed a marginal decline. The
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associated fair value was assessed at $153,000 at December 31, 2019, resulting in $586,000 of remaining NYC
taxi medallion loan exposure.
The following table presents our ALLL and outstanding loan balances by segment of our loan portfolio, based on
the methodology followed in determining the ALLL:
The following table allocates our ALLL to the respective portfolio categories and includes the percentage of loans
in each category to total loans as of the dates indicated:
98
(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential Mortgages (1)Consumer TotalAs of December 31, 2019ALLL:Individually evaluated for impairment-$ - 6,997 - 2,399 - 9,396 Collectively evaluated for impairment162,710 2,039 72,700 2,167 729 248 240,593 Recorded investment in loans:Individually evaluated for impairment35,639 3,300 77,641 - 8,335 - 124,915 Collectively evaluated for impairment26,535,476 424,856 11,750,421 61,695 175,403 9,605 38,957,456 As of December 31, 2018ALLL:Individually evaluated for impairment135$ 630 5,112 5 2,333 - 8,215 Collectively evaluated for impairment175,496 1,904 42,501 1,190 592 107 221,790 Recorded investment in loans:Individually evaluated for impairment13,411 5,502 137,510 9 7,508 - 163,940 Collectively evaluated for impairment27,640,691 524,786 7,801,140 55,340 199,645 9,038 36,230,640 (1) Includes home equity lines of credit.Non-rated loansCredit-rated loans(dollars in thousands)Amount%Amount%Amount%Amount%Amount%Mortgage Loans:Multi-family residential property91,641$ 38.64%99,964 43.11%82,554 44.54%63,855 46.54%77,366 47.12%Commercial property60,248 26.10%63,328 28.33%53,283 27.32%38,761 26.21%43,295 25.70%1-4 family residential property2,844 1.30%3,424 1.70%2,311 1.91%2,107 1.82%3,573 2.24%Home equity lines of credit2,324 0.27%2,035 0.32%1,994 0.41%3,182 0.51%4,931 0.69%Acquisition, development and construction10,820 3.25%12,339 4.56%15,844 6.19%11,966 6.20%8,018 4.25%Other loans:Specialty finance38,092 11.76%22,925 11.13%17,952 10.73%20,634 9.45%18,747 9.63%Fund banking21,085 11.31%2,618 1.78%666 0.60%102 0.18%- 0.00%Commercial and industrial22,687 7.33%21,714 8.81%21,219 7.30%14,423 6.89%15,587 6.99%New York City taxi medallions- 0.00%- 0.20%- 0.85%44,319 1.96%14,536 2.60%Chicago taxi medallions- 0.02%1,538 0.04%- 0.10%12,152 0.19%8,107 0.71%Philadelphia taxi medallions- 0.00%13 0.00%- 0.00%1,797 0.01%522 0.03%Consumer248 0.02%107 0.02%136 0.05%197 0.04%341 0.04%Total249,989$ 100.00%230,005 100.00%195,959 100.00%213,495 100.00%195,023 100.00%2019December 31,2015201620172018
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:
Net charge offs were $2.7 million for the year ended December 31, 2019, when compared to the net charge-off of
$128.5 million for the same period last year. The decline in net-charge-offs was nearly all attributable to the
absence of the 2018 first quarter NYC taxi medallion portfolio net charge-off of $128.6 million, as well as a 2019
recovery of $5.1 million related to the sale of $46.4 million nonaccrual NYC taxi medallion loans and $4.6 million
repossessed NYC taxi medallions.
99
(dollars in thousands)20192018201720162015Beginning balance - ALLL230,005$ 195,959 213,495 195,023 164,392 Charge-offs:Credit-rated commercial loans(13,101) (140,323) (282,600) (141,981) (19,732) Non-rated commercial loans(2,813) (797) (1,148) (1,041) (1,209) Residential mortgages(4) (641) (571) (151) (1,103) Consumer loans(367) (206) (218) (195) (186) Total charge-offs(16,285) (141,967) (284,537) (143,368) (22,230) Recoveries:Credit-rated commercial loans13,013 12,822 2,954 5,152 5,950 Non-rated commercial loans545 552 573 812 1,171 Residential mortgages18 38 76 21 656 Consumer loans57 77 101 81 170 Total recoveries13,633 13,489 3,704 6,066 7,947 Net recoveries (charge-offs)(2,652) (128,478) (280,833) (137,302) (14,283) Provision22,636 162,524 263,297 155,774 44,914 Ending balance - ALLL249,989$ 230,005 195,959 213,495 195,023 Ratios:ALLL to total loans0.64%0.63%0.60%0.74%0.82%Net charge-offs to average loans0.01%0.38%0.92%0.52%0.07%Years ended December 31,
Net Deferred Tax Asset (Liability)
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, 2019, we reported a net deferred tax liability due to a net increase our net expense related to
our leased asset growth, as well as mark to market unrealized gains in our AFS debt securities, partially offset by
an increase in ordinary deprecation due to our continued expansion,
As of December 31, 2018, the Tax Cuts and Jobs Act enacted in December 2017, stranded tax effects totaling
$14.1 million are included in accumulated other comprehensive income. We have elected not to adopt ASU 2018-
02, Income Statement – Reporting Comprehensive Income (Topic 220). Therefore, the Company will recognize
these stranded tax effects using the individual security approach. See the discussion of recently adopted new
accounting standards in Item 7 for further details.
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(in thousands)20192018109,639$ 82,204 73,580 67,977 Operating lease liabilities (1)71,851 - Depreciation - ordinary20,046 2,439 12,035 11,583 Repossessed taxi medallion valuation reserve8,928 10,843 3,451 3,734 7,037 4,466 306,567 183,246 12,547 43,047 6,211 2,512 Net unrealized losses on cash flow hedges14,307 975 339,632 229,780 263,323 207,593 Operating lease right-of-use assets (1)65,482 - Deferred rent3,230 - 1,101 818 Deferred income- - 11,226 11,939 344,362 220,350 (4,730)$ 9,430 Total deferred tax liabilities recognized in earningsTotal deferred tax assetsDEFERRED TAX LIABILITIESDepreciation - leased assetsPrepaid expensesOtherOtherDecember 31,DEFERRED TAX ASSETSAllowance for loan and lease lossesIncome on leased assetsWrite-down for other-than-temporary impairment of securitiesUnearned compensation - restricted stock(1) Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) and elected not to restate comparative prior periods, a transition option provided by ASU 2018-11, Leases- Targeted Improvements (Topic 842).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-maturity
Deposits
Core deposits, which exclude time deposits and brokered deposits, increased $3.17 billion to $37.42 billion as of
December 31, 2019 from $34.25 billion as of December 31, 2018. 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,
2019 and 2018.
The following table presents our average deposits and average interest rates accrued for the periods indicated:
The following table presents time deposits of $100,000 or more by their maturity:
101
(dollars in thousands)Average RateAverage BalanceAverage RateNOW and interest-bearing demand1.91%3,661,8491.43%Money market1.57%17,878,5091.16%Time deposits2.35%1,648,4331.77%Non-interest-bearing demand deposits- 11,954,403- Total deposits1.16%35,143,194 0.82%Years ended December 31,19,103,463 Average Balance2,498,190 12,155,929 38,055,001$ 201920184,297,419$ (in thousands)Total (1)(1) Includes brokered time deposits of $538.0 million.2,259,340$ December 31, 2019305,625 Three months or lessOver three months through six monthsOver six months through one yearOver one year648,280 432,194 873,241$
Borrowings
The following table presents information regarding our borrowings:
At December 31, 2019, our borrowings were $4.75 billion, or 10.5% of our funding liabilities, compared to $6.05
billion, or 14.3% of our funding liabilities, at December 31, 2018. The decrease in our borrowings, primarily reflects
the $670.0 million decrease in Fed funds purchased and an $827.9 million decrease in the use of FHLB
borrowings, partially offset by the new subordinated debt of $200.0 million that was issued in November 2019. The
net decline is due to our significant deposit growth outpacing loan growth during the twelve months ended
December 31, 2019, allowing the Bank to reduce its borrowing position. These borrowings, excluding our issued
subordinated debt, are typically collateralized by mortgage-backed and collateralized mortgage obligation
securities, along with commercial real estate loans. We also hold $231.3 million in Federal Home Loan Bank of
New York (“FHLB”) capital stock as required collateral for our outstanding borrowing position with the FHLB.
Based on our financial condition, our asset size, the available capacity under our repurchase agreement lines and
our FHLB line, and the amount of securities and loans available for pledging, we estimate our available
consolidated capacity for additional borrowings to be approximately $8.89 billion at December 31, 2019.
Additionally, on November 1, 2019, the Bank completed a public offering of $200.0 million aggregate principal
amount of Fixed-to-Floating Rate Subordinated Notes due November 1, 2029 (the “Notes”). See Recent Highlights
for additional information. 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 $3.9 million related to both debt
offerings.
102
(dollars in thousands)AmountWeighted Average Rate (2)AmountWeighted Average Rate AmountWeighted Average RateFederal Home Loan Bank advances4,142,144$ 2.32%4,970,000 2.51%4,195,000 1.65%Repurchase agreements150,000 2.93%150,000 2.93%75,000 2.34%Federal funds purchased- 0.00%670,000 2.59%715,000 1.58%Subordinated debt (1)460,000 4.79%260,000 5.30%260,000 5.30%Total borrowings4,752,144$ 2.55%6,050,000 2.65%5,245,000 1.83%Maximum total outstanding at any month-end7,093,364$ 6,187,000 5,245,000 Average balance5,807,625$ 5,331,600 3,400,171 Average rate2.74%2.26%1.79%At or for the year ended December 31,201820172019(1) Excludes $3.9 million and $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 as of December 31, 2019 and 2018, respectively . (2) Includes the effect of hedge accounting from related cash flow hedges.
The following table presents the maturity or re-pricing of our borrowings at December 31, 2019:
Contractual Obligations
The following table presents our significant contractual obligations as of December 31, 2019, excluding operating
leases which can be found in Note 21 to our Consolidated Financial Statements:
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.
On November 1, 2019, the Bank completed a public offering of $200.0 million aggregate principal amount of
Fixed-To-Floating Rate Subordinated Notes due November 1, 2029 (the “Notes”). The Notes accrues interest at a
fixed rate of 4.125% for the first five years until November 2024. After this date and for the remaining five years of
the Notes’ term, interest will accrue at a floating rate of LIBOR plus 255.9 basis points. Additionally, during the
floating rate period and at the Bank’s option, the Notes can be prepaid by the Bank. Net proceeds from this
offering will be used for general corporate purposes and the repurchase of common stock.
Off-Balance Sheet Arrangements
In the normal course of business, we have various outstanding commitments and contingent liabilities not reflected
in the accompanying Consolidated Financial Statements.
We enter into transactions that involve financial instruments with off-balance sheet risks in the ordinary course of
business to meet the financing needs of our clients. Such financial instruments include commitments to extend
credit, standby letters of credit, and unused balances under confirmed letters of credit, all of which are primarily
variable rate. Such instruments involve, to varying degrees, elements of credit and interest rate risk.
Our exposure to credit loss in the event of nonperformance by the other party with regard to financial instruments
is represented by the contractual notional amount of those instruments. Financial instrument transactions are
subject to our normal credit policies and approvals, financial controls and risk limiting and monitoring procedures.
We generally require collateral or other security to support financial instruments with credit risk.
103
3 months or less3 - 12 months1 - 3 yearsOver 3 years Total (1)2,260,000$ 830,000 893,144 769,000 4,752,144 (1) Excludes $3.9 million of deferred issuance costs reported as a direct reduction to the subordinated debt carrying amount in the Consolidated Statements of Financial Condition.Maturity or repricing period (in thousands)(in thousands)Less than1 year1 - 3years3 - 5yearsMore than5 yearsTotalBorrowings (1)3,090,000$ 893,144 309,000 460,000 4,752,144 Investments in qualified affordable housing projects36,653 79,072 17,713 32,813 166,251 Information technology contracts21,135 10,164 220 - 31,519 Total contractual cash obligations3,147,788$ 982,380 326,933 492,813 4,949,914 Payments due by period(1) Excludes $3.9 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 into 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 apply the countercyclical buffer only to “advanced approaches banks” (i.e.,
banking organizations with $250 billion or more in total assets or $100 billion or more in total consolidated assets
and $75 billion or more in short-term wholesale funding, non-bank assets, off-balance sheet exposures, or cross-
border exposures), which currently excludes Signature Bank. The final rules also implement revisions and
clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity,
unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of
which will be phased out over time.
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(in thousands)20192018Unused commitments to extend credit4,988,650$ 3,173,675 Financial standby letters of credit545,085 482,482 Commercial and similar letters of credit9,859 20,145 Other1,266 1,254 Total5,544,860$ 3,677,556 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.” 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.
105
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2019:
During the first three quarters of 2019, we continued to pay a quarterly cash dividend of approximately $31.0
million to eligible common stockholders in February 2019, May 2019, and August 2019, respectively. Additionally,
we declared cash dividends for the fourth quarter of 2019 on January 15, 2020. We also continued the stock
repurchase program that was initiated in 2018 - see Recent Developments for more information. Additionally, on
November 1, 2019, the Bank completed a public offering of $200.0 million of subordinated debt further
strengthening our Tier 2 capital position.
The capital amounts and ratios presented in the following table demonstrate that we were “well capitalized” as of
December 31, 2018:
We have paid cash dividends to eligible common stockholders on a quarterly basis beginning in the third quarter of
2018. We also initiated a stock repurchase program in 2018 – see Recent Developments for more information.
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 $100 billion and made the requirement “periodic” rather than “annual.” Due to these regulation changes,
Signature Bank is no longer required to publicly file and report the results of annual company-run stress tests until
the revised threshold is reached. However, the Bank will continue to perform capital stress testing on a situational
and idiosyncratic basis, such as during our annual capital planning and budgeting processes.
Liquidity
Liquidity is the measurement of our ability to meet our cash needs. Our objective in managing liquidity is to
maintain our ability to meet loan commitments and deposit withdrawals, purchase investments and pay other
liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity
management is guided by policies developed and monitored by our asset/liability management committee and
approved by our Board of Directors. The asset/liability management committee consists of, among others, our
Chairman, President and Chief Executive Officer, Vice Chairman, Chief Operating Officer, Chief Financial Officer
and Treasurer. These policies take into account the marketability of assets, the source and stability of deposits,
our wholesale borrowing capacity and the amount of our loan commitments. While the Bank may raise funds
through a common stock offering or debt issuance to facilitate continued growth, our primary source of liquidity has
been core deposit growth.
Additionally, we have borrowing sources available to supplement deposit flows, including the FHLB and
repurchase agreement lines with other financial institutions. We also have access to the brokered deposit market,
through which we have numerous alternatives and significant capacity, if needed. We also opportunistically access
106
(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)5,542,927$ 13.32%3,329,317 8.00%4,161,646 10.00%Tier 1 capital (to risk-weighted assets)4,835,393 11.62%2,496,988 6.00%3,329,317 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,835,393 11.62%1,872,741 4.50%2,705,070 6.50%Tier 1 leverage capital (to average assets)4,835,393 9.60%2,015,121 4.00%2,518,902 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized(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
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 and 2019 subordinated debt issuances.
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, 2019, our FHLB borrowings totaled $4.14 billion with an average rate of 2.32%
that mature by December 2023. We had no securities sold under repurchase agreements to the FHLB as of
December 31, 2019. While not pledged, FHLB held $539.5 million of securities as custodian as of December 31,
2019. 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, 2019, 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 August 2023.
Based on our financial condition, our asset size, the available capacity under our repurchase agreement lines and
our FHLB line, and the amount of securities and loans available for pledging, we estimate our available
consolidated capacity for additional borrowings to be approximately $8.89 billion as of December 31, 2019.
The Bank has declared and paid a quarterly cash dividend of $0.56 per share, or a total of approximately $31.0
million each quarter since the third quarter of 2018. On January 15, 2020, the Bank declared its fourth quarter
2019 cash dividend of $0.56 per share to be paid on or after February 14, 2020 to common shareholders of record
at the close of business on January 31, 2020.
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 regulatory approval, which were received for the repurchase
program of up to $500.0 million in November 2018. We received shareholder and regulatory approval to continue
the program in 2019. To date the Bank has repurchased 2,296,585 shares of common stock for a total of $279.1
million. As of December 31, 2019, the remaining program balance was $220.9 million.
On February 19, 2020, the Board of Directors approved an amendment to the stock repurchase program that
restored the Bank’s share repurchase authorization to an aggregate purchase amount of up to $500.0 million,
effectively increasing the stock repurchase program by $279.1 million. The amended stock repurchase program is
currently awaiting shareholder and regulatory approval.
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.
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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, 2019, 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”).
108
The following table indicates the sensitivity of projected annualized net interest income to the interest rate
movements described above at December 31, 2019:
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, 2019,
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, 2019 to the interest rate
movements described above (base case market value of equity is $6.93 billion):
The market value of equity sensitivity analysis assumes an immediate parallel shift in interest rates and yield
curves. The computation of prospective effects of hypothetical interest rate changes is based on numerous
assumptions, including relative levels of interest rates, asset prepayments, deposit decay and changes in re-
pricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results.
Further, the computations do not take into account any actions that we may undertake in response to future
changes in interest rates.
109
(dollars in thousands)Adjusted NetInterest IncomeChangefrom BaseRamp scenario:Base1,339,865$ - Down 100 basis points1,312,090 (2.1)%Up 100 basis points1,343,045 0.2%Up 200 basis points1,349,198 0.7%Up 300 basis points1,339,860 0.0%Up 400 basis points1,328,851 (0.8)%Shock scenario:Base1,339,865$ - Down 100 basis points1,300,814 (2.9)%Up 100 basis points1,341,440 0.1%Up 200 basis points1,338,883 (0.1)%Up 300 basis points1,323,935 (1.2)%Up 400 basis points1,298,727 (3.1)%(dollars in thousands)SensitivityChangefrom BaseDown 100 basis points(567,295)$ (8.2)%Up 100 basis points335,804 4.9%Up 200 basis points440,321 6.4%Up 300 basis points496,379 7.2%Up 400 basis points418,895 6.0%
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.
110
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, 2019, 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, 2019 is effective using these criteria.
The Company’s internal control over financial reporting as of December 31, 2019 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, 2019. The report of KPMG LLP on the effectiveness of the
Company’s internal control over financial reporting is included below.
111
Report of Independent Registered Public Accounting Firm
To the Shareholders 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, 2019, 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, 2019,
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, 2019 and 2018, 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, 2019, and the related notes (collectively, the consolidated financial statements), and our report
dated February 28, 2020 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
112
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
February 28, 2020
113
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 22, 2020.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to Signature Bank’s Proxy Statement for the Annual Meeting of Stockholders to be held
April 22, 2020.
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 22, 2020.
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 22, 2020.
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 22, 2020.
114
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-62. 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
3.2
Restated Organization Certificate (Incorporated by reference to Signature Bank’s Quarterly Report on
Form 10-Q for the period ended June 30, 2005.)
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.)
4.2
Description of Capital Stock.
10.1
Signature Bank Amended and Restated 2004 Long-Term Incentive Plan (Incorporated by reference
from Annex A 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
115
ITEM 16. Form 10-K Summary
Not applicable.
116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SIGNATURE BANK
By: /s/ JOSEPH J. DEPAOLO
Joseph J. DePaolo
President, Chief Executive Officer and Director
Date: February 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 28, 2020 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)
Director
/s/ Derrick D. Cephas
(Derrick D. Cephas)
Director
/s/ ALFONSE M. D’AMATO
(Alfonse M. D’Amato)
Director
/s/ BARNEY FRANK
(Barney Frank)
Director
/s/ JUDITH A. HUNTINGTON
(Judith A. Huntington)
Director
/s/ JEFFREY W. MESHEL
(Jeffrey W. Meshel)
Director
117
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Financial Condition as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017 . . . . . . . . . . F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019,
2018, and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017 . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2019, 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, 2019,
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 February 28, 2020 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of
a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
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 whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan and lease losses associated with both the commercial real estate
loan portfolio and the commercial and industrial loan portfolio that are collectively evaluated for impairment
As discussed in Notes 2 and 8 to the Company’s consolidated financial statements, the Company’s
allowance for loan and lease losses related to loans collectively evaluated for impairment (general reserve)
for the commercial real estate loan portfolio (CRE) and the commercial and industrial loan portfolio (C&I)
was $237.6 million of a total allowance for loan and lease losses of $250.0 million as of December 31,
2019. The Company estimates the quantitative loss component of the general reserve using historical loss
rates by credit rating, after considering loan type, historical losses, delinquency experience, historical
observation periods, and loss emergence periods. Qualitative adjustments to such loss rates are made
when internal and external factors are identified that are not taken into account by the quantitative loss
component of the general reserve.
We identified the assessment of the general reserve for CRE and C&I as a critical audit matter because of
the complex and subjective auditor judgment that was involved. Specifically, complex and subjective
auditor judgment was required to assess the (1) methodologies and data used to derive the quantitative
loss component and the related key factors and assumptions, such as historical loss rates, credit ratings,
historical observation periods, and the loss emergence periods, and (2) development and evaluation of
qualitative loss factors.
The primary procedures performed to address the critical audit matter included the following. We tested
certain internal controls over the (1) development and approval of the general reserve methodology for
CRE and C&I, (2) determination of the key factors and assumptions used to estimate the quantitative loss
component, (3) development of the qualitative loss factors, and (4) analysis of the general reserve results,
trends, and ratios. We tested the Company’s process to develop the general reserve estimate for CRE and
C&I. This included performing an assessment of the relevance and reliability of source data and
assumptions used by the Company and considering whether alternative assumptions should be used. We
evaluated trends in the total general reserve, including the qualitative factors, for consistency with trends in
the loan portfolio growth and credit performance. We tested the historical observation period assumptions,
by evaluating (1) if the loss data in the historical observation periods are representative of the credit
characteristics of the current loan portfolio and (2) the sufficiency of the loss data within the historical
observation periods. We tested the qualitative factors by (1) evaluating the metrics, including the relevance
of sources of data and assumptions, used to allocate the qualitative factors and (2) analyzing the
determination of each qualitative factor. In addition, we involved credit risk professionals with specialized
industry knowledge and experience who assisted in evaluating the:
– Company’s general reserve methodology for CRE and C&I for compliance with U.S. generally accepted
accounting principles,
– maximum qualitative factor on the highest losses over the course of the historical observation periods,
–
–
–
length of the historical observation period assumptions used in calculating the historical loss rates,
loss emergence periods inputs and assumptions,
framework used to develop the resulting qualitative loss factors and the effect of those factors on the
general reserve for CRE and C&I compared with relevant credit risk factors and credit trends, and
F-3
–
individual loan grades for a selection of loans by assessing the financial performance of the borrower
and the underlying collateral.
We have served as the Company’s auditor since 2001.
New York, New York
February 28, 2020
F-4
See accompanying notes to Consolidated Financial Statements.
F-5
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)20192018ASSETSAssetsCash and due from banks702,277$ 269,204 Short-term investments87,55548,051Total cash and cash equivalents789,832317,255Securities available-for-sale7,143,8647,301,604Securities held-to-maturity (fair value $2,115,541 at December 31, 2019and $1,845,198 at December 31, 2018)2,101,9701,883,533Federal Home Loan Bank stock231,339264,877Loans held for sale290,593485,305Loans and leases, net38,859,63436,193,122Premises and equipment, net66,41959,051Operating lease right-of-use assets (1)217,578- Accrued interest and dividends receivable147,527141,829Other assets767,678718,240Total assets50,616,434$ 47,364,816 LIABILITIES AND SHAREHOLDERS' EQUITYDepositsNon-interest-bearing13,016,931$ 12,016,197Interest-bearing27,366,27624,362,576Total deposits40,383,20736,378,773Federal funds purchased and securities sold under agreementsto repurchase150,000820,000Federal Home Loan Bank borrowings4,142,1444,970,000Subordinated debt456,119 258,174 Operating lease liabilities (1)242,587 - Accrued expenses and other liabilities472,554530,729Total liabilities45,846,61142,957,676Shareholders’ equityPreferred stock, par value $.01 per share; 61,000,000 shares authorized;none issued at December 31, 2019 and December 31, 2018- - Common stock, par value $.01 per share; 64,000,000 shares authorized;55,427,631 shares issued and 53,519,644 outstanding at December 31, 2019;55,405,531 shares issued and 55,039,433 outstanding at December 31, 2018554554Additional paid-in capital1,871,5711,862,896Retained earnings3,196,898 2,730,899 Treasury stock, 1,907,987 shares at December 31, 2019 and 366,098 shares at December 31, 2018(233,570) (42,680) Accumulated other comprehensive loss(65,630) (144,529) Total shareholders' equity4,769,8234,407,140Total liabilities and shareholders' equity50,616,434$ 47,364,816 December 31,(1) Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) and elected not to restate comparative prior periods, a transition option provided by ASU 2018-11, Leases- Targeted Improvements (Topic 842).
See accompanying notes to Consolidated Financial Statements.
F-6
SIGNATURE BANKSignature BankCONSOLIDATED STATEMENTS OF INCOMEConsolidated Statements of Income(unaudited)(in thousands, except per share amounts)(dollars in thousands, except per share amounts)201920182017INTEREST AND DIVIDEND INCOMELoans held for sale4,978$ 10,8634,334Loans and leases, net1,579,2681,389,4351,191,194Securities available-for-sale227,535224,012201,657Securities held-to-maturity60,84357,93058,855Other investments39,05226,68014,129Total interest income1,911,6761,708,9201,470,169INTEREST EXPENSEDeposits440,730289,248171,829Federal funds purchased and securities sold underagreements to repurchase14,17013,4849,695Federal Home Loan Bank borrowings129,13892,62836,524Subordinated debt16,045 14,573 14,535 Total interest expense600,083409,933232,583Net interest income before provision for loan and lease losses1,311,5931,298,9871,237,586Provision for loan and lease losses22,636162,524263,297Net interest income after provision for loan and lease losses1,288,9571,136,463974,289NON-INTEREST INCOMECommissions14,50413,12012,299Fees and service charges32,92628,55323,557Net gains on sales of securities1,0349893,963Net gains on sales of loans10,836 6,7389,218Other-than-temporary impairment losses on securities:Total impairment losses on securities- (2)(654) Portion recognized in other comprehensive income (before taxes)- (14) 21 Net impairment losses on securities recognized in earnings- (16)(633)Tax credit investment amortization(38,424) (30,195)(15,821)Other income7,0724,0893,458Total non-interest income27,94823,27836,041NON-INTEREST EXPENSESalaries and benefits335,054302,095273,240Occupancy and equipment42,83334,31132,141Information technology36,96125,73222,623FDIC assessment fees12,43225,25626,996Professional fees14,68913,69812,021Other general and administrative87,30085,18668,045Total non-interest expense529,269486,278435,066Income before income taxes787,636673,463575,264Income tax expense198,710168,121188,055Net income588,926$ 505,342387,209PER COMMON SHARE DATAEarnings per share – basic 10.92$ 9.277.17Earnings per share – diluted10.87$ 9.237.12Dividends per common share2.24$ 1.12 - Years ended December 31,
See accompanying notes to Consolidated Financial Statements.
F-7
SIGNATURE BANKCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands)201920182017Net income588,926$ 505,342 387,209 Other comprehensive income, net of tax:Net unrealized gains (losses) on securities157,305 (100,974) (22,015) Tax effect(46,295) 25,533 8,163 Net of taxNet of tax111,010 (75,441) (13,852) Reclassification adjustment for net gains on sales of securitiesincluded in net income(1,034) (989) (3,963) Tax effect304 292 1,470 Net of taxNet of tax(730) (697) (2,493) Amortization of net unrealized loss on securities transferred to held-to-maturity2,720 2,266 2,872 Tax effect(800) (670) (1,065) Net of tax1,920 1,596 1,807 Other-than-temporary gains (losses) on securities related to noncredit factors- 14 (21) Tax effect- (4) 8 Net of tax- 10 (13) Reclassification adjustment for other-than-temporary impairment losses onsecurities related to credit factors included in net income- 16 633 Tax effect- (5) (235) Net of taxNet of tax- 11 398 Net unrealized losses on cash flow hedges(45,311) (3,302) - Reclassification adjustment for net (gains) losses included in net income(1,878) 4 - Tax effect13,888 974 - Net of taxNet of tax(33,301) (2,324) - Total other comprehensive income (loss), net of tax78,899 (76,845) (14,153) Comprehensive income, net of tax667,825$ 428,497 373,056 At or for the years ended December 31,
See accompanying notes to Consolidated Financial Statements.
F-8
SIGNATURE BANKCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(in thousands)Common stockAdditionalpaid-incapitalRetained earningsTreasurystockAccumulated other comprehensive lossTotalshareholders'equityBalance 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 - - (147) - - (147) Restricted stock activity, net- 8,675 - 46,443 - 55,118 Common stock repurchased- - - (237,333) - (237,333) - - (3) - - (3) Net Income- - 588,926 - - 588,926 Other comprehensive income, net of tax- - - - 78,899 78,899 Dividends paid on common stock ($2.24 per share)- - (122,777) - - (122,777) Balance at December 31, 2019554$ 1,871,571 3,196,898 (233,570) (65,630) 4,769,823 (2) Effective January 1, 2019, we adopted ASU 2017-08, Receivables - Nonrefundable Fees and Other costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. Accordingly, we recognized additional amortization of $147,000 as a cumulative adjustment to retained earnings as of adoption date.Restricted 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 warrant activity, netOtherNet incomeOther comprehensive loss, net of taxRestricted stock activity, netDividends paid on common stock ($1.12 per share)Net incomeOther comprehensive loss, net of taxCommon stock issuedOpening retained earnings adjustments (2) Other
See accompanying notes to Consolidated Financial Statements.
F-9
SIGNATURE BANKCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)201920182017CASH FLOWS FROM OPERATING ACTIVITIESNet income588,926$ 505,342387,209Depreciation and amortization20,147 14,00712,193Provision for loan and lease losses22,636 162,524263,297Net impairment losses on securities recognized in earnings- 16633Net amortization/accretion of premium/discount110,862 117,952115,442Stock-based compensation expense55,358 52,566 46,375Net gains on sales of securities and loans(11,870) (7,727)(13,181)Gain on trading activities(62) - - Deferred income tax expense691 1,37958,127Federal tax reform impact on OCI remeasurement- - 14,100 Purchases of loans held for sale(1,361,314) (1,892,916)(2,112,418)1,478,304 1,690,5981,910,133(39,117) - - 32,600 - - Net increase in accrued interest and dividends receivable(5,698) (24,759)(14,107)(315,168) (115,088) (179,842)Net increase in accrued expenses and other liabilities (2)202,129 147,66958,051Net cash provided by operating activities778,424651,563546,012CASH FLOWS FROM INVESTING ACTIVITIESPurchases of securities available-for-sale ("AFS")(1,291,803) (1,458,768)(1,634,890)Proceeds from sales of securities AFS54,121 30,269103,5321,334,860 1,030,4511,136,146Purchases of securities held-to-maturity ("HTM")(341,132) (113,067)(201,605)294,466 213,202228,238Purchases of Federal Home Loan Bank stock(659,688) (1,404,732)(621,560) Proceeds from redemptions of Federal Home Loan Bank stock693,226 1,367,775 526,269 Proceeds from the settlement of bank owned life insurance ("BOLI")- - 620 Net increase in loans and leases(2,685,469) (3,942,777)(3,855,016)Net purchases of premises and equipment(32,937) (11,487)(23,066)Net cash used in investing activities(2,634,356)(4,289,134)(4,341,332)CASH FLOWS FROM FINANCING ACTIVITIESNet increase in non-interest-bearing deposits1,000,734663,159832,509Net increase in interest-bearing deposits3,003,7002,275,787746,058Proceeds from the issuance of Federal Home Loan Bank borrowings2,797,144 3,595,000 3,660,000 Repayment of Federal Home Loan Bank borrowings(3,625,000) (2,820,000) (1,515,900) Proceeds from the issuance of other borrowings150,000 820,000 715,000 Repayment of other borrowings(820,000) (790,000) (818,000) Cash dividends paid on common stock(122,777) (62,005) - Proceeds from the issuance of subordinated debt, net200,000 - - Payments of employee taxes withheld from stock-based compensation(17,716) (20,761) (27,828) (Repurchase) issuance of common stock(237,333) (41,808) - Other (243) (12) (4) Net cash provided by financing activities2,328,509 3,619,360 3,591,835 Net increase (decrease) in cash and cash equivalents472,577(18,211)(203,485)Cash and cash equivalents at beginning of year317,255335,466538,951 Cash and cash equivalents at end of year789,832$ 317,255335,466Supplemental disclosures of cash flow information:Interest paid during the year601,534$ 402,717229,738Income taxes paid during the year206,965$ 107,527177,142Non-cash investing activities:Transfer of loans to repossessed assets, at fair value16,692$ 73,864 35,154 Excess servicing strips from the securitization of SBA loans80,990$ 94,018 87,557 Right-of-use assets obtained in exchange for operating lease liabilities at January 1, 2019239,838$ - - (1) Includes $22.3 million reduction in the carrying amount of operating lease right-of-use assets for the twelve months ended December 31, 2019.(2) Includes $11.9 million reduction in the carrying amount of operating lease liabilities for the twelve months ended December 31, 2019.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 (1)Purchases of securities held for tradingProceeds from sales of securities held for trading
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 31 private client offices located in the New York metropolitan area, Connecticut, and
San Francisco, from which private client banking teams serve the needs of privately owned businesses, their
owners and 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.
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.
Cash and cash equivalents at December 31, 2019 consisted of cash and due from banks of $702.3 million,
interest-bearing deposits with banks of $50.4 million and money market mutual funds of $37.1 million. 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.
F-10
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 $449.7 million and $401.3 million for the
periods that included December 31, 2019 and 2018, 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 debt securities, we estimated future cash flows for
each security based upon our best estimate of future delinquencies, estimated defaults, loss severity, and
prepayments. We reviewed the estimated cash flows to determine whether we expect to receive all originally
scheduled cash flows. Projected credit losses 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).
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(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,
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 throughout the historical
observation periods, loss emergence periods, or other risks. Lastly, we allocate an ALLL based on qualitative loss
factors. These qualitative loss factors are designed to account for losses that may not be provided for by the
quantitative loss component due to other factors evaluated by management.
More specifically, to determine the general reserve portion of our ALLL, we segment the loan portfolio into various
components and apply various loss factors to estimate the amount of probable losses. The largest segment of our
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, 2019. Our credit-rated commercial loans are further segmented by
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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, 2019.
Finally, we allocate an ALLL based on qualitative loss factors dependent on both economic and portfolio-specific
data that correlates with loan losses. These qualitative loss factors are designed to account for losses that may not
be provided for by the quantitative loss component due to other factors evaluated by management, which include,
but are not limited to:
• Changes in lending policies and procedures, including changes in underwriting standards and
collection, and charge-off and recovery practices;
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• Changes in economic and business conditions and developments that affect the collectability of the
portfolio, including the condition of various market segments;
• Changes in the nature and volume of the portfolio and in the terms of loans;
• Changes in the volume and severity of past-due loans, the volume of nonaccrual loans, and the volume
and severity of adversely classified or graded loans;
• Changes in the quality of our loan review system;
• Changes in the value of underlying collateral;
• The existence and effect of any concentrations of credit, and changes in the level of such
concentrations;
• Changes in the experience, ability, and depth of lending management and other relevant staff; and
• The effect of other external factors, such as competition and legal and regulatory requirements.
We also assess the need for a specific allowance on impaired loans. A loan is considered impaired when, based
on current information and events, it is probable that we will be unable to collect all amounts due in accordance
with the original contractual terms of the loan agreement, including scheduled principal and interest payments. We
consider all nonaccrual loans to be impaired loans, and the related specific allowances for losses are determined
on an individual (non-homogeneous) basis. Factors contributing to the determination of specific allowances on
impaired loans include the creditworthiness of the borrower and, more specifically, changes in the expected future
receipt of principal and interest payments or, for collateral-dependent loans, the value of pledged collateral. We
charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible.
For collateral-dependent impaired loans in excess of $550,000, 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 $550,000, 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
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
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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, 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.
(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.
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(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 $65.1 million
at December 31, 2019, and $64.3 million at December 31, 2018. There was no deferred acquisition cost as of
December 31, 2019 and 2018. Our investment in BOLI generated income of $1.5 million, $1.6 million, and $2.2
million for the years ended December 31, 2019, 2018, and 2017, 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.
(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, 2019. 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.
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.
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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. Beginning in 2019, nonemployee awards are
recognized consistent with employee awards. 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 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 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 used to
economically hedge the foreign currency exposures for foreign currency loans that were extended to certain
borrowers.
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 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. 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.
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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) Operating Leases
Operating lease expense for the Company’s real estate leases is recognized in Non-interest expense on a straight-
line basis over the term of the lease. The related lease assets and liabilities are recognized in Operating lease right-
of-use assets and Operating lease liabilities, respectively, to reflect our right to use the underlying assets and
contractual obligations associated with future rent payments. On a periodic basis, ROU assets are assessed for
impairment. Impairment loss is recognized if the carrying amount of the ROU is not recoverable.
(t) 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.
(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
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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.
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 $182.6 million at December 31, 2019 and $152.8
million at December 31, 2018. Since the cash flows of the SBA interest-only strip securities are guaranteed by the
U.S. Government, there is limited credit risk involved. Therefore, the primary assumption built into the pricing
model to generate the projected cash flows used to compute the fair values of the SBA interest-only strip
securities is the discount yield. If the discount yield were to change by 100 basis points, the fair values of our SBA
interest-only strip securities would increase or decrease accordingly by approximately 2%. The Bank determined
the inputs to the discounted cash flow model based on historical performance and information provided by
brokers.
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Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents the assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2019 and 2018, classified according to the three-level valuation hierarchy:
F-20
(in thousands)Quoted Prices inActive Markets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs (Level 3)Total CarryingValue December 31, 2019ASSETSSecurities available-for-sale:U.S. Treasury securities20,139$ - - 20,139 Residential mortgage-backed securities:U.S. Government Agency- 41,335 - 41,335 Government-sponsored enterprises- 1,409,745 - 1,409,745 Collateralized mortgage obligations:U.S. Government Agency- 303,272 - 303,272 Government-sponsored enterprises- 3,574,086 - 3,574,086 Private- 626,899 6,807 633,706 Securities of U.S. states and political subdivisions:Municipal Bond - Taxable- 10,058 - 10,058 Other debt securities:Commercial mortgage-backed securities- 81,461 - 81,461 - 506,037 - 506,037 Pooled trust preferred securities- - 20,591 20,591 Other- 360,836 182,598 543,434 Total securities available-for-sale20,139 6,913,729 209,996 7,143,864 Equity securities (1)- 22,282 - 22,282 Derivatives- 7,624 261 7,885 Total assets20,139$ 6,943,635 210,257 7,174,031 LIABILITIESDerivatives-$ 1,107 207 1,314 Total liabilities-$ 1,107 207 1,314 December 31, 2018ASSETSSecurities available-for-sale:U.S. Treasury securitiesU.S. Treasury securities32,894$ - - 32,894 Residential mortgage-backed securities:U.S. Government Agency- 43,707 - 43,707 Government-sponsored enterprises- 1,513,294 - 1,513,294 Collateralized mortgage obligations:U.S. Government Agency- 239,343 - 239,343 Government-sponsored enterprises- 3,889,617 - 3,889,617 Private- 460,601 9,531 470,132 Securities of U.S. states and political subdivisions:Municipal Bond - Taxable- 6,554 - 6,554 Other debt securities:Commercial mortgage-backed securities- 109,988 - 109,988 - 444,324 - 444,324 Pooled trust preferred securities- - 20,928 20,928 Other- 378,032 152,791 530,823 Total securities available-for-sale32,894 7,085,460 183,250 7,301,604 Equity securities (1)- 21,043 - 21,043 Derivatives - 3,629 - 3,629 Total assets32,894$ 7,110,132 183,250 7,326,276 LIABILITIESDerivatives-$ 985 53 1,038 Total liabilities-$ 985 53 1,038 (1) Equity securities represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments. Effective January 1, 2018, we adoptedASU 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.Single issuer trust preferred & corporate debt securitiesSingle issuer trust preferred & corporate debt securities
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 during the years ended December 31, 2019 and 2018.
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:
F-21
(in thousands)AFSSecuritiesDerivative LiabilitiesYear ended December 31, 2019Beginning balance - Level 3183,250$ (53) Formation of SBA interest-only strip securities80,990 - Transfers into Level 3 - - Transfers out of Level 3 - - Total gains or (losses) (realized/unrealized):Included in earningsNon-interest income714 (154) Interest income(32,688) - Included in other comprehensive income(7,296) - Sale of AFS securities(14,974) - Ending balance - Level 3209,996$ (207) Year 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(27,193) - Ending balance - Level 3183,250$ (53) 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, 2019 and 2018, 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. To measure taxi medallion repossessed assets at fair value on a non-
recurring basis, fair value is based on recent market transfer values including our own transactions. 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, 2019, 2018, and 2017, we
recorded fair value adjustments on collateral-dependent impaired loans totaling $12.7 million, $105.4 million and
$243.4 million, respectively. The current year adjustments principally related to the New York City taxi medallion
portfolio due to a further decline in the underlying collateral value in the fourth quarter of 2019. 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, 2019, 2018 and 2017, we
recorded negative fair value adjustments of $7.1 million, $20.3 million, and 15.0 million, respectively, on
repossessed assets. The decrease in fair value adjustments for the year ended December 31, 2019 is primarily
due to the relatively stable taxi medallion collateral values in 2019 as compared to the prior year when the value
declined significantly. In conjunction with the repossession of $24.6 million and $17.9 million in additional taxi
medallions during the years ended December 31, 2019 and 2018, respectively, we recorded charge-offs to the
ALLL totaling zero for both periods.
Other Fair Value Disclosures
The preparation of financial statements in accordance with U.S. GAAP requires disclosure of the fair value of
financial assets and liabilities, including those items that are not measured and reported at fair value on a recurring
F-22
(in thousands)Quoted Prices inActive Markets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs (Level 3)Total CarryingValueDecember 31, 2019Collateral-dependent impaired loans:1-4 family residential property-$ - 502 502 Home equity lines of credit- - 1,287 1,287 Commercial and industrial (1) (2)- - 13,543 13,543 Other repossessed assets- - 29,220 29,220 Total assets-$ - 44,552 44,552 December 31, 2018Collateral-dependent impaired loans:Commercial property- - 135 135 1-4 family residential property-$ - 1,710 1,710 Home equity lines of credit- - 2,909 2,909 Commercial and industrial (1) (2)- - 88,495 88,495 Other repossessed assets- - 26,020 26,020 Total assets-$ - 119,269 119,269 (1) Includes zero and $82.6 million of taxi medallion loans as of December 31, 2019 and December 31, 2018, respectively.
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, 86.3% of which mature within one year, had a carrying value and estimated fair
value of $2.04 billion at December 31, 2019. The estimated fair value is based on the discounted value of
contractual cash flows using interest rates that approximated those offered for time deposits with similar maturities
and terms.
The estimated fair value of our borrowings is based on the discounted value of contractual cash flows using
interest rates that approximate those offered for borrowings with similar maturities and collateral requirements.
The estimated fair value of our subordinated debt is based on a quoted market price.
F-23
The following table summarizes the carrying amounts and estimated fair values of our financial assets and
liabilities:
F-24
(in thousands)Carrying AmountTotal Quoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)December 31, 2019FINANCIAL ASSETSCash and cash equivalents789,832$ 789,832 789,832 - - Securities available-for-sale7,143,864 7,143,864 20,139 6,913,729 209,996 Securities held-to-maturity2,101,970 2,115,541 - 2,115,541 - Federal Home Loan Bank stock (1)231,339 231,339 - 231,339 - Loans held for sale290,593 290,593 - 290,593 - Loans and leases, net (2)38,859,634 39,068,387 - - 39,068,387 Equity securities (3)22,282 22,282 - 22,282 - Derivatives7,885 7,885 - 7,624 261 Total financial assets49,447,399$ 49,669,723 809,971 9,581,108 39,278,644 FINANCIAL LIABILITIESDeposits (4)40,383,207$ 40,388,531 - 40,388,531 - Federal Home Loan Bank borrowings 4,142,144 4,186,069 - 4,186,069 - Broker repurchase agreements150,000 150,288 - 150,288 - Subordinated debt456,119 465,848 - 465,848 - Derivatives1,314 1,314 - 1,107 207 Total financial liabilities45,132,784$ 45,192,050 - 45,191,843 207 December 31, 2018FINANCIAL ASSETS Cash and cash equivalents317,255$ 317,255 317,255 - - Securities available-for-sale7,301,604 7,301,604 32,894 7,085,460 183,250 Securities held-to-maturity1,883,533 1,845,198 - 1,845,198 - Federal Home Loan Bank stock (1)264,877 264,877 - 264,877 - Loans held for sale485,305 485,305 - 485,305 - Loans and leases, net (2)36,193,122 35,648,161 - - 35,648,161 Equity securities (3)21,043 21,043 - 21,043 - Derivatives3,629 3,629 - 3,629 - Total financial assets46,470,368$ 45,887,072 350,149 9,705,512 35,831,411 FINANCIAL LIABILITIESDeposits (4)36,378,773$ 36,372,925 - 36,372,925 - Federal Home Loan Bank borrowings 4,970,000 4,962,203 - 4,962,203 - Broker repurchase agreements150,000 150,294 - 150,294 - Federal funds purchased670,000 670,000 670,000 - - Subordinated debt258,174 252,436 - 252,436 - Derivatives1,038 1,038 - 985 53 Total financial liabilities42,427,985$ 42,408,896 670,000 41,738,843 53 (1) FHLB stock has no trading market and is redeemable at par. As such, fair value is presented at the redemption (par) value.(4) The carrying and fair values of deposits do not include the intangible fair value of core deposit relationships.Estimated Fair Value Measurements(2) 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. (3) Equity securities primarily represent Community Reinvestment Act (“CRA”) qualifying closed-end bond fund investments which are included in Other assets on the consolidated statements of financial condition.
(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.
The following table summarizes the components of our securities portfolios as of the dates indicated:
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, 2019 and 2018, the Bank did not
have any securities pledged with FHLB; however, the carrying value of securities held by FHLB as custodian
totaled $539.5 million and $658.6 million, respectively. These securities were not pledged and can be used to
pledge towards future borrowings, as necessary.
F-25
GrossGrossGrossGrossAmortizedUnrealized Unrealized FairAmortizedUnrealized Unrealized Fair(in thousands)CostGainsLossesValueCostGainsLossesValueAVAILABLE-FOR-SALEU.S. Treasury securities20,000$ 139 - 20,139 32,954 66 (126) 32,894 Residential mortgage-backed securities:U.S. Government Agency40,662 831 (158) 41,335 44,196 317 (806) 43,707 Government-sponsored enterprises1,399,324 17,767 (7,346) 1,409,745 1,558,689 1,876 (47,271) 1,513,294 Collateralized mortgage obligations:U.S. Government Agency304,978 1,701 (3,407) 303,272 244,772 470 (5,899) 239,343 Government-sponsored enterprises3,608,196 18,657 (52,767) 3,574,086 3,984,361 8,368 (103,112) 3,889,617 Private632,662 3,429 (2,385) 633,706 478,399 1,081 (9,348) 470,132 Securities of U.S. states and political subdivisions:Municipal Bond - Taxable9,883 175 - 10,058 6,692 - (138) 6,554 Other debt securities:Commercial mortgage-backed securities81,570 637 (746) 81,461 111,409 157 (1,578) 109,988 498,241 8,312 (516) 506,037 450,305 1,136 (7,117) 444,324 Pooled trust preferred securities20,621 1,708 (1,738) 20,591 20,675 1,859 (1,606) 20,928 Other570,357 755 (27,678) 543,434 554,354 695 (24,226) 530,823 Total available-for-sale7,186,494$ 54,111 (96,741) 7,143,864 7,486,806 16,025 (201,227) 7,301,604 HELD-TO-MATURITYResidential mortgage-backed securities:U.S. Government Agency29,962$ 183 (103) 30,042 35,566 26 (1,168) 34,424 Government-sponsored enterprises317,270 4,092 (1,983) 319,379 335,969 219 (10,276) 325,912 Collateralized mortgage obligations:U.S. Government Agency165,757 744 (2,443) 164,058 178,851 91 (5,803) 173,139 Government-sponsored enterprises1,534,876 19,456 (11,980) 1,542,352 1,264,876 4,947 (27,890) 1,241,933 Private1,748 88 - 1,836 2,437 16 - 2,453 Other debt securities:Commercial mortgage-backed securities4,371 - (26) 4,345 17,570 21 (49) 17,542 Commercial mortgage-backed securitiesSingle issuer trust preferred & corporate debt securities47,986 5,543 - 53,529 48,257 1,705 (174) 49,788 Other- - - - 7 - - 7 Total held-to-maturity2,101,970$ 30,106 (16,535) 2,115,541 1,883,533 7,025 (45,360) 1,845,198 Single issuer trust preferred & corporate debt securitiesDecember 31,20192018
During the year ended December 31, 2019, we recognized zero other-than-temporary impairment losses on debt
securities. For the years ended December 31, 2018 and 2017, the amount of other-than-temporary impairment
losses recognized on debt securities is 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-26
(in thousands)Number of SecuritiesTotal Other-than-temporaryImpairment LossesLess:Noncredit Portion Recognized in OCINet ImpairmentLosses Recognizedin Earnings (1)AVAILABLE-FOR-SALECollateralized debt obligations2(2)$ (14) (16) Total other-than-temporarily impaired securities2(2)$ (14) (16) AVAILABLE-FOR-SALECollateralized debt obligations1(517)$ - (517) Pooled trust preferred securities6(137) 21 (116) Total other-than-temporarily impaired securities7(654)$ 21 (633) December 31, 2018December 31, 2017(1) The year ended December 31, 2018 includes losses on a CMO security that meets the definition 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 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
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, as applicable.
F-27
(in thousands)Year ended December 31, 201727,982$ - 633 (15,583) 13,032$ Year ended December 31, 201815 1 (413) 12,635$ Year ended December 31, 2019- - (909) 11,726$ Reduction for realized losses on debt securities sold, matured, and otherReduction for realized losses on debt securities sold, matured, and otherAdditions for the credit component on debt securities for which other-than-temporary impairment was not previously recognizedAdditions for the credit component on debt securities for which other-than-temporary impairment was previously recognizedCumulative credit component of other-than-temporary impairment losses at end of period (1)Additions for the credit component on debt securities for which other-than-temporary impairment was not previously recognizedAdditions for the credit component on debt securities for which other-than-temporary impairment was previously recognizedCumulative credit component of other-than-temporary impairment losses at beginning of periodAdditions for the credit component on debt securities for which other-than-temporary impairment was not previously recognizedAdditions for the credit component on debt securities for which other-than-temporary impairment was previously recognizedCumulative credit component of other-than-temporary impairment losses at end of period (2)Cumulative credit component of other-than-temporary impairment losses at end of period Reduction for realized losses on debt securities sold, matured, and other(1) 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.(2) The cumulative credit component of other-than-temporary losses at December 31, 2017 includes $3,000 of losses on securities that meet the definition of Covered Funds under the Volcker Rule.
Based on this review, we assumed that certain bank issuers on our watch list will default and others will cure in the
future. Utilizing our assumptions, we then discounted the cash flows to assess the amount of credit loss.
The following tables present information regarding AFS securities, categorized by type of security and length of
time that individual securities have been in a continuous unrealized loss position at the dates indicated. Unrealized
losses on other-than-temporarily impaired securities include noncredit impairments recorded in other
comprehensive income (loss).
F-28
FairUnrealizedFairUnrealizedFairUnrealized(in thousands)ValueLossesValueLossesValueLossesDecember 31, 2019Temporarily-impaired securitiesU.S. Treasury securities-$ - 3,000 - 3,000 - Residential mortgage-backed securities:U.S. Government Agency358 (1) 10,461 (157) 10,819 (158) Government-sponsored enterprises9,426 (14) 449,995 (7,332) 459,421 (7,346) Collateralized mortgage obligations:U.S. Government Agency89,353 (517) 84,644 (2,890) 173,997 (3,407) Government-sponsored enterprises866,716 (8,531) 1,370,955 (43,795) 2,237,671 (52,326) Private215,096 (1,036) 105,585 (1,125) 320,681 (2,161) Securities of U.S. states and political subdivisions:Other debt securities:18,316 (69) 27,533 (677) 45,849 (746) 15,963 (194) 28,953 (322) 44,916 (516) Pooled trust preferred securities- - 3,614 (937) 3,614 (937) Other330,448 (1,583) 189,044 (26,095) 519,492 (27,678) 1,545,676 (11,945) 2,273,784 (83,330) 3,819,460 (95,275) - - 354 (441) 354 (441) 1,764 (8) 2,407 (216) 4,171 (224) 3,908 (323) 750 (478) 4,658 (801) 5,672 (331) 3,511 (1,135) 9,183 (1,466) 1,551,348$ (12,276) 2,277,295 (84,465) 3,828,643 (96,741) Total other-than-temporarily impaired securitiesTotal temporarily-impaired and other-than- temporarily impaired securitiesPooled trust preferred securities Government-sponsored enterprises PrivateCommercial mortgage-backed securitiesSingle issuer trust preferred & corporate debt securitiesTotal temporarily-impaired securitiesOther-than-temporarily impaired securities12 months or longerTotalLess than 12 monthsCollateralized mortgage obligations:Other debt securities:
F-29
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 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 securitiesOtherTotal other-than-temporarily impaired securitiesTotal temporarily-impaired and other-than- temporarily impaired securities
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 decline in unrealized loss from last year reflects lower intermediate rates as a result of trade tensions and
slower global growth concerns.
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, 2019.
F-30
FairUnrealizedFairUnrealizedFairUnrealized(in thousands)ValueLossesValueLossesValueLossesMortgage-backed securities:U.S. Government Agency-$ - 2,095 (103) 2,095 (103) Government-sponsored enterprises26,344 (36) 106,287 (1,947) 132,631 (1,983) Collateralized mortgage obligations:U.S. Government Agency38,684 (247) 81,959 (2,196) 120,643 (2,443) Government-sponsored enterprises359,943 (3,446) 269,681 (8,534) 629,624 (11,980) Other debt securities:Commercial mortgage-backed securities4,345 (26) - - 4,345 (26) 429,316$ (3,755) 460,022 (12,780) 889,338 (16,535) Mortgage-backed securities:U.S. Government Agency-$ - 33,537 (1,168) 33,537 (1,168) Government-sponsored enterprises44,768 (378) 262,930 (9,898) 307,698 (10,276) Collateralized mortgage obligations:U.S. Government Agency12,974 (213) 151,590 (5,590) 164,564 (5,803) Government-sponsored enterprises35,926 (386) 903,283 (27,504) 939,209 (27,890) Other debt securities:Commercial mortgage-backed securities10,126 (49) - - 10,126 (49) 10,719 (174) - - 10,719 (174) 114,513$ (1,200) 1,351,340 (44,160) 1,465,853 (45,360) December 31, 2019Temporarily-impaired securitiesTotal temporarily-impaired and other-than- temporarily impaired securitiesLess than 12 months12 months or longerTotalTotal temporarily-impaired and other-than- temporarily impaired securitiesDecember 31, 2018Single issuer trust preferred & corporate debt securitiesTemporarily-impaired securities
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, 2019 and 2018, Signature Bank was in compliance with the FHLB’s minimum investment
requirement with stock investments of $231.3 million and $264.9 million, respectively, carried at cost on the
Consolidated Statements of Financial Condition. Collateral pledged for outstanding FHLB borrowings at December
31, 2019 and 2018 included $186.4 million and $223.7 million of FHLB capital stock, respectively.
In performing our other-than-temporary impairment analysis of FHLB stock, we evaluate, 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, 2019.
(6) Loans Held for Sale
Loans held for sale at December 31, 2019 and 2018 were $290.6 million and $485.3 million, respectively. Gains
on sales associated with the securitization of pooled loans and sale of mortgage loans for the years ended
December 31, 2019, 2018 and 2017 amounted to $4.8 million, $4.9 million and $6.8 million, respectively.
We are an active participant in the SBA loan and SBA pool secondary market by purchasing, securitizing, and
selling the guaranteed portions of SBA loans. Most SBA loans have adjustable rates and float at a spread over
prime and reset monthly or quarterly. The guaranteed portions of SBA loans are backed by the full faith and credit
of the U.S. Government and therefore carry a 0% risk weight for regulatory capital purposes.
We generally warehouse loans for up to 180 days until there are sufficient loans with similar characteristics to
securitize a pool. We may strip excess servicing from loans with different coupons to create a pool at a common
rate. This process results in the creation of two assets: a par pool, which is sold to accredited investors, and an
interest-only strip, which we retain as an available-for-sale security. In certain transactions, the Bank may also
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(in thousands)Amortized CostFair ValueAVAILABLE-FOR-SALEDue in one year or less56,384$ 56,815 Due after one year through five years353,844 359,481 Due after five years through ten years607,940 607,811 Due after ten years6,168,326 6,119,757 Total available-for-sale debt securities 7,186,494$ 7,143,864 HELD-TO-MATURITYDue in one year or less4,371$ 4,345 Due after one year through five years30,379 31,801 Due after five years through ten years97,024 98,250 Due after ten years1,970,196 1,981,145 Total held-to-maturity debt securities2,101,970$ 2,115,541 December 31, 2019
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, 2019 and 2018, commercial and industrial loans include overdrafts of commercial deposit
accounts totaling $54.2 million and $47.9 million, respectively, and other consumer loans include overdrafts of
personal deposit accounts totaling $4.7 million and $4.0 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 $100,000, overdrafts, residential
mortgages, and consumer loans.
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December 31,December 31,(in thousands)20192018Mortgage loans:Multi-family residential property15,101,727$ 15,688,481 Commercial property10,199,293 10,309,837 1-4 family residential property506,515 620,486 Home equity lines of credit105,379 116,272 Acquisition, development and construction loans1,270,095 1,656,467 Total mortgage loans27,183,009 28,391,543 Other loans:Specialty finance4,596,932 4,050,321 Fund banking4,421,961 647,927 Commercial and industrial2,863,967 3,207,240 Taxi medallions6,897 88,511 Consumer9,605 9,038 Total other loans11,899,362 8,003,037 Net deferred fees and costs27,252 28,547 ALLL(249,989) (230,005) Net loans38,859,634$ 36,193,122
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, 2019Commercial loans secured by real estate:Multi-family residential property14,919,099$ 69,488 113,140 - - 15,101,727 Commercial property9,959,566 154,041 85,686 - - 10,199,293 1-4 family residential property428,156 - - - - 428,156 Acquisition, development and construction loans1,218,555 14,684 36,856 - - 1,270,095 Commercial and industrial loans:Specialty finance4,529,724 27,595 39,613 - - 4,596,932 Fund banking4,421,649 - - - 312 4,421,961 Commercial and industrial 2,745,662 1,172 55,750 - 61,383 2,863,967 Taxi medallions- - 6,897 - - 6,897 Total commercial loans38,222,411$ 266,980 337,942 - 61,695 38,889,028 December 31, 2018Commercial loans secured by real estate:Multi-family residential property15,479,307$ 122,528 85,963 - - 15,687,798 Commercial property10,183,214 100,504 26,119 - - 10,309,837 1-4 family residential property524,786 - 5,502 - - 530,288 Acquisition, development and construction loans1,554,468 90,438 11,561 - - 1,656,467 Commercial and industrial loans:Specialty finance4,008,007 15,936 26,378 - - 4,050,321 Fund banking647,927 - - - - 647,927 Commercial and industrial 3,054,155 81,179 16,557 - 55,349 3,207,240 Taxi medallions- - 88,511 - - 88,511 Total commercial loans35,451,864$ 410,585 260,591 - 55,349 36,178,389
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 $465,000 and $1.4 million at December 31,
2019 and 2018, respectively, and all related party loans are current as to payments.
F-34
(in thousands)PerformingNonperformingTotalDecember 31, 2019Residential mortgages74,794$ 3,565 78,359 Home equity lines of credit101,904 3,475 105,379 Other consumer loans9,605 - 9,605 Total consumer loans186,303$ 7,040 193,343 December 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
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, 2019 and 2018 totaled $57.4 million and $108.7 million, respectively. At
December 31, 2019, $6.9 million of nonaccrual loans were secured by taxi medallions, compared to $88.5 million
as of December 31, 2018. The decrease in nonaccrual loans was primarily attributable to the sale and settlement
of taxi medallion loans totaling $61.3 million and the repossession of taxi medallion loans totaling $15.4 million, the
charge-down of Chicago and Philadelphia taxi medallion loans totaling $3.6 million, and the continued receipt of
payments on taxi medallion loans totaling $1.3 million. Further contributing to this decrease were commercial and
industrial loan reductions due to payoffs totaling $1.4 million, the return to accrual status for one loan totaling $2.0
million, and $1.0 million related to repossession activity. Finally, adding to the decline was one 1-4 family
residential property payoff totaling $1.8 million. This overall decrease was partially offset by new nonaccrual loans
totaling $38.3 million which included one new commercial real estate loan totaling $22.8 million and one
commercial and industrial loan totaling $6.2 million.
There were no commitments at December 31, 2019 and 2018 to lend additional funds on nonaccrual loans. For
further discussion, see Note 8 to our Consolidated Financial Statements.
At December 31, 2019, loans past due 90 days or more and still accruing included three commercial and industrial
loans totaling $2.2 million that are well secured and in process of collection. 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 $2.0 million that are well secured and in process of collection.
F-35
(in thousands)Past Due30-89 DaysPast Due90+ DaysTotalPast DueCurrentTotalLoansLoans Past Due 90+ Days & AccruingNon-accruing LoansDecember 31, 2019Commercial loansLoans secured by real estate:Multi-family residential property-$ - - 15,101,727 15,101,727 - - Commercial property29,858 - 29,858 10,169,435 10,199,293 - 22,754 1-4 family residential property- - - 428,156 428,156 - - Acquisition, development and construction loans- - - 1,270,095 1,270,095 - - Commercial and industrial loans:Specialty finance16,135 7,860 23,995 4,572,937 4,596,932 - 15,530 Fund banking- - - 4,421,961 4,421,961 - - Commercial and industrial 13,915 5,888 19,803 2,844,164 2,863,967 2,187 5,134 Taxi medallion loans18 6,517 6,535 362 6,897 - 6,897 Consumer loansResidential mortgages611 3,678 4,289 74,070 78,359 113 3,565 Home equity lines of credit- 3,475 3,475 101,904 105,379 - 3,475 Consumer loans627 - 627 8,978 9,605 - - Total61,164$ 27,418 88,582 38,993,789 39,082,371 2,300 57,355 December 31, 2018Commercial loansLoans secured by real estate:Multi-family residential property12,294$ 5,000 17,294 15,670,504 15,687,798 5,000 - Commercial property6,569 - 6,569 10,303,268 10,309,837 - - 1-4 family residential property8,381 1,800 10,181 520,107 530,288 - 1,800 Acquisition, development and construction loans827 - 827 1,655,640 1,656,467 - - Commercial and industrial loans:Specialty finance9,466 4,916 14,382 4,035,939 4,050,321 13 6,707 Fund banking- - - 647,927 647,927 - - Commercial and industrial 24,857 4,468 29,325 3,177,915 3,207,240 2,517 5,128 Taxi medallion loans7,997 31,130 39,127 49,384 88,511 - 88,511 Consumer loansResidential mortgages856 2,268 3,124 87,757 90,881 303 3,033 Home equity lines of credit246 3,473 3,719 112,553 116,272 - 3,473 Consumer loans854 - 854 8,184 9,038 - - Total72,347$ 53,055 125,402 36,269,178 36,394,580 7,833 108,652
As of December 31, 2019 and 2018, the Bank held ten residential consumer mortgage loans in the process of
foreclosure totaling $5.7 million and $5.0 million, respectively. The Bank did not hold any foreclosed residential
real estate at December 31, 2019 or 2018. Other repossessed assets as of December 31, 2019 and 2018 totaled
$46.8 million and $51.6 million, respectively. The December 31, 2019 repossessed asset balance principally
consists of taxi medallions. Included in the December 31, 2019 balance are $32.4 million of taxi medallions that
have been legally sold and financed by the Bank. Despite having been legally sold, in accordance with the new
revenue recognition standard, due to uncertainty regarding collectability, these repossessed assets cannot be
derecognized. Since these are active legal loans, however, the Bank continues to receive principal and interest
payments which further reduce our overall taxi medallion exposure. 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, 2019 and 2018, the Bank had pledged $7.82 billion and $7.75 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 $4.35 billion and $4.91 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, 2019, compared to the same
period a year ago, is primarily due to the absence of significant charge-offs related to the NYC taxi medallion
portfolio due to a sharp decline in its associated value in 2018, as well as our loan portfolio’s continued high credit
performance in 2019.
Additionally, the Bank’s recent strategy to increase floating rate assets and reduce its commercial real estate
concentration contributed to the 2019 reserve release in the commercial real estate segment. During the year end,
commercial real estate loans decreased by $1.08 billion with a replacement of $3.90 billion of commercial and
industrial loans. A majority of the commercial and industrial loan growth is comprised of fund banking loans, which
F-36
(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential MortgagesConsumer TotalFor the year ended December 31, 2019Beginning balance - ALLL175,631$ 2,534 47,613 1,195 2,925 107 230,005 Provision(12,921) (495) 32,172 3,240 189 451 22,636 Charge-offs- - (13,101) (2,813) (4) (367) (16,285) Recoveries- - 13,013 545 18 57 13,633 Ending balance - ALLL162,710$ 2,039 79,697 2,167 3,128 248 249,989 For 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 Non-rated loansCredit-rated loans (1)(1) For the year ended December 31, 2017, the beginning balance of the ALLL and provision lines both include reclassifications of immaterial amounts amongst all categories of credit-rated loans related to Acquisition, Development and Construction loans. See Note 1 for further details.
possess a stronger risk rating and, therefore, a lower loss rate is applied resulting in a provision reduction on a
comparable basis. Further contributing to the overall decline is a 2019 second quarter sale of NYC taxi medallions
totaling $46.4 million in nonaccrual loans and $4.6 million in repossessed taxi medallions, which resulted in a
recovery of $5.1 million during the second quarter of 2019.
The decrease in the charge-off and provision levels for the year ended December 31, 2019 compared to 2017 is
also primarily due to a stable NYC taxi medallion collateral value in 2019, compared to a significant decline in the
related value during 2017.
While previous years were defined by distress and illiquidity in the taxi medallion market, since the significant
decline in collateral value in the first quarter 2018 the NYC Taxi & Limousine Commission (TLC) trip data has
shown stabilization in revenue per medallion, and transfer values have been relatively consistent. In 2019, the
associated fair value remained relatively stable with a reduction from $160,000 to $153,000. To derive this fair
value, management equally weights all observable transactions given the recent tightening in the range of transfer
values. Not only has there been stabilization in the market, but following the aforementioned NYC taxi medallion
loan sale in the second quarter of 2019, as well as continued loan settlement and repossession activity, our
remaining NYC taxi medallion loan exposure is now limited at $586,000.
The following table presents our ALLL and outstanding loan balances by loan portfolio segment, based on the
methodology followed in determining the allowance:
A loan is considered impaired when, based on current information and events, it is probable that we will be unable
to collect all amounts due in accordance with the original contractual terms of the loan agreement, including
scheduled principal and interest payments. In determining whether a loan is impaired, we review the payment
performance and we consider a loan to be impaired once it is placed on nonaccrual status. A loan may also be
considered impaired if it is past due maturity and is not well-secured and in the process of collection. In addition, if
a loan is restructured as troubled debt, we consider the loan impaired during the year of restructuring. In
subsequent years, we do not consider the restructured loan as impaired if it was restructured at a market rate and
continues to perform in accordance with the modified terms. Other TDRs, however, are reported as such for as
long as the loan remains outstanding.
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(in thousands)Commercial RealEstate1-4 FamilyResidential PropertyCommercial &IndustrialCommercialResidential Mortgages (1)Consumer TotalAs of December 31, 2019ALLL:Individually evaluated for impairment-$ - 6,997 - 2,399 - 9,396 Collectively evaluated for impairment162,710 2,039 72,700 2,167 729 248 240,593 Recorded investment in loans:Individually evaluated for impairment35,639 3,300 77,641 - 8,335 - 124,915 Collectively evaluated for impairment26,535,476 424,856 11,750,421 61,695 175,403 9,605 38,957,456 As of December 31, 2018ALLL:Individually evaluated for impairment135$ 630 5,112 5 2,333 - 8,215 Collectively evaluated for impairment175,496 1,904 42,501 1,190 592 107 221,790 Recorded investment in loans:Individually evaluated for impairment13,411 5,502 137,510 9 7,508 - 163,940 Collectively evaluated for impairment27,640,691 524,786 7,801,140 55,340 199,645 9,038 36,230,640 (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:
F-38
(in thousands)UnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceUnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceWith no related allowance recorded:Commercial loans secured by real estate:Commercial property26,196$ 26,196 - 3,512 3,512 - Multi-family residential property9,443 9,443 - 9,628 9,628 - 1-4 family residential property3,300 3,300 - 3,703 3,703 - Commercial and industrial loans61,283 59,611 - 153,381 114,000 - Residential mortgages2,106 2,106 - 1,498 1,498 - With an allowance recorded:Commercial loans secured by real estate:Commercial property- - - 271 271 135 1-4 family residential property- - - 1,800 1,800 630 Commercial and industrial loans18,535 18,030 6,997 114,987 23,519 5,117 Residential mortgages1,459 1,459 729 1,743 1,534 767 Home equity lines of credit4,770 4,770 1,670 3,723 4,475 1,566 Total: Commercial loans secured by real estate38,939 38,939 - 18,914 18,914 765 Commercial and industrial loans79,818 77,641 6,997 268,368 137,519 5,117 Residential mortgages3,565 3,565 729 3,241 3,032 767 Home equity lines of credit4,770 4,770 1,670 3,723 4,475 1,566 Total impaired loans127,092$ 124,915 9,396 294,246 163,940 8,215 December 31, 2019December 31, 2018
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 as troubled debt restructurings (“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, 2019,
2018, and 2017. 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:
F-39
(in thousands)AverageRecordedInvestmentInterestIncomeRecognizedAverageRecordedInvestmentInterestIncomeRecognizedAverageRecordedInvestmentInterestIncomeRecognizedWith no related allowance recorded:Commercial loans secured by real estate:Commercial property8,671$ 132 4,825 49 7,680 235 Multi-family residential property9,536 326 1,926 1 - - 1-4 family residential property2,060 52 3,916 70 3,746 187 Commercial and industrial loans77,852 1,673 175,039 299 198,518 234 Residential mortgages1,742 - 599 - - - With an allowance recorded:Commercial loans secured by real estate:Commercial property54 - 234 - - - Acquisition, development and construction loans- - 100 - - - Multi-family residential property- - - - 623 - 1-4 family residential property360 - 1,454 - 33 - Commercial and industrial loans26,122 126 18,889 73 157,455 1,260 Residential mortgages1,537 - 1,610 - 1,994 - Home equity lines of credit4,588 6 4,314 43 4,690 - Other consumer loans- - - - 1 - Total: Commercial loans secured by real estate20,681 510 12,455 120 12,082 422 Commercial and industrial loans103,974 1,799 193,928 372 355,973 1,494 Residential mortgages3,279 - 2,209 - 1,994 - Home equity lines of credit4,588 6 4,314 43 4,690 - Other consumer loans- - - - 1 - Total 132,522$ 2,315 212,906 535 374,740 1,916 Years ended December 31,201920182017(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 property-- - 19,644 9,628 -- - 1-4 family residential property13,300 3,300 -- - 14,450 4,236 Commercial and industrial loans:Commercial and industrial725,465 23,087 1428,619 27,730 711,504 3,845 Specialty finance21,835 1,655 87,610 6,152 0- - Taxi medallions-- - 9421,371 14,728 409212,068 133,853 Consumer loans:Home equity lines of credit1336 335 11,029 1,002 21,231 373 Total1130,936$ 28,377 11868,273$ 59,240 420235,625$ 148,679 December 31, 2019December 31, 2018December 31, 2017
The following table summarizes how the TDRs loans recorded for the years ended December 2019, 2018, and
2017 were modified:
Our impaired loans at December 31, 2019 and 2018 include TDRs totaling $76.5 million and $134.2 million,
respectively. The decrease in TDRs was primarily driven by sales of NYC taxi medallions, as well as loan
settlements, totaling $55.4 million in 2019. This is principally a result of a large transaction executed in the second
quarter of 2019 to sell a significant portion of our remaining taxi medallion loan portfolio. Further contributing to the
decrease is the continued payment reductions for existing TDRs totaling $5.7 million, full payoffs or settlements
totaling $12.8 million, the repossession of NYC and Chicago taxi medallions totaling $8.1 million, and charge-offs
and charge-downs of taxi medallion loans totaling $860,000 and $2.0 million, respectively. This was partially offset
by the restructure of ten commercial and industrial loans totaling $24.7 million, one commercial loans secured by
1-4 family residential property totaling $3.3 million, and one home equity line of credit totaling $335,000.
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, 2019, we had no loans that were modified as a TDR within the previous 12 months that
subsequently defaulted on payments. 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.
For the years ended December 31, 2019, 2018 and 2017, we recorded interest income on impaired loans during
the period of impairment totaling $2.3 million, $535,000 and $1.9 million, respectively. If all impaired loans had
F-40
(in thousands)TermExtensionTerm Extension with Other Concession (1)Deferred Principal AmortizationDeferred Principal Amortizationwith OtherConcession (1)Rate ReductionTotalDecember 31, 2019Commercial loans secured by real estate:1-4 family residential property-$ 3,300 - - - 3,300 Commercial and industrial loans:Commercial and industrial9,077 13,530 - 480 - 23,087 Specialty finance- - - 1,655 - 1,655 Consumer loans:Home equity lines of credit- - - 335 - 335 Total9,077$ 16,830 - 2,470 - 28,377 December 31, 2018Commercial loans secured by real estate:Multi-family residential property9,628$ - - - - 9,628 Commercial and industrial loans:Commercial and industrial21,161 776 - 5,793 - 27,730 Specialty finance- 3,823 - 2,329 - 6,152 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 (1) Other concessions may include a reduction of the loan's interest rate, principal forgiveness and/or a term extension.
been performing in accordance with their original terms, we would have recorded interest income, with respect to
such loans, of approximately $3.5 million, $8.2 million, and $8.7 million for the years ended December 31, 2019,
2018 and 2017, respectively. Average impaired loans for the years ended December 31, 2019, 2018 and 2017
totaled $132.5 million, $212.9 million, and $374.7 million, respectively.
(9) Premises and Equipment
Premises and equipment are summarized as follows as of the dates indicated:
Depreciation and amortization expense totaled $20.1 million, $14.0 million and $12.2 million for the years ended
December 31, 2019, 2018 and 2017, 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, 2019 and 2018 were $2.26 billion and $1.91 billion, respectively. Time deposit accounts with
balances of $250,000 or more totaled $1.65 billion and $1.41 billion at December 31, 2019 and 2018, respectively.
F-41
(in thousands)20192018Leasehold improvements90,436$ 75,122 Furniture, fixtures and equipment91,227 79,025 181,663 154,147 Less accumulated depreciation and amortization(115,244) (95,096) Premises and equipment, net66,419$ 59,051 December 31,(in thousands)20192018Non-interest-bearing demand12,941,981$ 12,015,841 NOW and interest-bearing demand5,108,254 4,395,550 Money market19,372,921 17,841,281 Time deposits1,790,373 1,377,517 Brokered deposits (1)1,169,678 748,584 Total deposits40,383,207$ 36,378,773 December 31,(1) Includes non-interest bearing deposits of $74.9 million and $26,000 as of December 31, 2019 and December 31, 2018, respectively.
At December 31, 2019, the scheduled maturities of time deposits are as follows:
At December 31, 2019 and 2018, we had approximately $41.7 million and $49.7 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 $6.8 million, $6.0 million and $5.4 million, respectively, for the years ended
December 31, 2019, 2018 and 2017.
(12) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
The following is a summary of federal funds purchased and securities sold under agreements to repurchase with
brokers at or for the years ended:
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(in thousands)Amount20202,044,988$ 2021162,373 2022151,250 20237,269 20243,510 Total time deposits (1)2,369,390$ (1) Includes brokered time deposits of $590.7 million.(dollars in thousands)20192018Federal Funds PurchasedYear-end balance-$ 670,000$ Maximum amount outstanding at any month-end1,136,000$ 708,000$ Average outstanding balance399,715$ 521,318$ Weighted-average interest rate paid2.58%2.07%Weighted-average interest rate at year-end0.00%2.59%Securities Sold Under Agreements to RepurchaseYear-end balance150,000$ 150,000$ Maximum amount outstanding at any month-end150,000$ 150,000$ Average outstanding balance150,000$ 97,534$ Weighted-average interest rate paid2.56%2.77%Weighted-average interest rate at year-end2.93%2.93%December 31,
During the years ended December 31, 2019, 2018, and 2017, we recorded interest expense on federal funds
purchased and securities sold under agreements to repurchase with brokers totaling $14.2 million, $13.5 million,
and $9.70 million, respectively.
The federal funds purchased were generally overnight transactions. We had zero and $670.0 million federal funds
purchased as of December 31, 2019 and 2018, respectively. As of December 31, 2019, we had repurchase
agreements with brokers accounted for as secured borrowings totaling $150.0 million with an expected maturity
date of August 2023. 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 was expected to mature in November
2019 and the remaining $50.0 million was expected to mature in May 2020.
At December 31, 2019, securities with a fair value of $169.1 million and a carrying value of $167.6 million were
pledged to meet our collateral requirement of $162.0 million on repurchase agreements with brokers. 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.
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, 2019, 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, 2019, we were in
compliance with this requirement.
As of December 31, 2019 and 2018, 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, 2019 and 2018.
The following table provides a summary of FHLB borrowings at or for the years ended:
During the years ended December 31, 2019, 2018, and 2017, interest expense recorded on FHLB borrowings
totaled $127.3 million, $92.6 million, and $36.5 million, respectively.
As of December 31, 2019, $7.82 billion of commercial real estate loans pledged through a blanket assignment
were available to meet collateral requirements of approximately $4.35 billion on FHLB borrowings. As of
F-43
(dollars in thousands)20192018FHLB AdvancesYear-end balance4,142,144$ 4,970,000$ Maximum amount outstanding at any month-end5,547,364$ 5,270,000$ Average outstanding balance4,966,378$ 4,455,001$ Weighted-average interest rate paid2.56%2.08%Weighted-average interest rate at year-end2.32%2.51%December 31,
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.
FHLB advances as of December 31, 2019 have contractual maturities as follows:
At December 31, 2019, 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.
On November 1, 2019, the Bank completed a public offering of $200.0 million aggregate principal amount of
Fixed-To-Floating Rate Subordinated Notes due November 1, 2029 (the “Notes”). The Notes accrue interest at a
fixed rate of 4.125% for the first five years until November 2024. After this date and for the remaining five years of
the Notes’ term, interest will accrue at a floating rate of LIBOR plus 255.9 basis points. Additionally, during the
floating rate period and at the Bank’s option, the Notes can be prepaid by the Bank. Net proceeds from this
offering will be used for general corporate purposes and the repurchase of common stock.
Subordinated debt was reported in the Consolidated Statements of Financial Condition net of deferred issuance
costs of $3.9 million and $1.8 million as of December 31, 2019 and 2018, respectively.
F-44
(in thousands)Amount 20203,090,000$ (1)2021305,000 2022588,144 2023159,000 2024- Total FHLB advances4,142,144$ (1) This includes short duration borrowings totaling $1.75 billion that were extended to 5 years with cash flow hedging strategies. Specifically, when considering hedge accounting, $500.0 million were extended to May 2022, $250.0 million to December 2023, and the remaining $1.0 billion to March 2024. See Note 20 for additional information.
(15)
Income Taxes
Provision for Income Taxes
The following table presents the components of income tax expense for the periods indicated:
F-45
(in thousands)201920182017Income tax expense (benefit) reported in net income:FederalCurrent expense117,381$ 107,978 127,813 Deferred income tax expense (benefit)4,080 (8,468) 40,307 Total federal121,461$ 99,510 168,120 State and localCurrent expense80,638$ 58,764 2,115 Deferred income tax (benefit) expense(3,389) 9,847 17,820 Total state and local77,249$ 68,611 19,935 TotalCurrent expense198,019$ 166,742 129,928 Deferred income tax expense 691 1,379 58,127 Total income tax expense reported in net income198,710$ 168,121 188,055 Income tax expense (benefit) reported in stockholders' equity:Unrealized gains (losses) on securities46,791$ (25,146) (8,341) Unrealized losses on cash flow hedges(13,888) (974) - Total income tax expense (benefit) reported in stockholders' equity32,903$ (26,120) (8,341) Total income taxes231,613$ 142,001 179,714 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, 2019, 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-46
(in thousands)20192018109,639$ 82,204 73,580 67,977 Operating lease liabilities (1)71,851 - Depreciation - ordinary20,046 2,439 12,035 11,583 Repossessed taxi medallion valuation reserve8,928 10,843 3,451 3,734 7,037 4,466 306,567 183,246 12,547 43,047 6,211 2,512 Net unrealized losses on cash flow hedges14,307 975 339,632 229,780 263,323 207,593 Operating lease right-of-use assets (1)65,482 - Deferred rent3,230 - 1,101 818 Deferred income- - 11,226 11,939 344,362 220,350 (4,730)$ 9,430 Total deferred tax liabilities recognized in earningsTotal deferred tax assetsDEFERRED TAX LIABILITIESDepreciation - leased assetsPrepaid expensesOtherOtherDecember 31,DEFERRED TAX ASSETSAllowance for loan and lease lossesIncome on leased assetsWrite-down for other-than-temporary impairment of securitiesUnearned compensation - restricted stock(1) Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) and elected not to restate comparative prior periods, a transition option provided by ASU 2018-11, Leases- Targeted Improvements (Topic 842).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-maturity
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
As of December 31, 2019, the Company had $15.2 million of unrecognized gross tax benefits. Gross Tax benefits
do not reflect the federal tax effect associated with state tax amounts. The total amount of net unrecognized tax
benefits at December 31, 2019 that would have affected the effective tax rate, if recognized, was $12.0 million.
The following table summarizes changes in the liability for unrecognized gross tax benefits for the years ended
December 31, 2019, 2018, and 2017:
Our policy is to recognize interest and penalties on income taxes in income tax expense. During the years ended
December 2019, 2018, and 2017, we recognized income tax expense attributed to interest and penalties of $1.9
million, $243,000 and $236,000, respectively. Accrued interest and penalties on tax liabilities were $3.0 million and
$1.0 million, respectively, at December 31, 2019 and 2018.
The Company and its subsidiaries are subject to income tax by federal, state, and local government taxing
authorities and file tax returns in many tax jurisdictions. The Company’s New York State, New York City, and New
Jersey tax returns are currently under examination for tax years 2015 through 2017. For our federal and most
state and local income tax returns, we remain subject to examination for tax years 2016 and after. The Company
does not currently believe there is a reasonable possibility of any significant change to our total unrecognized tax
benefits within the next twelve months.
F-47
(dollars in thousands)Expense (Benefit)RateExpense (Benefit)RateExpense (Benefit)RateStatutory federal income tax expense165,404$ 21%141,427 21%201,342 35%State and local income taxes, net of federal income tax benefit61,026 8%52,590 8%29,503 5%Deduction limitation for FDIC premiums2,611 *4,959 1%- *Nondeductible compensation2,897 *3,514 *370 *Low income housing federal tax credits(36,196) (5%)(32,621) (5%)(17,259) (3%)Stock based compensation766 *(2,373) *(5,491) (1%)Tax exempt income(3,376) *(2,503) *(2,586) *2015 & 2016 NYC affordable housing tax benefit- *- *(15,070) (3%)Federal excise tax on deferred income- *- *2,815 *Federal tax reform impact on OCI- *- *14,101 2%DTA Remeasurement - Federal tax reform- *- *(18,874) (3%)Other items, net5,578 1%3,128 *(796) *Effective income tax expense 198,710$ 25%168,121 25%188,055 32%* - Less than 1%.Years ended December 31,201920182017(in thousands)201920182017Uncertain tax positions at beginning of year7,128$ 5,382 - Additions for tax positions relating to current-year operations2,122 1,746 2,122 Additions for tax positions relating to prior tax years5,905 - 3,260 Subtractions for tax positions relating to prior tax years- - - Reductions in balance due to settlements- - - Uncertain tax positions at end of year15,155$ 7,128 5,382 Years ended December 31,
(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,
2019 and 2018 is summarized as follows:
Restricted Stock
The following table summarizes information regarding outstanding grants of restricted stock for the years ended
December 31, 2019 and 2018:
The driver of the 2019 and 2018 forfeitures were Type III modifications (improbable-to-probable vesting) of awards
related to one and three employees, respectively, who will be required to provide consulting services to the Bank
as non-employees over a two-year vesting period.
As of December 31, 2019, our total unrecognized compensation cost related to unvested restricted shares was
$73.0 million, which is expected to be recognized over a weighted-average period of 1.77 years. During the years
ended December 31, 2019, 2018, and 2017, we recognized compensation expense of $55.4 million, $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, 2019, 2018 and 2017 were $50.0 million, $62.4 million, and $59.5 million, respectively.
F-48
20192018Shares available for future awards at beginning of the year 1,317,949 1,558,973 Restricted stock Granted (446,324) (443,167)Forfeited 28,939 55,137 Shares sold to cover minimum tax withholding upon vesting 180,132 147,006 Shares available for future awards at end of the year 1,080,696 1,317,949 Years ended December 31, SharesWeighted AverageGrant PriceSharesWeighted AverageGrant PriceOutstanding at beginning of the year 832,888 $ 141.34 875,813 $ 131.28 Granted 446,324 125.87 443,167 141.94 Vested (396,367) 135.23 (430,955) 118.68 Forfeited (28,939) 141.97 (55,137) 142.66 Outstanding at end of the year 853,906 $ 133.89 832,888 $ 141.34 20192018
(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, 2019 and 2018:
The following table presents changes in AOCL, net of tax, for the years ended December 31, 2019 and 2018:
The related tax effects allocated to debt securities and cash flow hedges in AOCL as of December 31, 2019 and
2018 are as follows:
F-49
20192018(in thousands)Details About AOCIAmountReclassifiedOut of AOCLAmountReclassifiedOut of AOCLAffected Line Item in theConsolidated Statement of IncomeNet unrealized gains on AFS securities $ 1,034 989 Net gains on sales of securities - (16)Net other-than-temporary impairment losses on securities recognized in earningsTotal reclassifications, before tax 1,034 973 (304) (287)Income tax expenseTotal reclassifications, net of tax $ 730 686 Net Unrealized losses on derivatives (cash flow hedges)Reclassifications, before tax $ (1,878) 4 Interest expense - FHLB borrowings 553 (1)Income tax expenseTotal reclassifications, net of tax $ (1,325) 3 Years ended December 31, (in thousands)AFSSecuritiesHTM SecuritiesTransferredfrom AFS Cash Flow HedgesTotalFor the year ended December 31, 2019Balance at December 31, 2018(133,701)$ (8,504) (2,324) (144,529) Net change in unrealized gain (loss)111,010 - (31,976) 79,034 Amortization of net unrealized loss on securities transferred to HTM- 1,920 - 1,920 Amounts reclassified out of AOCI(730) - (1,325) (2,055) Net current period other comprehensive income (loss)110,280 1,920 (33,301) 78,899 Balance at December 31, 2019(23,421)$ (6,584) (35,625) (65,630) For 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 AOCI(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) (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 $1.2 million of unrealized losses related to equity securities from accumulated other comprehensive loss to retained earnings as a cumulative-effect adjustment.(in thousands)Gross AmountTax ComponentNet of TaxDecember 31, 2019Unrealized loss on AFS and HTM securities(61,853)$ (31,848) (30,005) Unrealized loss on cash flow hedges(50,486) (14,861) (35,625) Balance at December 31, 2019(112,339)$ (46,709) (65,630) December 31, 2018Unrealized loss on AFS and HTM securities(215,966)$ (73,761) (142,205) Unrealized loss on cash flow hedges(3,298) (974) (2,324) Balance at December 31, 2018(219,264)$ (74,735) (144,529)
(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, 2019, and 2018, we did not have any options or warrants outstanding.
Therefore, there were none excluded from the computation of diluted earnings per share. For the years ended
December 31, 2019, 2018 and 2017, 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. For information on our lease commitments, see
Note 21 to the Consolidated Financial Statements.
(a) 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.
F-50
(in thousands, except per share amounts)201920182017Net income 588,926$ 505,342 387,209 Less: Dividends paid on and earnings allocated to participating securities1,913 914 - Earnings applicable to common stock587,013$ 504,428 387,209 Common and common equivalent shares:Weighted average common shares outstanding53,774 54,406 54,001 Weighted average common equivalent shares237 260 417 Weighted average common and common equivalent shares54,011 54,666 54,418 Basic earnings per share10.92$ 9.27 7.17 Diluted earnings per share10.87$ 9.23 7.12 Years ended December 31,
The required payments under the terms of the Agreement, as well as other information technology contracts, at
December 31, 2019 are as follows:
F-51
(in thousands)Amount202021,135$ 20215,082 20225,082 2023110 2024110 Thereafter- Total31,519$
(b) 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, 2019 and 2018, our reserves for losses on unused commitments to extend credit
totaled $1.3 million and $929,000, 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, 2019 and 2018, we
had deferred revenue for commitment fees paid for the issuance of standby letters of credit in the amount of $1.5
million and $1.4 million, respectively.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of our clients’
obligations to a third party. Standby letters of credit are primarily used to support clients' business trade
transactions and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to clients. We had a reserve for credit losses on standby letters of
credit totaling $105,000 and $111,000 at December 31, 2019 and 2018, respectively. We recorded provisions for
losses related to standby letters of credit totaling $(6,000), $(54,000) and $(34,000) for the years ended December
31, 2019, 2018 and 2017, respectively. During the years ended December 31, 2019 and 2018, there were no
charge-offs recorded on standby letters of credit.
At December 31, 2019 and 2018, we had commitments to sell loans totaling $11.6 million and $5.5 million,
respectively.
F-52
(in thousands)20192018Unused commitments to extend credit4,988,650$ 3,173,675 Financial standby letters of credit545,085 482,482 Commercial and similar letters of credit9,859 20,145 Other1,266 1,254 Total5,544,860$ 3,677,556 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 objective in using interest rate derivatives is 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.
Since the second half of 2018 through the first half of 2019, the Company entered into interest rate swaps to
hedge the interest rate risk in the cash flows on the hedged forecasted issuance of fixed-rate borrowings. The total
notional amount associated with these cash flow hedges was $1.75 billion as of December 31, 2019. Based on the
Company’s current plans and intentions, it is probable that the hedged forecasted transactions will occur.
The following table presents the effect of cash flow hedge accounting on Accumulated other comprehensive
income (loss) for the years ended December 2019, 2018 and 2017.
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, 2019 was $(1.9) million compared to $4,000 and zero
for the years ended December 31, 2018, and 2017, respectively. 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. Based upon current market conditions, the Company
estimates that an additional $12.3 million will be reclassified as an increase to interest expense in 2020. While this
hedge transaction is resulting in an increase to interest expense each period, if the Bank had entered the same
tenor borrowing (five year term) as the hedge transaction which extends rolling three month FHLB borrowings to
five years, the interest rate associated with that longer tenor borrowing would have been higher than currently
incurred from the hedge transaction.
F-53
201920182017(in thousands)Amount of loss reclassified from accumulated other comprehensive loss to interest expense(1,878)$ 4 - Amount of gain (loss) recognized in other comprehensive (loss) income(48,609)$ (3,302) - Years ended December 31,
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
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.
In 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 $3.1 million and $850,000, net, for the year ended December 31, 2019 and 2018, respectively.
As of December 31, 2019 and 2018, the following amounts were recorded on the balance sheet related to
cumulative basis adjustment for fair value hedges.
Non-designated Hedges
From time to time, the Bank has entered into risk participation agreements with external lenders where they are
sharing their risk of default on the interest rate swaps on participated loans. We either pay or receive a fee
depending on the participation type. Risk participation agreements are credit derivatives not designated as
hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities.
Changes in the fair value in credit derivatives are recognized directly in earnings.
The Bank also executes interest rate swaps with customers to facilitate their respective risk management
strategies. These swaps with customers are simultaneously offset by swaps that the Bank executes with a third
party, such that the Bank minimizes its net risk exposure resulting from such transactions. As the swaps
associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of
both the customer swaps and the offsetting swaps are recognized directly in earnings.
The Bank also enters into foreign current swaps and forwards to economically hedge our foreign currency loans.
F-54
(in thousands)Line Item in the Consolidated Statement of Financial Condition in Which the Hedge Item is includedCarrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged AssetsLoans and leases, net (1)638,461$ (11,539) December 31, 2019(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, 2019, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.43 billion; the cumulative basis adjustments associated with these hedging relationships was $11.5 million; and the amount of the designated hedged items was $638.5 million.(in thousands)Line Item in the Consolidated Statement of Financial Condition in Which the Hedge Item is includedCarrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged AssetsLoans and leases, net (1)645,305$ (4,695) December 31, 2018(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 $645.3 million.
The following table presents the fair value of the Company’s derivative financial instruments, as well as their
classification on the Consolidated Statement of Financial Condition at December 31, 2019 and December 31,
2018 respectively:
We centrally clear our derivatives with our third party counterparties through the Chicago Mercantile Exchange
(“CME”) by posting required initial and variation margins. CME legally characterizes variation margin payments for
centrally cleared derivatives as settlements of the derivatives’ exposures rather than collateral. As a result, the
variation margin payment and the related derivative instruments are considered a single unit of account for
accounting and financial reporting purposes. The Bank’s clearing agent for interest rate and derivative contracts
centrally cleared through the CME settles the variation margin daily with the CME; therefore, those interest rate
derivative contracts the Bank clears though the CME are reported at a fair value of approximately zero at
December 31, 2019.
The effect of gain or (loss) from derivatives designated as fair value hedges on the Consolidated Statements of
Income for the years ended December 31, 2019, 2018 and 2017 were as follows:
F-55
(in thousands)Balance Sheet LocationFair ValueBalance Sheet LocationFair ValueDecember 31, 2019Derivatives designated as hedging instruments Interest Rate ContractsOther Assets1,380$ Other Liabilities- Total derivatives designated as hedging instruments1,380$ - Derivatives not designated as hedging instrumentsInterest Rate ContractsOther Assets5,594$ Other Liabilities106 Other Contracts (1)Other Assets 911 Other Liabilities 1,208 Total derivatives not designated as hedging instruments 6,505$ 1,314 December 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 (1) Other contracts include risk participation agreements and foreign exchange contracts.Fair Values of Derivative InstrumentsAsset DerivativesLiability Derivatives(in thousands)201920182017Derivative - interest rate swaps:Interest income(11,602)$ (4,746) - Hedged item - loans:Interest income11,539 4,695 - Net Effect on Interest Income (63)$ (51) - Years ended December 31,
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, 2019, 2018 and 2017:
The gain of $7.4 million related to other contracts for the year ended December 31, 2019 principally relates to
income recognized on foreign currency swaps and forwards used to economically hedge our foreign currency
loans. When considering the related foreign currency loan revaluation for the year, there was a net gain of
approximately $540,000 for the year ended December 31, 2019.
(21) Leases
As lessee, the Bank has operating leases primarily consisting of real estate related arrangements. As lessor, all of
the Bank’s leases are equipment leases financed by Signature Financial (“SF”), the Bank’s specialty finance
subsidiary.
Lessee Leasing Arrangements
We determine if an arrangement is a lease at inception. None of our identified leases meet the criteria of financing
leases as of December 31, 2019, and therefore all are accounted for as operating leases. These leases are
typically long term and contain renewal options at a rate comparable to the fair market rent upon renewal. Most of
our leases do not have early termination options. However, those that do contain varying degrees of economic
penalty should the termination option be exercised.
Real estate operating leases are included in Operating lease right-of-use assets (“ROU”) and Operating lease
liabilities in our Consolidated Statements of Financial Condition. The ROU assets represent our right to use the
underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments
arising from the lease. The ROU assets and liabilities are recognized at lease commencement and are primarily
based on the present value of lease payments over the lease term. The Bank uses our incremental borrowing rate
(“IBR”) at lease commencement as the discount rate for initial measurement of the lease liability. The IBR is the
interest rate the Bank would have to pay to borrow on a collateralized basis over a similar term and for an amount
equal to the lease payments in a similar economic environment.
Lease expense is recognized on a straight-line basis over the lease term except for the contracts with outstanding
landlord provided lease incentives as of lease commencement date. For these leases, the monthly straight-line
expense is reduced ratably by the amount of lease incentives over the term of the lease. As the Bank elected the
practical expedient to not separate non-lease and associated lease components as lessee, to the extent that an
operating lease has both lease and non-lease components, they are combined and all contract consideration is
allocated to the single lease component.
F-56
(in thousands)201920182017Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 Location of Gain or (Loss) Recognized in Income on DerivativeInterest Rate ContractsOther income / (expense)(156)$ (17) (13) Other Contracts (1)Other income / (expense)7,361 182 80 Total7,205$ 165 67 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.
The following table presents our lease cost and other information related to our operating leases for the period
presented:
The following table presents the remaining maturity of lease liabilities as of December 31, 2019, as well as the
reconciliation of undiscounted lease payments to the discounted operating lease liabilities as recognized in the
Consolidated Statements of Financial Condition:
Lessor Leasing Arrangements
Signature Financial offers a variety of financing and leasing products, including equipment, transportation,
commercial marine and national franchise leasing through direct and indirect funding by leveraging our capital
markets and third party funding groups and partnering with banks who own leasing companies, independent
finance companies, equipment vendors and investment institutions.
The standard leases are typically repayable on a level monthly basis with terms ranging from 24 to 120 months. At
the end of the lease term, the lessee usually has the option to return the equipment, to renew the lease or
purchase the equipment at the then fair market value (“FMV”) price or at a bargain purchase price. For leases with
a FMV renewal/purchase option, the relevant residual value assumptions are based on the estimated value of the
leased asset at the end of lease term, including evaluation of key factors, such as, the estimated remaining useful
life of the leased asset, its historical secondary market value including history of the lessee executing the FMV
option, overall credit evaluation and return provisions.
F-57
Year ended December 31,(dollars in thousands)2019Operating lease cost32,744$ Total lease cost32,744$ Other InformationCash paid for amounts included in the measurementof operating lease liabilities (1)21,639$ Right-of-use assets obtained in exchange for newoperating lease liabilities7,395 December 31, 2019Weighted-average remaining lease-termoperating leases - (in years)11Weighted-average discount rate - operating leases3.44%(1) Cash paid for amounts included in the measurement of operating lease liabilities for the twelve months ended December 31, 2019 was net of a $4.2 million of landlord provided lease incentive that was received during the period.(in thousands)Years Ending December 31, 2020 (1)17,892$ 202131,584 202231,385 202331,188 202425,646 Thereafter159,736 Total undiscounted operating lease payments297,431 Less: present value adjustment54,841 Operating lease liabilities242,590$ (1) Net of $12.5 million of landlord provided lease incentives that are expected to be received in 2020.
Signature Financial’s strategy is to acquire the leased asset at fair market value and provide funding to the
respective lessee at acquisition cost, less any volume or trade discounts, as applicable. Therefore, there is
generally no selling profit or loss to recognize or defer at inception of lease. The only element of profit is from
financing charges. As of December 31, 2019, Signature Financial has no equipment leases classified as operating
leases. Therefore, their leases are either accounted for as sales type or direct financing leases.
The following table presents the components of lease income for the year ended December 2019:
At December 31, 2019, the carrying value of our net investment in leases was $967.8 million. The components of
net investment in sales-type and direct financing leases, including the carrying amount of lease receivable, as well
as the unguaranteed residual asset were as follows:
The following table presents the remaining maturity analysis of the undiscounted lease receivables as of
December 31, 2019, as well as the reconciliation to the total amount of receivables recognized in the
Consolidated Statements of Financial Condition:
(22) Regulatory Capital
As a New York state-chartered bank, we are subject to various regulatory capital requirements administered by
state and federal regulatory agencies. Failure to meet minimum capital requirements can initiate certain
mandatory—and possible additional discretionary—actions by regulators that, if undertaken, could have a direct
material adverse effect on our financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative
measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting
practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about
F-58
(in thousands)Interest income on lease receivables33,205$ Interest income from accretion of unguaranteedresidual assets6,602 Total lease income (1)39,807$ (1) Included in Interest income - Loans and leases, net within the Consolidated Statements of Income.(in thousands)Net investment in the lease - lease payment receivable831,944$ Net investment in the lease - unguaranteed residual assets135,871 Total net investments in leases967,815$ (in thousands)Years Ending December 31, 2020271,689$ 2021217,248 2022162,035 2023105,128 202457,870 Thereafter44,956 Total undiscounted lease payments 858,926 Less: present value adjustment77,792 Lease receivables recognized 781,134$
components, risk weightings and other factors.
As of December 31, 2019 and 2018, 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, 2019:
The capital amounts and ratios presented in the following table demonstrate we were “well capitalized” as of
December 31, 2018:
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.
The Bank has declared and paid a quarterly cash dividend of $0.56 per share, or approximately $31.0 million,
each quarter beginning with the third quarter of 2018 through the third quarter of 2019. On January 15, 2020, the
Bank declared its fourth quarter 2019 cash dividend of $0.56 per share to be paid on or after February 14, 2020 to
common shareholders of record at the close of business on January 31, 2020.
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 $500.0 million. Share buybacks are also subject to regulatory approval, which were received for
the repurchase program of up to $500.0 million in November 2018. We received shareholder and regulatory
approval to continue the program in 2019. To date the Bank has repurchased 2,296,585 shares of common stock
for a total of $279.1 million. As of December 31, 2019, the remaining program balance was $220.9 million. On
February 19, 2020, the Board of Directors approved an amendment to the stock repurchase program that restored
F-59
(dollars in thousands)AmountRatioAmountRatioAmountRatioTotal capital (to risk-weighted assets)5,542,927$ 13.32%3,329,317 8.00%4,161,646 10.00%Tier 1 capital (to risk-weighted assets)4,835,393 11.62%2,496,988 6.00%3,329,317 8.00%Common equity Tier 1 capital (to risk-weighted assets)4,835,393 11.62%1,872,741 4.50%2,705,070 6.50%Tier 1 leverage capital (to average assets)4,835,393 9.60%2,015,121 4.00%2,518,902 5.00%ActualRequired for Capital Adequacy PurposesRequired to beWell Capitalized(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
the Bank’s share repurchase authorization to an aggregate purchase amount of up to $500.0 million, effectively
increasing the stock repurchase program by $279.1 million. The amended stock repurchase program is currently
awaiting shareholder and regulatory approval.
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.
(23) 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-60
(in thousands)201920182017Commercial BankingInterest income1,808,098$ 1,622,902 1,391,792 Interest expense600,083 409,933 232,584 Provision for (recovery of) loan and lease losses10,366 28,707 44,283 Non-interest income19,924 18,738 31,486 Non-interest expense489,875 432,819 392,041 Income (loss) before income taxes727,698 770,181 754,370 Total assets50,758,257$ 47,594,348 43,388,741 Specialty FinanceInterest income182,023$ 146,700 117,053 Interest expense78,445 60,682 38,675 Provision for (recovery of) loan and lease losses12,270 133,817 219,014 Non-interest income8,048 4,564 4,579 Non-interest expense39,418 53,483 43,049 Income (loss) before income taxes59,938 (96,718) (179,106) Total assets4,861,690$ 4,357,754 4,063,495 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-61
(in thousands)201920182017Net interest income:Commercial Banking1,208,015$ 1,212,969 1,159,208 Specialty Finance103,578 86,018 78,378 Consolidated1,311,593$ 1,298,987 1,237,586 Provision for (recovery of) loan and lease losses:Commercial Banking10,366$ 28,707 44,283 Specialty Finance12,270 133,817 219,014 Consolidated22,636$ 162,524 263,297 Non-interest income:Commercial Banking19,924$ 18,738 31,486 Specialty Finance8,048 4,564 4,579 Eliminations(24) (24) (24) Consolidated27,948$ 23,278 36,041 Non-interest expense:Commercial Banking489,875$ 432,819 392,041 Specialty Finance39,418 53,483 43,049 Eliminations(24) (24) (24) Consolidated529,269$ 486,278 435,066 Income (loss) before income taxes:Commercial Banking727,698$ 770,181 754,370 Specialty Finance59,938 (96,718) (179,106) Consolidated787,636$ 673,463 575,264 Total assets:Commercial Banking50,758,257$ 47,594,348 43,388,741 Specialty Finance4,861,690 4,357,754 4,063,495 Eliminations (1)(5,003,513) (4,587,286) (4,334,516) Consolidated50,616,434$ 47,364,816 43,117,720 (1) Eliminations related to intercompany funding.At or for the years ended December 31,
(24) Quarterly Data (unaudited)
F-62
(dollars in thousands, except per share amounts)March 31June 30September 30December 312019 QUARTERInterest income465,564$ 480,661 484,055 481,396 Interest expense146,573 154,373 156,036 143,101 Net interest income 318,991 326,288 328,019 338,295 Provision for loan and lease losses6,309 5,408 1,164 9,755 Net interest income after provision for loan and lease losses312,682 320,880 326,855 328,540 Non-interest income6,087 8,595 5,977 7,289 Non-interest income excluding other-than- temporary impairment losses on securities6,087 8,595 5,977 7,289 Non-interest expense125,063 131,888 134,295 138,023 Income before taxes193,706 197,587 198,537 197,806 Income tax expense (benefit)49,642 49,676 49,809 49,583 Net income144,064$ 147,911 148,728 148,223 Basic earnings per common share2.65$ 2.72 2.76 2.79 Diluted earnings per common share2.65$ 2.72 2.75 2.78 2018 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 income 34,471$ 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
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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-62. 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
3.2
Restated Organization Certificate (Incorporated by reference to Signature Bank’s Quarterly Report on
Form 10-Q for the period ended June 30, 2005.)
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.)
4.2
Description of Capital Stock.
10.1
Signature Bank Amended and Restated 2004 Long-Term Incentive Plan (Incorporated by reference
from Annex A 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 February 28, 2020, Signature Bank has the following significant subsidiary:
SUBSIDIARIES OF SIGNATURE BANK
EXHIBIT 21.1
SubsidiaryState or JurisdictionUnder Which OrganizedSignature Preferred Capital, Inc.New York
EXHIBIT 31.1
I, Joseph J. DePaolo, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Signature Bank for the fiscal year ended December 31,
2019;
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: February 28, 2020
/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,
2019;
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: February 28, 2020
/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, 2019 (the "Form 10-K") of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: February 28, 2020
Dated: February 28, 2020
/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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C O R P O R AT E I N F O R M AT I O N
BOARD OF DIREC TORS
STOCKHOLDE R INFORMATION
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
Candor Capital Partners
John Tamberlane
Co-founder & Vice Chairman
Signature Bank
SE NIOR MANAG E ME NT
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
Brian Twomey
Senior Vice President &
Chief Credit Offi cer
Signature Bank
565 Fift h Avenue
New York, New York 10017
646-822-1500
866-SIG-LINE (866-744-5463)
www.signatureny.com
External Counsel
Paul, Weiss, Rifk ind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
212-373-3000
www.paulweiss.com
Independent Auditors
KPMG LLP
345 Park Avenue
New York, New York 10154
212-758-9700
www.kpmg.com
Stock Transfer Agent & Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
718-921-8200
www.astfi nancial.com
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 22, 2020, 9:00 AM local time, at:
Th e Roosevelt Hotel
45 East 45th Street
New York, New York 10017
212-661-9600
www.theroosevelthotel.com
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, New York 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, 2019, included herein.
565 Fift h Avenue
New York, NY 10017
866-SIG-LINE (866-744-5463)
www.signatureny.com
LOCATIONS
SIG NATU RE BANK
New York
Manhattan
565 Fift h Avenue, 12th Floor
New York, New York 10017
261 Madison Avenue
New York, New York 10016
1400 Broadway, 26th Floor
New York, New York 10018
Westchester County
1C Quaker Ridge Road
New Rochelle, New York 10804
360 Hamilton Avenue, 5th Floor
White Plains, New York 10601
Nassau County
900 Stewart Avenue, 3rd Floor
Garden City, New York 11530
Maryland
Fulton
8115 Maple Lawn Boulevard, Suite 336**
Fulton, Maryland 20759
Texas
Houston
9 Greenway Plaza, Suite 3120***
Houston, Texas 77046
SIG NATU RE SECU RITIES
G ROU P CORPOR ATION
New York
1177 Avenue of the Americas
New York, New York 10036
SIG NATU RE FINANCIAL LLC
New York
225 Broadhollow Road, Suite 132W
Melville, New York 11747
Washington
Seattle National Originations
Offi ce
12100 NE 195th Street, Suite 315
Bothell, Washington 98011
SIG NATU RE PU B LIC
FU NDING CORPOR ATION
Maryland
600 Washington Avenue, Suite 305
Towson, Maryland 21204
485 Madison Avenue, 11th Floor
New York, New York 10022
53 North Park Avenue
Rockville Centre, New York 11570
71 Broadway
New York, New York 10006
950 Th ird Avenue, 9th Floor
New York, New York 10022
200 Park Avenue South, Suite 501
New York, New York 10003
1020 Madison Avenue, 4th & 5th Floors
New York, New York 10075
50 West 57th Street, 3rd & 4th Floors
New York, New York 10075
111 Broadway, 8th Floor*
New York, New York 10006
Brooklyn
26 Court Street
Brooklyn, New York 11242
6321 New Utrecht Avenue
Brooklyn, New York 11219
97 Broadway
Brooklyn, New York 11249
9003 3rd Avenue
Brooklyn, New York 11209
84 Broadway*
Brooklyn, New York 11249
Queens
36-36 33rd Street, 4th Floor
Long Island City, New York 11106
78-27 37th Avenue, 2nd Floor
Jackson Heights, New York 11372
89-36 Sutphin Boulevard, 3rd Floor
Jamaica, New York 11435
118-35 Queens Boulevard, 4th Floor
Forest Hills, New York 11375
Bronx
421 Hunts Point Avenue
Bronx, New York 10474
Staten Island
2066 Hylan Boulevard
Staten Island, New York 10306
1688 Victory Boulevard
Staten Island, New York 10314
923 Broadway
Woodmere, New York 11598
40 Cuttermill Road, Suite 501
Great Neck, New York 11021
100 Jericho Quadrangle
Jericho, New York 11753
Suffolk County
68 South Service Road
Melville, New York 11747
360 Motor Parkway, Suite 150
Hauppauge, New York 11788
Connecticut
Greenwich
75 Holly Hill Lane
Greenwich, Connecticut 06830
California
San Francisco
201 Mission Street, 26th Floor
San Francisco, California 94105
North Carolina
Charlotte
121 West Trade Street, Suite 1150
Charlotte, North Carolina 28202
Durham
110 Corcoran Street, Suite 4-115**
Durham, North Carolina 27701
Colorado
Denver
1900 Sixteenth Street, Suite 850**
Denver, Colorado 80202
Georgia
Atlanta
756 W. Peachtree Street, Suite 4-120**
Atlanta, Georgia 30308
Illinois
Chicago
111 W. Illinois Street, Suite 5015**
Chicago, Illinois 60654
* Client Accommodation Offi ce ** Representative Offi ce *** SBA Institutional Trading and Sales and Representative Offi ce
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