Brief SBNY Overview

I did a (rushed) writeup of Signature Bank (SBNY) for my “free choice” company this period over on the analysis board. I was late, so I cut it short, but it hopefully touches on some of the key high-level points that I think are the important business drivers. Here’s a cross-post of that, if anyone is interested.

The Business

Signature Bank (SBNY) is a regional commercial bank that primarily serves business customers (and their high net-worth owners and senior managers) in the New York metropolitan area. It has carved out a niche for itself going after businesses with 500 or fewer employees, which as a group tend to be small enough to desire a personal relationship, but are big enough to need a bank offering a wide variety of services and expertise.

SBNY was founded in 2000 with the belief that these businesses were being underserved by the big banks. The big banks tend to break up their services into separate silos, which each department providing its own separate marketing, sales, and service to customers. SBNY believes this creates confusion and frustration, with multiple points of contact within the bank who aren’t familiar with other aspects of the client’s business or situation, leading to poorer service, longer turn-around times, and added bureaucracy. As the big banks have consolidated, SBNY believes the situation has worsened.

Signature Bank takes a very different approach, putting tremendous value on a personalized relationship with its business customers. While it has specialized departments for the various business lines it manages (and that underwrite that business), it assigns a small relationship team to each customer, and all products move from the specialized departments through that relationship team. This gives clients a consistent single point of contact that is knowledgeable about everything going on, providing a more seamless and responsive experience.

To reduce red tape, each specialized business team runs its own books, overseen by a Group Director. Group directors report directly to senior management, keeping the hierarchy flat, management informed, and the bank responsive to the needs of clients.

The result has been solid multi-year growth in both loans and deposits, as businesses are attracted to the wholistic, one-on-one relationship offered. The bank was named Best Bank in America by Forbes magazine for 2015. Banking professionals also appreciate the refreshing approach, making it possible for SBNY to grow and diversify its lines of business by attracting experienced teams of bankers that bring their own relationships with them. Consolidation in the banking industry has been to SBNY’s advantage in this respect, as professionals at big banks become disenchanted with ever-increasing bureaucracy, distraction, and uncertainty at combined entities.

As a commercial bank, Signature has offices rather than retail branches, and it doesn’t need to splurge on expensive ground-floor locations. Management believes in disciplined cost control, taking a “build it when they come” approach to investment in expansion, and also works to align compensation expenses with profitable growth for the bank. The result is an enviable efficiency ratio — the ratio of dollars the bank has to spend for each dollar of revenue (lower is better) — of 33.64% for 2015, beating out even branch-less online banks like Bank of Internet (34.57%) and crushing retail banks like Wells Fargo (57.8%). That means a larger part of every dollar earned falls to the bottom line, making its book more profitable. Management is very pleased with the current efficiency ratio and isn’t making efforts to lower it further as they focus on continuing to grow the bank.

In short, the bank has carved out a nice niche for itself and created a competitive advantage through the excellent, consistent, and responsive service it provides to its clients. That service has positive knock-on effects, such as stickiness and the ability to charge higher rates on loans, leading to great business performance, and making it easier to attract top talent to continue growing the bank and diversify into new lines of business — all in a virtuous cycle.


As a bank, though, SBNY obviously carries risks. Many are specific to its industry: as an investor, it’s impossible to know what’s really lurking on the bank’s books, and it’s very easy for a bank to juice its performance today at the expense of tomorrow by taking on questionable loans. A big part of Signature’s cost control is carefully aligning employee compensation with results that generate profitable growth for the bank, and that can encourage excessive risk-taking. To counteract that, all loans are approved by a different group, and require at least two individuals for approval — and that’s for small loans. Larger loans require approval from a credit committee, and the largest loans require approval by the board of directors. As of Q4 2015, the allowance for loan losses stood at 0.82% of total loans.

SBNY also has risk from geographic concentration, as the bulk of its business is done in the New York metropolitan area. At the moment, this actually seems to be helping, as commercial property — a big driver for the bank — remains far more stable in NY than in other parts of the country. But in 2015 the bank opened its first office outside of New York, and I suspect it won’t be the last. It also continues to diversify into new lines of business, adding 2 additional lines in 2014 and another 2 in 2015. Management has said it will focus in 2016 on bringing on additional deposit-gathering teams to help fuel the bank’s growth.


At a price to book ratio of around 2.4, SBNY is certainly trading above major banks. Wells Fargo, for example, currently trades under 1.5. But given SBNY’s better efficiency ratio and growth, it deserves to trade at higher P/B. Furthermore, looking back a few years, this is near the lowest P/B the company has traded at.

From a P/E perspective, it’s trading at 18.7, which again is near lows over the past few years. In fact, the bank has traded at a higher P/E over 90% of market days over the past 3 years.


Overall, SBNY looks a high quality bank with a competitive advantage that continues to grow and diversify while keeping costs enviably low. I wouldn’t call it cheap at current prices, but it does look attractive from both a future growth perspective and on a recent historical valuation basis.

My hypothetical real-money portfolio rating: 4 stars (out of 5 possible).

My CAPS call: thumbs up (outperforms the market over 2-4 years).

No position


Thanks very much for your write-up on Signature Bank, Neil. Excellent work as always, and very useful and interesting.