SBNY Conference call notes

SBNY Conference call notes (slightly paraphrased)

We had another exceptional quarter of growth and performance. For the first time in six-and-a-half years, we did not report record net income this quarter. However, we are really quite pleased with the increase. First and foremost, we strengthened our franchise by growing deposits and loans substantially and adding two new banking teams.

We increased our allowance for loan losses on Chicago taxi medallion loans to 30%, by providing $24 million more than the previous year’s second quarter, while continuing to see the New York taxi medallion market stabilize. We believe this will have less of an impact going forward. Additionally, we saw a decrease of $6 million in loan prepayment penalty income, which decreases our reliance on this unpredictable revenue stream in future quarters.

So just think about that: Our provision for loan losses was $24 million more than last year and $13.5 million more than the first quarter and we had $6 million less prepayment penalty income. That’s nearly $20 million removed from earnings compared to the first quarter, and yet we still earned more than $100 million.

I think it is very important to note that outside the taxi space, we have a $26 billion portfolio with $25 million in non-accruals. Only $25 million in non-accruals! So we have less than one-tenth of one percent (!) of non-accruals in the entire remainder of our portfolio. So we really have pristine asset quality outside that taxi space. And when you add the pristine credit quality to the continued growth that we have both on the deposit and loan side, and the fact that we’re adding on teams and individual bankers through existing teams, we’re quite pleased.

Okay, they have had sequentially greater, and record, earnings for 26 quarters in a row. This quarter they took a provisional allowance for possible future losses on Taxi Medallions in Chicago. They took it huge enough to be sure to cover any future losses. Medallions for Chicago and NY make up 2% of their total loans as I understand it. The rest of their loan portfolio is $26 BILLION(!) And they have less than a tenth of one percent in non-accrual. Most banks would kill for a loan portfolio like that. The set-aside this quarter is a poster-child for a one-time occurrence. They are growing loans, book value etc incredibly. Their efficiency ratio is like a branchless bank. I’m happy with adding again if it pulls back again. Just my way of seeing it.



Anyone have any thoughts regarding this?…

Not being native can someone tell me what taxi medallion loan is?

Long ago, cities like New York regulated the number of taxis by awarding medallions to license a taxi. There was and still is a limited number of these medallions that give you the right to be a taxi driver for pay. These medallions are owned as a property right and resell able. Overtime the value of the medallions has appreciated. If you want to run a taxi you need a medallion in a city like New York or Chicago. I don’t know the going rate but in have heard 6 figures.

So I assume these are loans to finance the purchase of a taxi medallion. And it seems, particularly with Uber, that the taxi business has become more risky than it once was as so many of these medallion loans are not doing well.



I don’t know all the technicalities, but here’s the basic premise:

In most metropolitan areas, taxis are regulated; and municipal authorities only allow (via a “medallion” system) a certain number of taxis to operate. Only an operator with a medallion (an actual metal piece affixed to the hood of the cab, at least in NYC) is allowed to operate as an official taxi. Since there are a limited number, they are often auctioned off, going for hundreds of thousands of dollars each in places like New York City and Chicago. Many operators will finance their purchase of a medallion with a loan because they either do not have the cash to lay out up front or choose to use financial leverage to purchase.

These medallion loans are offered primarily by commercial banks, with the (valuable) medallion itself as collateral. There are often special regulations on medallion loans. They are/were extremely stable as long as cities kept quantities limited and people needed a ride. But if an innovative competitor ever arrived on the scene who could seriously cut into demand for taxi rides, operators might start having trouble making their loan payments, the medallions themselves could fall in value, and the commercial banks making the loans might have to allocate more funds for losses in their medallion loans.

They call me,