SBNY – Jan 2017 Post-Earnings Review

Signature Bank of NY (SBNY) – Jan 2017 Post Earnings Review

I still believe that Signature Bank remains one of the best banks in the world! I’m not exaggerating about this:

Forbes rates the largest 100 banks in America on a series of metrics, weights them mathematically, explains explicitly how they rated them, and publishes the results as “The Best Banks in America” or something like that. SBNY has been in the top ten for six years running. In 2014 they scored 2nd in the Americas, in 2015 they were first (actually #1), and in 2016, they scored 6th out of the hundred on Forbes’ metrics.

In addition, in 2016 the New York Law Journal, in its annual reader survey, named them 1st Best Business Bank. They also ranked 2nd in the Best Private Bank and Best Attorney Escrow Services categories. Since the Law Journal introduced its reader survey in 2010, Signature has always ranked in the top three in each category in which it was rated. This is the third consecutive year that it was voted the Best Business Bank. Now, none of that gives you any guarantee about the stock price, but it’s a lot better than being rated “worst”.

In the March quarter they had very good, but not outstanding, earnings (up 23%), great growth in book value, and an incredible efficiency ratio of 32.2%. In the June quarter they took a small precautionary write-off in case of losses on their Chicago taxi medallion loans. In September they decided to basically write off almost their entire loan portfolio of Chicago taxi medallion loans, and put it behind them. This reduced their EPS but they continued to have great growth in book value (up 18% yoy to $65 per share), and an even more incredible efficiency ratio of 31.9%.

By the way, if you don’t know the significance of the efficiency ratio, it represents how well the bank is being run. It’s the non-interest expenses as a percent of revenue (sort of the reverse of operating margin, which refers to what’s left AFTER those expenses). A 32% efficiency ratio is like operating margin of 68%! Most big banks have efficiency ratios of 65% to 80% - which means that their expenses are much greater relative to revenue, and are equivalent to operating margins of just 20% to 35%.

After the election the stock price rose from $118 to $150 in a few days, which I thought might have been a bit of irrational exuberance and I trimmed my position a little, but they are still my 3rd biggest position at 12% of my portfolio, with a PE of 19.9 at the current price of $160 (I’ve been in this stock since last January and I have bought from $144 to $116 and back).

This is one of my highest confidence stocks. Look: medallions make up just 2% of their total loans, and that 2% shrinks every quarter as their loan portfolio grows. The rest of their loan portfolio is over $28 BILLION (!) And they have less than 0.1% of that remaining $28 billion in non-accrual! (That’s less than one tenth of one percent! Most banks would kill for a loan portfolio like that!) They are growing loans, book value, etc, incredibly. Their efficiency ratio is like a branchless bank. In fact, it’s even much lower than Bofi’s. I’ll be happy with adding again if it pulls back again. Just my way of seeing it.

Here are my thoughts about the taxi medallions:
For about the past 70 years New York taxi medallions were about the safest investment in the world. The value of medallions only went up as there were a strictly limited number of New York cabs (about 11,000-12,000), and demand for cabs kept going up and up. The price for a medallion was well over a million dollars a couple of years ago. For one medallion! The right to have one cab!

Signature Bank, as a New York business bank, made what were VERY conservative loans, loaning money on taxi medallions, mostly in NYC, but some in Chicago as well, for a few percent of their total loans. This was NOT a risky set of loans!

Then a black swan event came along! It was called Uber, which put what are essentially unlicensed cab drivers on the street with no entry fee at all. The value of New York medallions dropped from over a $1,000,000 to about $600,000, almost overnight.

The New York market has stabilized and SBNY sells their foreclosed medallions for $600,000 or more in auctions. Chicago, which was less regulated, has fallen off a cliff. SBNY has said, Okay, we’ll write down our Chicago loans to just $60,000 a medallion, which is all they are currently worth. They did that this quarter.

The remaining exposure on Chicago medallions is just over 0.1% of their total loans. NY medallions are 2.0% of total loans, and this percent is constantly falling as their loan book increases. Outside that 2% in medallion loans, as I said above, they have over $28 billion out on loans and less than 0.1% of that $28 billion is in non-accrual! (That’s just one-tenth of one percent.) Loans and deposits are growing rapidly, their efficiency ratio is even lower than branchless banks like Bofi, book value is growing very fast (up about 18% from a year ago). I’d say they have weathered the black swan event very well.

And here are the recently announced December results with my commentaries in parentheses.

Net Income a record $114 million, or $2.11 per share, up 10.6% from $103 million, or $2.01 a year ago. (No more big charge-offs this quarter!)
Total Deposits up $466 million to $31.9 billion sequentially, and up $5.1 billion or a huge 19%, for the year.
Average deposits up 3.8% sequentially and 17.6% for the year.
Loans up 4.6% sequentially and up 22.1% for the year. (For organic results, those are huge).
• Total Non-Accrual Loans were $158 million, or just 0.54% of total loans, down from $163 million, or 0.59% sequentially. (That’s great!). Only 14% of non-accrual loans were non-taxi loans. (That’s also great! Means the rest of their business, which is $28 billion, has only a tiny 0.08% of loans in non-accrual).
Net Interest Margin was 3.14% flat with 3.14% sequentially and down from 3.30% a year ago…
• For 2016, three private client banking teams joined. We also added several new private client bankers to existing teams.

Net interest income up 10.6%, to $297 million, primarily due to growth in interest-earning assets.

Total assets reached $39 billion, up 16.7% annually.
We again delivered record earnings – our 9th consecutive year – and also another where we reported strong performance across all key metrics. The expansion of our franchise continues, driven by substantial growth in deposits of $5.1 billion and in loans of $5.25 billion. This was all achieved despite challenges in our taxi medallion portfolio. Moreover, we bolstered our capital position with two successful offerings; a common stock offering of nearly $320 million and our first debt offering of $260 million. These capital raises, along with solid earnings retention, well position us for future expansion.

New provision for loan losses for the quarter was $22.2 million, $5.5 million more than the quarter a year ago. The increase was primarily due to additional reserves for taxi medallion loans.

Net charge offs for the quarter were $13.5 million, or 0.19% of average loans, (a great improvement from $100.5 million, or 1.46% sequentially, and not too bad compared to $4.6 million, or 0.08% for the year ago quarter quarter).

Our efficiency ratio improved to 31.25% compared with 31.85% for the year ago quarter.
Book Value per share increased 16.5% to $66.15

Conference Call - The biggest thing that that happened in Chicago is that one of the three fleet owners that we put on non-accrual last quarter actually brought us full current, and continues to pay us. (Good news). Two out of the three large fleet owners are current on their payments (good news), but we kept them all on non-accrual. We’re not about to put them back on accrual status. There were two taxi sales in the quarter, and our carrying value is well below the sales prices (Also good news).

The New York market remains barely stable. We reduced our overall balance by $24 million in the quarter, to $568 million. We also increased our put-aside allowance on the portfolio by $12 million, bringing our allowance ratio to 7.8% on that portfolio. It takes our exposure on the overall New York portfolio down to $524 million, so it’s down $36 million for the quarter.

My take: I think it’s a great company, with a unique business model: they are a business bank and have banking teams which are free-standing. The same team interfaces with a client for everything the client needs. This produces great client loyalty. Signature also doesn’t need ANY big, street level, branches. Their branch can be in an upper floor somewhere, which helps account for the low efficiency ratio.


For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board


Hello Saul,

When you posted this I was curious how BOFI compared to “One of the Best Banks in the World”.
Now that BOFO has reported we can compare on a similar basis their past calendar year’s performance:

SBNY/16 2015 % increase BOFI/16 2015 %increase
Earnings per share calendar year 2016 7.37 7.27 1.4 1.96 1.56 25.6
stock price at close 1/30/16 157.29 28.36
P E ration for TTM thru 12/31/16 21.34 14.47
return on average equity 12.74 17.05
return on average assets 1.19 1.6
average deposit growth 17.60% 27.10%
average loan growth 22.10% 20.70%
Book value 66.15 56.81 16.4 11.72 9.6 22.1
Shares outstanding 54610170 51929064 5.2 63359001 63029161 0.005

The eps comparison is poor for SBNY because they issued an additional 5% in shares which diluted the results per share. The book value growth for SBNY was predicated on the sale of shares well above book along with income while BOFI showed greater book value growth
without selling shares. Most telling to me is the return on equity-BOFI earns a phenomenal ROE for a bank (even after SBNY’s superior efficiency ratio).

Best regards,



Hi Mike (Creelon)

It’s a shame that your tables of results got all smushed together and illegible. The way to prevent that is to set up the tables the way you want them and then use the symbols < pre > and < /pre > before and after them (without the spaces inside the brackets). You can check that it’s correct on Preview Message.


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The eps comparison is poor for SBNY because they issued an additional 5% in shares which diluted the results per share.

Hi again Mike
By the way, the reason SBNY’s earnings comparisons were only up a little wasn’t because of the minimal dilution, but BECAUSE they set aside over $62 million in case of losses on their Chicago taxi medallion loans in the Sept quarter (which was 71 cents worth). They also set aside another $12 million in December (which would represent another 14 cents). They haven’t actually needed this. It’s a cautious precaution.

At any rate this is the poster-child for a ONE-TIME charge-off. Once you set aside enough money to cover the medallion loans if they default, they are covered, and you won’t have to do it again, whether they default or not.

If you want to see how the actual BUSINESS is doing, without the set asides, you can add back the 85 cents (you are figuring your own adjusted earnings) and you’d have $8.22, up from $7.27. The reason to do that is that in 2017, the earnings will be building on top of the actual, pre-set aside, net revenue, the $8.22 base, not not on top of the the $7.27 earnings you get after the set aside, and you’d get unrealistically huge advances. I hope I explained that clearly enough.




Hello Saul,

I understand the reason for the GAAP earnings decline and your adjustment to get a picture of how the business is doing. I have some history in the banking business and I believe that you will not
find knowledgeable bank investors adjusting reserve charges out of expense because they believe
they have been caused by a black swan event. The business of lending is to accept risk and account for those times that you end up on the wrong side of risk. SBNY has properly accounted for their
potential losses in the taxi medallion finance business and has demonstrated that they are a lender with conservative fundamentals in place and I see no reason to distrust their loan
portfolio or their accounting. Nor do I believe that an investor must make the adjustment you have
to purchase or hold their stock. Their business is healthy and growing. They run a good bank. Their business plan is sensible and provides a path for continued growth.

That said, the purpose of my post was to show that BOFI has produced superior growth by almost every metric. I believe that BOFI has a business model that can provide a long runway of superior
growth. Interest rate cycles have not been kind to banks for several years and now the current cycle of rising rates will provide a tail wind for bank earnings. Each of these two well-run banks should be a beneficiary. SBNY is quite a bit larger, has a greater pe ratio, and slower earnings growth historically. Everyone does not have to choose between these two good banks to make money. If one accepts the thesis that traditional banks that rely on basic banking (gathering deposits and making loans)as opposed to humongous financial institutions that have gone well beyond the former boundaries of Glass-Steagall have great years ahead of them, then there certainly should be room for each of these banks in your portfolio. In fact, each provides an offset to the highest risk for the other. BOFI has a very large book of jumbo residential mortgages in California and SBNY has a very large book of apartment loans in New York.

Best regards,



Hi Mike - you didn’t want to compare BOFI with INBK which I actually think is the better growth opportunity. Why was that?

Hello Ant,

Because it is Saul’s board and he hasn’t been in INBK for quite a while. Likewise, I don’t follow INBK anymore.

Best regards,



Because it is Saul’s board and he hasn’t been in INBK for quite a while. Likewise, I don’t follow INBK anymore.

Saul doesn’t mind discussion of stocks he doesn’t own on this board. Just because he doesn’t own it, doesn’t mean it is verboten.

Do you only follow Saul in your stock selections? What if he got out mid-month of something when the story changed but didn’t tell us until the end of the month and the stock had already cratered? What would you do then?

There are many, many more “what-if” scenarios.


I asked about INBK because they have just released results and they were the best of the lot in several areas.

Leaving aside their market cap valuation which gives them so much more runway to grow at ~$200m.

Their historical P/E is lower than BOFI and SBNY at 14.51%

In Q4
Annual net inc grew 35%
Loan book grew by >31%
EPS grew 28%
Their non performing loans are 0.09%
Return on shareholder equity 10.85%
Return on average tangible equity 11.24%
Quarterly return on assets 0.81%
Operating Margins improved to 39%