Signature Bank Reports 2017 Second Quarter Results

Signature Bank (Nasdaq: SBNY), a New York-based full-service commercial bank, today announced results for its second quarter ended June 30, 2017. Net income for the 2017 second quarter was $14.0 million, or $0.26 diluted earnings per share, versus $102.2 million, or $1.90 diluted earnings per share, for the 2016 second quarter. Excluding provision expense and write-downs for the taxi medallion portfolio, net income would have been $120.2 million, or $2.21 diluted earnings per share. The decrease in net income for the 2017 second quarter, versus the comparable quarter last year, is due to an increase of $154.3 million in the provision for loan losses nearly all attributable to the New York City taxi medallion portfolio.

Net interest income for the 2017 second quarter reached $307.2 million, up $25.6 million, or 9.1 percent, when compared with the 2016 second quarter. This increase is primarily due to growth in average interest-earning assets. Total assets reached $40.72 billion at June 30, 2017, an increase of $4.17 billion, or 11.4 percent, from $36.55 billion at June 30, 2016. Average assets for the 2017 second quarter reached $40.32 billion, an increase of $4.30 billion, or 11.9 percent, compared with the 2016 second quarter.

Deposits for the 2017 second quarter rose $233.8 million, or 0.7 percent, to $33.17 billion at June 30, 2017, affected by a decrease of $587.9 million in escrow deposits. When compared with deposits at June 30, 2016, overall deposit growth for the last twelve months was 12.1 percent, or $3.59 billion. Average deposits for the 2017 second quarter reached $32.96 billion, an increase of $698.3 million, or 2.2 percent.

“Signature Bank has executed its business strategy almost flawlessly for 16+ years. Sometimes, the trials and tribulations of business – and how we address them – define us. Recently, we encountered adversity within the taxi medallion landscape. Signature Bank has continually persevered, despite this adversity, which will ultimately strengthen our business. We are now coming out on the other side of it, and are looking forward. We have repositioned our taxi medallion business to better resolve these types of loans and enable management of Signature Financial to once again fully direct their efforts toward growth initiatives. This quarter, Signature Financial loans grew $252.4 million, excluding taxi medallion loans. Our diversification strategy has always proved beneficial to our model,” explained Joseph J. DePaolo, Signature Bank President and Chief Executive Officer.

“In times of disruption, we rely on the strength and success of Signature Bank’s depositor-first model to sustain our focus. This deposit first-and-foremost strategy, coupled with our strong, well-capitalized balance sheet, positions us to not only weather storms, but also to grasp opportunities in the marketplace, as evidenced by the two private client banking teams that joined this quarter to further our deposit and loan growth efforts. Additionally, our solid reputation and proven results recently earned the Bank ‘Company of the Year’ (in both Banking and Financial Services-Large categories) in the 2017 American Business Awards competition, demonstrating our ongoing strength, growth and commitment to client care,” DePaolo added.

“We did not, nor did any others, foresee the dramatic decline in taxi medallion values caused by a combination of rapid radical disruption by app-based hailing systems and inaction by governmental authorities. We did, however, see the disruption coming in time to set an upper limit on loan amounts and to stop our lending earlier than most," said Scott A. Shay, Chairman of the Board.

“That said, the overwhelming majority of our taxi medallion clients are hardworking, many of whom immigrated to this country and built their lives, maintained their families and sent their children to college by driving a taxi. We will continue to work with these clients to create resolutions that make sense for them as well as the Bank. In the meantime, we have always maintained that our balance sheet needs to be a fortress of strength, and are adamant about appropriately valuing every asset. Also, we will remain focused on executing our successful business plan, which differentiates us from our competition. We intend to keep up our pace of attracting veteran bankers whose experience and relationships significantly builds on our ongoing growth,” Shay concluded.

Capital

The Bank’s Tier 1 leverage, common equity Tier 1 risk-based, Tier 1 risk-based, and total risk-based capital ratios were approximately 9.52 percent, 11.61 percent, 11.61 percent, and 12.95 percent, respectively, as of June 30, 2017. Each of these ratios is well in excess of regulatory requirements. The Bank’s strong risk-based capital ratios reflect the relatively low risk profile of the Bank’s balance sheet. The Bank’s tangible common equity ratio remains strong at 9.26 percent. The Bank defines tangible common equity ratio as the ratio of tangible common equity to adjusted tangible assets and calculates this ratio by dividing total consolidated common shareholders’ equity by consolidated total assets.

Net Interest Income

Net interest income for the 2017 second quarter was $307.2 million, an increase of $25.6 million, or 9.1 percent, versus the same period last year, primarily due to growth in average interest-earning assets. Average interest-earning assets of $39.75 billion for the 2017 second quarter represent an increase of $4.13 billion, or 11.6 percent, from the 2016 second quarter. Yield on interest-earning assets for the 2017 second quarter remained stable at 3.66 percent, compared with the 2016 second quarter.

Average cost of deposits and average cost of funds for the second quarter of 2017 both increased by 8 basis points, versus the 2016 second quarter to 0.41 percent and 0.53 percent, respectively.

Net interest margin on a tax-equivalent basis for the 2017 second quarter was 3.11 percent versus 3.19 percent reported in the same period a year ago. On a linked quarter basis, net interest margin on a tax-equivalent basis decreased three basis points. Excluding loan prepayment penalties in both quarters, linked quarter core net interest margin on a tax-equivalent basis decreased five basis points to 3.04 percent. One basis point of the linked quarter decline in core net interest margin was due to both one less day in the quarter and the reversal of interest income for taxi medallion loans placed on non-accrual in the quarter.

Provision for Loan Losses

The Bank’s provision for loan losses for the second quarter of 2017 was $187.6 million, compared with $19.6 million for the 2017 first quarter and $33.3 million for the 2016 second quarter. The elevated provision for the 2017 second quarter was due to the New York City taxi medallion loan portfolio.

Net charge-offs for the 2017 second quarter were $229.0 million, or 3.04 percent of average loans on an annualized basis, versus $9.2 million, or 0.13 percent, for the 2017 first quarter and $15.4 million, or 0.24 percent, for the 2016 second quarter. $229.7 million of the 2017 second quarter charge-offs were for taxi medallion loans, which were partially offset by a net recovery for all other portfolios.

Non-Interest Income and Non-Interest Expense

Non-interest income for the 2017 second quarter was $9.6 million, down $3.5 million when compared with $13.1 million reported in the 2016 second quarter. The decrease was due to a $2.9 million decrease in net gains on sales of securities and an increase in other losses of $2.3 million from additional amortization of low income housing tax credit investments.

Non-interest expense for the second quarter of 2017 was $116.3 million, an increase of $24.0 million, or 26.0 percent, versus $92.3 million reported in the 2016 second quarter. The increase was primarily a result of write-downs of $11.5 million on repossessed New York City taxi medallion loans, the addition of new private client banking teams and an increase in costs in our risk management and compliance related activities. The Bank also incurred additional FDIC assessment fees.

The Bank’s efficiency ratio increased to 36.7 percent for the 2017 second quarter versus 31.3 percent for the comparable period last year. The increase was primarily due to an increase in other general and administrative expenses of $12.6 million primarily due to the write-down on repossessed New York City taxi medallion loans.

Loans

Loans, excluding loans held for sale, grew $362.1 million, or 1.2 percent, during the second quarter of 2017 to $30.39 billion, compared with $30.02 billion at March 31, 2017. Excluding payoffs and charge-offs of $236.0 million on taxi medallion loans, total loans would have grown $598.1 million. At June 30, 2017, loans accounted for 74.6 percent of total assets, versus 74.6 percent at the end of the 2017 first quarter and 73.1 percent at the end of 2016 second quarter. Average loans, excluding loans held for sale, reached $30.17 billion in the 2017 second quarter, growing $564.8 million, or 1.9 percent, from the 2017 first quarter and $4.12 billion, or 15.8 percent, from the 2016 second quarter. The increase in loans for the quarter was primarily driven by growth in specialty finance, multi-family and commercial real estate loans.

At June 30, 2017, non-accrual loans were $392.9 million, representing 1.29 percent of total loans and 0.96 percent of total assets, compared with non-accrual loans of $225.9 million, or 0.75 percent of total loans, at March 31, 2017 and $129.5 million, or 0.48 percent of total loans, at June 30, 2016. Excluding non-accruing loans secured by taxi medallions of $367.0 million, non-accrual loans for the remainder of the entire portfolio are $25.9 million, or nine basis points of total loans. At June 30, 2017, the ratio of allowance for loan and lease losses to total loans was 0.60 percent, versus 0.75 percent at March 31, 2017 and 0.84 percent at June 30, 2016. Additionally, the ratio of allowance for loan and lease losses to non-accrual loans, or the coverage ratio, was 46 percent for the 2017 second quarter versus 99 percent for the first quarter of 2017 and 174 percent for the 2016 second quarter.

Conference Call

Signature Bank’s management will host a conference call to review results of the 2017 second quarter on Wednesday, July 19, 2017, at 10:00 AM ET. All participants should dial 866-359-8135 at least ten minutes prior to the start of the call and reference conference ID #50275105. International callers should dial 901-300-3484.

To hear a live web simulcast or to listen to the archived web cast following completion of the call, please visit the Bank’s web site at www.signatureny.com, click on "Investor Information," then, under "Company News," select "Conference Calls" to access the link to the call. To listen to a telephone replay of the conference call, please dial 800-585-8367 or 404-537-3406 and enter conference ID #50275105. The replay will be available from approximately 1:00 PM ET on Wednesday, July 19, 2017 through 11:59 PM ET on Sunday, July 23, 2017.

About Signature Bank

Signature Bank, member FDIC, is a New York-based full-service commercial bank with 30 private client offices throughout the New York metropolitan area, including those in Manhattan, Brooklyn, Westchester, Long Island, Queens, the Bronx, Staten Island and Connecticut. The Bank’s growing network of private client banking teams serves the needs of privately owned businesses, their owners and senior managers.

Signature Bank offers a wide variety of business and personal banking products and services. Its specialty finance subsidiary, Signature Financial, LLC, provides equipment finance and leasing. Signature Securities Group Corporation, a wholly owned Bank subsidiary, is a licensed broker-dealer, investment adviser and member FINRA/SIPC, offering investment, brokerage, asset management and insurance products and services.

Signature Bank ranked on Forbes' Best Banks in America list for the seventh consecutive year in 2017 and was recently named Best Business Bank for the third consecutive year by the New York Law Journal in the publication’s seventh annual reader survey. The Bank also ranked second in the Best Private Bank and Best Attorney Escrow Services categories in the listing. Additionally, Signature Bank was cited among the top three of the nation's best private banking services providers in the 2017 Best of The National Law Journal reader rankings. The Bank was also named Best Commercial Bank of the Year - U.S. by International Banker in their International Banker 2017 North and South American Awards program. Furthermore, Signature Bank was the recipient of two gold Stevie Awards® in The 15th Annual American Business Awards for 2017: Company of the Year in both Banking and Financial Services-Large categories.

For more information, please visit www.signatureny.com.

This press release 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 those statements because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and may be beyond our control. Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client teams and other hires, new office openings and business strategy. These statements often include words such as "may," "believe," "expect," "anticipate," "intend," “potential,” “opportunity,” “could,” “project,” “seek,” “should,” “will,” “would,” "plan," "estimate" or other similar expressions. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements and can change as a result of many possible events or factors, not all of which are known to us or in our control. These factors include but are not limited to: (i) prevailing economic conditions; (ii) changes in interest rates, loan demand, real estate values and competition, any of which can materially affect origination levels and gain on sale results in our business, as well as other aspects of our financial performance, including earnings on interest-bearing assets; (iii) the level of defaults, losses and prepayments on loans made by us, whether held in portfolio or sold in the whole loan secondary markets, which can materially affect charge-off levels and required credit loss reserve levels; (iv) changes in 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; (v) changes in the banking and other financial services regulatory environment and (vi) competition for qualified personnel and desirable office locations. Although we believe that these forward-looking statements are based on reasonable assumptions, beliefs and expectations, if a change occurs or our beliefs, assumptions and expectations were incorrect, our business, financial condition, liquidity or results of operations may vary materially from those expressed in our forward-looking statements. Additional risks are described in our quarterly and annual reports filed with the FDIC. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made. New risks and uncertainties come up from time to time, and we cannot predict these events or how they may affect the Bank. Signature Bank has no duty to, and does not intend to, update or revise the 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 release or elsewhere might not reflect actual results.

SIGNATURE BANK
NON-GAAP FINANCIAL MEASURES
(unaudited)

Management believes that the presentation of certain non-GAAP financial measures assists investors when comparing results period-to-period in a more consistent manner and provides a better measure of Signature Bank's results. These non-GAAP measures include the Bank's (i) Net income and diluted earnings per share (as reported) to net income and diluted earnings per share excluding the NYC affordable housing tax benefit and, provision for loan and lease losses and write-downs for the taxi medallion portfolio, (ii) change in loans and leases excluding payoffs and charge-offs on taxi medallion loans, (iii) tangible common equity ratio, (iv) efficiency ratio, (v) yield on interest-earning assets, tax-equivalent basis, and (vi) core net interest margin, tax-equivalent basis excluding loan prepayment penalty income. These non-GAAP measures should not be considered a substitute for GAAP-basis measures and results. We strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

The following table presents a reconciliation of net income and diluted earnings per share (as reported) to net income and diluted earnings per share excluding the 2015 and 2016 New York City (NYC) affordable housing tax benefit and, provision for loan and lease losses and write-downs for the taxi medallion portfolio:

The following table presents the change in loans and leases for the quarter excluding payoffs and charge-offs on taxi medallion loans:

The following table presents the tangible common equity ratio calculation:

SIGNATURE BANK
NON-GAAP FINANCIAL MEASURES
(unaudited)

The following table presents the efficiency ratio calculation:

The following table reconciles yield on interest-earning assets to the yield on interest-earning assets on a tax-equivalent basis:

The following table reconciles net interest margin (as reported) to core net interest margin on a tax-equivalent basis excluding loan prepayment penalty income:

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