Signature Bank: The Bank With a 245% Return (SBNY)

Signature Bank has quietly blown away other regional banks

Sometimes it pays to focus on a market that is very specific and do a job better than one’s competitors. That’s been the case for 15 years with Signature Bank (NASDAQ:SBNY), which has only 27 banking offices in the New York metropolitan area.

SBNY: The Bank With a 445% ReturnIts pitch is simple: if the gigantic, too-big-to-fail banks aren’t servicing you as well as you think they should, give us a try.

It works.

Not only have the number of clients at Signature Bank increased, with total assets nearly tripling since 2009, but successful private bankers take clients with them when they bail on their big bank employer to join Signature Bank.

This creates a virtuous cycle and has placed Signature in the top 1% of commercial banks in the U.S. based on assets, according to the FDIC Market Share Report. The bank also was named best bank in America by Forbes magazine for 2015. Wow.

Signature Bank is both a full-service bank and specialty financier, offering all the products you’d expect in a bank, but also insurance, brokerage services, asset management, commercial lending, equipment finance and leasing, transportation financing, and taxi medallion financing (which is how I found the bank, since only one other company does this that I know of). It also securitizes SBA loans.

And they are very conservative with their underwriting, with less than a 0.2% non-performing loan-to-asset ratio in 2013.

This all shows up in SBNY earnings, which came out last week. Just look at the growth that Signature Bank experienced in fourth quarter and for 2014.

Net income for the quarter was $81.4 million and $1.60 per share, up 26.5% from the same quarter a year ago when income was $64.3 million and $1.34 per share. For the year, net income was $296.7 million and $5.95 per share, up 29.7% from 2013 when annual income was $228.7 million and $4.76 per share.

Deposits rose $1.3 billion to $22.6 billion in the fourth quarter, and increased more than $5.5 billion for the year. Core deposits soared 26.9%, up $14 billion.

The loan business continues to build impressively, with a fourth-quarter increase of $1.3 billion to $17.9 billion, up 7.9% from 2013. Loans increased $4.4 billion, or 32.1% for the year.

The other number we look at with banks is net interest margin, so we can see how much the bank makes over the cost of its own borrowing. SBNY’s margin was around the national average, with 3.23% in the fourth quarter and down just a bit from 3.2% last year.

Net interest income, or the actual money it earns from its loans, was $215.7 million, up 21% from 2013. We also look for provision for loan losses, which we like to see decline, and it did. It’s only $7.6 million, which is tiny, and down 31% from the previous year’s $11 million.

A quick aside: SBNY’s taxi medallion portfolio, which has $800 million in loans, had zero losses again for the quarter. Those who worry about rideshare’s impact on Medallion Financial Corp (NASDAQ:TAXI), should note that Medallion has only $300 million in loans. Signature’s report bodes well for TAXI’s earnings report next month, where I also expect no loan losses.

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The difference is that Signature Bank hasn’t been the victim of market panic, while Medallion Financial presents a screaming value.

As for Signature Bank, this is an extremely solid, incredibly well-run bank. Since the financial crisis low, it is up 245%.

Investors have caught on, and I think you are better off putting your money in this company’s stock than the big banks like Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), or Citigroup Inc. (NYSE:C).

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he is long TAXI. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. He can be reached at TheLibertyPortfolio@gmail.com.

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