Signature Bank's profits plummet on steep writedown of taxi loans

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Signature Bank in New York reported a steep drop in its first-quarter profit after taking what it said were “significant measures” to address continued weakness in its portfolio of taxi medallion loans.

The $44 billion-asset company said Thursday that its net income in the quarter that ended March 31 fell 74% from the same period last year, to $34.5 million. Its earnings per share of 63 cents came in $2.04 below the mean estimates of analysts polled by FactSet Research Systems.

Signature said that excluding writedowns on the taxi portfolio, it would have earned a record $146.8 million in the quarter, or $2.69 per share.

With the value of taxi medallions continuing to plummet as the taxi industry faces increased competition from the likes of Uber and Lyft, Signature opted to charge off roughly $129 million of its medallion loans and boosted its provision for loan losses to $140.8 million, up from $19.6 million in last year’s first quarter.

It also said that that it wrote down each of its medallion loans to a value of roughly $160,000. At their peak in 2014, taxi medallions in New York City were valued at well over $1 million.

The moves reduced its portfolio of medallion loans to $136.5 million, or 35 basis points of total assets. Two years ago, it had roughly $763 million of taxi medallion loans on its books.

The taxi-related writedowns overshadowed what was otherwise a strong quarter for the fast-growing bank. Net interest income increased 5.4% to $318.5 million thanks primarily to strong growth in commercial real estate and multifamily loans. Deposits increased 5.7% year over year, to $34.8 billion.

The company is also in expansion mode, announcing this week that it is opening a full-service office in San Francisco and has hired two veteran California bankers to oversee its West Coast expansion. The office will be Signature’s first outside of the New York City metropolitan market.

In a news release, CEO Joseph DePaolo said that Signature has revamped its credit management structure to increase emphasis on commercial and industrial lending and aims to accelerate its growth with investments in new loan origination systems, a new payments architecture platform and new foreign exchange system.

He also expressed confidence that Congress would raise the threshold for determining if a bank is systemically important above the current level of $50 billion. At its current pace of growth, Signature is likely to surpass $50 billion of assets next year.

“Raising the Systematically Important Financial Institution (SIFI) threshold, which stands to benefit banks of our size and scope,” DePaolo said in the news release.

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Earnings Medallion loans Commercial real estate lending Commercial lending