Signature Bank in New York lowered the value of its taxi medallion loan book by almost half, perhaps setting the stage for one of the largest lenders to taxi drivers to exit the business.
The $41 billion-asset Signature slashed the value of the loans from $603 million to $325 million, or about $358,000 per medallion. The move reduced Signature’s second-quarter earnings by $1.95 per share.
Net income for the second quarter fell to $14 million from $102 million in the year-earlier period. Earnings per share of 26 cents missed the $2.21 estimate of analysts compiled by FactSet Research Systems.
Signature increased its loan-loss provision by $154.3 million, virtually all because of taxi loans. The bank recorded $230 million of net chargeoffs in the quarter for taxi loans. Additionally, Signature placed all its remaining taxi loans on nonaccrual status.
"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,” Signature Chairman Scott Shay said in a news release.
Signature’s moves foreshadow a potential bulk sale of the entire taxi loan book, Barclays analyst Jason Goldberg said Wednesday in a research note. Signature CEO Joseph DePaolo had suggested during a June investor conference that he was exploring a sale of the taxi loan book.
“Signature Bank has executed its business strategy almost flawlessly for 16-plus years. Sometimes, the trials and tribulations of business — and how we address them — define us,” DePaolo said in the release, referring to its taxi lending.
Signature’s writedown of its taxi loans suggests that the $28 billion-asset BankUnited in Miami Lakes, Fla., could also take the same steps with its own taxi loan book, Joseph Fenech, an analyst at Hovde Group, said in a report Wednesday. BankUnited, which held $169 million in taxi loans at March 30, is scheduled to report second-quarter earnings on July 26.
In Signature’s second-quarter results, net interest income before the loan-loss provision rose 9% to $307 million on an increase in earning assets.
Noninterest income fell 27% to $9.6 million on a decline in gains on securities sales and losses from the amortization of low-income housing tax credit investments.
Noninterest expense rose 26% to $116 million as Signature booked an $11.5 million writedown on repossessed taxi medallion loans. Signature’s expenses also rose because it hired new bankers; its risk management and compliance costs rose; and it incurred higher federal deposit insurance assessment fees.