Signature Bank (SBNY)

One of the most overlooked, and successful, stories in banking recently has been the emergence of Signature Bank ($SBNY). This new kid on the block is turning banking on its head.

Shortly after their meeting, Signature Bank was launched by Chief Executive Joseph DePaolo, a former senior audit manager at accounting giant KPMG, and Chairman Scott Shay, a former mergers-and-acquisitions specialist at Salomon Brothers. Under their leadership, Signature has proved to be one of the most successful startups in banking over the past 20 years.

The institution now sports 27 branches, $22 billion in assets and a market value of $5.5 billion. Since going public in 2004, Signature’s stock has returned about 650%, or nearly 10 times that of the S&P 500 and double that of the next-best-performing bank, SVB Financial Group, the parent of California’s Silicon Valley Bank.

Yet it remains almost unknown. No street signs proclaim the existence of its branches, which are tucked away in office buildings. It doesn’t advertise because management doesn’t think its clientele of small and midsize businesses would work with a bank based on how catchy its jingle is. About the only time Signature made news came when Ivanka Trump joined its board in 2011 before leaving last spring.

“It’s true we aren’t in the headlines [much],” Mr. DePaolo said. “I don’t mind.”

Signature’s success stems from management recruiting groups of experienced business bankers, from rivals like Citibank and HSBC, who bring clients with them. Famed wedding-dress retailer Kleinfeld, for instance, became a customer when its longtime banker, Zoe Koutsoupakis, joined a Signature branch in Brooklyn last year after 34 years at other institutions.

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The formula has worked. Only 0.25% of Signature’s $14 billion in loans, or one-tenth the industry average, are more than 90 days delinquent. Overhead is low, with Signature spending 36 cents to generate each dollar in revenue, 40% below the industry average. Returns are high, with the bank’s 14% return on equity 4 percentage points above the industry average. What’s more, Signature has secured a reputation in its field as a place where seasoned bankers want to work.

Here’s the stock chart. I’ve included the EPS and P/E Ratio below.

Posted by Eddy Elfenbein on November 13th, 2014 at 2:06 pm

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