Real estate lender Signature Bank baffles analysts with record results on New York’s reopening

Signature Bank, a leading lender to commercial-property owners and small businesses, reported record results Tuesday as New York emerged from its pandemic-induced coma.

“I’d call it the perfect storm,” Chief Executive Joseph DePaolo said on a conference call. “So many good things happened.”

Nothing but bad things were happening a year ago. Signature is a major lender to owners of rent-regulated apartment buildings, where half the tenants were unable to pay rent during the spring of 2020. Business borrowers had no cash to make payments on $11 billion worth of loans, or 25% of the bank portfolio.

Signature on Tuesday said loan deferrals have shriveled to $254 million, or 0.4% of the portfolio.  

“All the boroughs are doing better,” DePaolo said in an interview with Crain’s. “The one thing we’re all watching is Manhattan.” 

He said he’s optimistic because tourists are slowly returning.

“Months ago I only heard people speaking English on Fifth Avenue and now I’m hearing French, German and Japanese,” he said. 

Signature is taking additional office space, DePaolo said, and starting Monday, most of the staff will return to the office at least three days of the week.

New York’s uneven revival has helped turbo-charge Signature’s stock, up 250% in the past 12 months. The KBW Bank Index has gained 79%. 

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The outperformance reflects how Signature is growing much faster than most banks. Loans grew by nearly 10% last quarter to $59 billion, deposits climbed by $10 billion to $95 billion, and net income soared by 74% to $241 million.

Analysts were puzzled that the bank’s performance is far out of step with rivals struggling to find borrowers.

“This quarter’s performance was well ahead of guidance,” one analyst said during the call. “Um, just curious, what happened?”

Asked if it felt good to be asked that question, DePaolo acknowledged: “It did.”

Analyst Jack Civello of Janney Montgomery Scott said Signature’s “exceptional” results might not be sustainable. Nonaccrual loans, or loans in which interest payments aren’t being made, rose to $165 million from $136 million in the second quarter. That’s a sign borrowers are struggling and could pressure profitability down the road. DePaolo told analysts the bank probably won’t grow so fast in the future.

Yet for now there’s great excitement around this little-known bank with no street-level branches that DePaolo founded 21 years ago with Chairman Scott Shay. In addition to providing loans to New York property owners and businesses, Signature is becoming a player in the fast-moving world of cryptocurrencies, thanks to a blockchain-based payments platform called Signet. 

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“We’re coming through the pandemic in a very, very favorable way,” DePaolo said.  

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