Annual Report 2014 - Safra National Bank

Transcription

Annual Report
2014
“If you choose to sail upon the seas
of banking, build your bank as
you would your boat, with the strength
to sail safely through any storm.”
Jacob Safra, founder
Safra National Bank of New York
Safra Securities LLC
Financial Highlights
Total Equity as of 12/31 (US$ millions)
547
2012
572
2013
616
2014
Total Client Assets as of 12/31 (US$ millions)
11,507
2012
12,532
2013
13,497
2014
Capital-to-Risk-Weighted-Assets Ratio as of 12/31 (%)
12.8
2012
13.7
2013
16.1
2014
Contents
Products and Services | 14 – 17
Message from the CEO | 6 – 9
Company Profile | 10 – 13
Contents
Locations and Affiliates | 68 – 71
Corporate Governance | 18 – 23
Consolidated Financial Statements | 24 – 67
Message
from the CEO
USA | New York | Grand Central Station
Message from the CEO
Welcome to the 2014 Annual Report of Safra National Bank of
New York (“the Bank”). As the CEO, I remain committed to leading a truly exceptional Private Bank that not only delivers top-tier
quality service but also maintains core values of integrity and professionalism that ensures the needs of our clients are our primary
focus. We operate in accordance with the highest standards in
our relationships with our clients and community that creates an
“alignment of interest” that reaffirms the value of our Bank to our
clients. As a client of Safra National Bank of New York, you and
your family receives premier private banking services through our
team of skilled relationship managers with access to the world’s
major trading and financial centers. You are also a part of a family
legacy dating back almost two centuries; a legacy built from a
long line of successful bankers with strongly held traditions of
preserving client assets through a philosophy of sustainable and
conservative investing. With a core focus on private banking and
access to an international network of affiliated financial institutions (“J.Safra Companies”), Safra National Bank of New York is
a trusted, reliable and sound business partner that will devotedly
serve all your private banking needs for generations to come.
The Bank has experienced a steady growth in client assets
the past three years, growing an additional USD 3 Billion in total
client assets, an increase of 22% since the beginning of 2012
with an expectation to grow another 30% by the end of 2017.
This growth gives our Bank the scale to further invest in areas
that enhance the client experience, including upgrades to our
operational capabilities that provide for more sophisticated client performance and statement reporting as well as tools that
improve client services and enable greater flexibility in meeting
the unique expectations of our clients. The Bank is also strongly
committed to safeguarding and upholding the trust in its brand,
and continuing to maintain and build upon the internal controls
and processes that support a strong risk management and corporate governance program. This includes continuously enhancing
the tools necessary to protect confidential bank and client data.
8 | Safra National Bank of New York, Annual Report 2014
Message from the CEO
It is also clear that rapid changes in the
regulatory landscape are causing many
organizations to review their operations
and consider exiting from the private banking business. With our deep seated roots
in traditional private banking and our long
and successful track record in sustainable
growth, this represents an exciting opportunity for us to acquire new talent and grow
our business further, while expanding our
market presence. In 2014, we retained
new talent in all of our U.S. offices, enhancing our reach and influence in key
markets in Central and Latin America.
Last year’s Annual Report used the
theme of bridges to illustrate how we have
built connections for clients across generations and continents. The theme of our
2014 Annual Report continues to reflect
these connections but also includes images of iconic monuments and buildings in
the cities and locations where we have a
“strong local presence”. The images we
have chosen share the architectural features of arches, which conveys a sense
of timelessness, continuity, and integrity,
which mirrors the endurable strength and
character of our Bank and the family legacy it is built upon.
In conclusion, I am truly proud to be
a part of this exceptional and dynamic
Private Bank and I believe we have all of
the key ingredients necessary to provide
you, our valued client, with first-class
private banking services. On behalf of
myself and the Bank, we would like to
thank you for your continued commitment
and the confidence you have entrusted to
us, as we continue to position ourselves
as a true leader in private banking.
Simoni Morato
Chief Executive Officer
Safra National Bank of New York, Annual Report 2014 | 9
Company
Profile
USA | New York | Arcade arches under bethesda terrace
Company Profile
Headquartered in New York City, Safra National Bank of New York
(the “Bank”) is a well-regarded provider of private banking and
financial services.
Since 1981, the Bank has been providing its high net worth clients premier private banking with the leading edge solutions of a
modern bank combined with the personalized concierge service
of a more traditional private bank. With offices in New York and
Florida and representative offices in Brazil, Mexico, and Panama,
the Bank serves a diverse client base, domestically, and throughout Latin America. As of the end of 2014, the Bank held more
than USD 13 billion in client assets.
As a privately held institution, Safra National Bank of New York
does not have the pressure to maximize short-term gains for stockholders or to take undue risks. Our steadfast position throughout
varied economic cycles, reinforced with our core philosophy of
capital preservation, corroborates the “alignment of interests”
between the Bank and its clients. Our relationship managers are
driven by sustaining and growing relationships through expertise
and excellent personal and professional services, perpetuating
the synergy between the Bank and our clients. Moreover, we also
recognize that, regardless of the strength of our balance sheet
and our brand, financial security is paramount to our clients. In
recognizing this, client securities are completely segregated from
the assets of the Bank, thus providing our clients the additional
security and peace of mind that their assets are well protected.
Safra National Bank of New York holds a national bank charter
and is supervised by the Office of the Comptroller of the Currency
(“OCC”) and is a member of the Federal Reserve System and
the Federal Deposit Insurance Corporation (“FDIC”). The Bank
has a fully functional U.S. broker-dealer subsidiary, Safra Securi
ties, LLC (“SSL”), which is registered with the Securities and
Exchange Commission (“SEC”) and is a member of the Financial
Industry Regulatory Authority (“FINRA”) as well as an SEC registered investment advisor affiliate, J. Safra Asset Management
Corporation.
The principal objectives of management and the Board of
Directors of the Bank is to continue to serve the core needs of
its clients; invest in the growth of its Latin American and Domestic Private Banking business; grow and continually innovate the
Bank’s platform of products and services; recruit and retain
talent; manage risk through exceptional corporate governance;
Company Profile
and maintain a strong capital and liquidity position that merits the complete trust
and confidence of its clients, the public,
and its banking regulators.
Our Mandate
As the core business of the Bank, private
banking is our mission and all other activities cater first and foremost to this area.
With no other distractions, the Bank
focuses entirely on providing the highest
levels of personalized service with the
scale and strength to meet the needs of
our clients. At Safra National Bank of New
York, human relationships are the key to
private banking, and the client is at the
center of all we do. It is our obligation and
our duty to know our clients intimately
in order to ensure access to the right
pro
d ucts and the level of services they
require. Private banking is in our DNA, and
in recognizing the many-varied needs of
our clients, we offer brokerage and advisory services through our local affiliates
and subsidiaries, further improving the
products and services available to our
clients. The Bank offers a comprehensive
range of services to meet the global needs
of a select group of high-net worth individuals and their respective businesses. By
establishing and maintaining long-term client relationships built on trust; providing
easy access to our senior management
team; offering personalized concierge services; and having a model that allows for
greater flexibility the Bank is at the forefront of the private banking industry. As
a private bank that can leverage the
strength and global reach of its international affiliates, we maintain the access,
expertise, technical skills and broad know
ledge of some of the largest multin ational financial institutions, while re
t aining
the flexibility, quick decision-making, independence, and entrepreneurial sensibilities of a private bank.
To meet our clients’ specialized needs,
the Bank offers access to a full array of
banking products and services that complement our exceptional client focus and
unquestioned integrity, dedication and
experience. These include the full range
of credit, deposit, custody and brokerage
services (brokerage services are offered
through our U.S. broker-dealer subsidiary
SSL). These services can be provided as
a whole or as separate services based
on the needs of each individual client.
The trust and confidence our clients have
placed in us is critical to our success. We
maintain this trust and confidence through
our consultative partnership approach to
client service, our conservative approach
to risk, and our unwavering adherence to
our principles. At the bank we realize that
our continued success is wholly dependent on knowing and understanding the
needs of our clients and being able to
meet those needs quickly.
Products and
Services
Brazil | Sao Paulo | Theatro Municipal
Products and Services
Custody Services
Custody and Safekeeping are an integral part of our private
banking services, offering clients access to a wide range of
investment opportunities while protecting those assets from
undue risk.
The Bank provides a broad range of custody and safekeeping
services including, but not limited to, multi-asset processing and
settlement, proxy services, corporate actions, dividends and
interest calculations, daily cash management, periodic statements and confirmations, cash and securities transfers, and tax
reporting and recordkeeping. The Bank offers these custody and
safekeeping services to its clients as part of its trading services
so customers can meet all of their securities needs through a
single platform.
Trading and Execution Services
Trading and Execution Services are managed through a
dedicated team of account officers and our own in-house trading
professionals who collaborate and can respond quickly and
efficiently to a broad range of clients’ investment needs.
The Bank offers products and services to satisfy the most
demanding investment needs of its clients through its Treasury
Area or through its U.S. broker-dealer subsidiary. The Bank has
global trading capabilities in fixed-income securities including
U.S. and emerging markets fixed-income instruments and structured products, as well as equities (U.S. and worldwide), precious
metals, options and foreign exchange operations.
Products and Services
In particular, the Bank has considerable
expertise in the following product areas:
•U.S. and Other Developed Countries
Fixed-Income Instruments: Fixed-income
securities include but are not limited to
corporate debt, commercial paper, foreign currency time deposits, U.S. Treasuries, and U.S. agency securities.
•Emerging Markets Fixed-Income Instruments: Fixed-income securities include
but are not limited to corporate and sovereign debt bonds primarily in the Latam
market, Euro commercial paper, Euro
medium-term notes and sovereign bonds.
•S tructured Products and Derivatives:
With relationships to some of the largest
financial institution counterparties, the
Bank provides various structured products (fixed income and equity) for the
Bank’s sophisticated clients.
•Equities and Options: The Bank facilitates trading on the NYSE, NASDAQ
and other stock exchanges worldwide to
accommodate clients’ execution orders
and needs.
•Currency and Precious Metals: The Bank
offers competitive pricing of foreign
exchange instruments, derivative products and non-deliverable forwards to help
clients hedge their investment exposure.
•M utual Funds and other Alternative
Investments: The Bank also makes available to its clients an extensive universe
of mutual funds through its U.S. brokerdealer subsidiary SSL, and alternative
investments, leveraging off the expertise
of its affiliate JSAM.
International Trade Finance Services
Clients seeking tailored international
trade financing solutions can find experts
dedicated to help meeting their global
financing needs.
To meet clients’ needs in foreign trade
endeavors, Safra National Bank of New
York maintains a full range of trade-financing services, including commercial and
standby letters of credit, performance
and bid bonds, documentary collections,
and import, export and forfeit financing.
Account officers work alongside our credit
experts to find the most appropriate solution to meet every individual client need.
Commercial Real Estate
Financing Services
Our team of highly experienced lending
experts take the time to understand,
intimately, the objectives of each client
in order to provide the right real estate
financing solution that allows them to
achieve them.
The bank offers specialized services and
fixed and floating rate financing solutions for all types of commercial properties, including apartment buildings, warehouses, office and industrial buildings,
retail centers, and mixed use properties
throughout the United States, and with
particular focus in New York City and the
surrounding boroughs. With a team of
knowledgeable and experienced in-house
lending officers, the bank offers a broad
range of financing capabilities that are
flexible and scalable.
Corporate
Governance
USA | New York | Washington Arch
Corporate Governance
Compliance Culture
In order to safeguard and uphold the trust in our brand, the
Bank is committed to promoting a “Culture of Compliance” that
fosters a sense of personal accountability and the desire to do
things the right way.
At Safra National Bank of New York, we expect all of our employees to adhere to the absolute highest levels of ethical conduct
and behavior. To sustain this, the bank has established policies
and procedures that clearly outline every employee’s obligations
to comply with laws and regulations; established internal controls that mitigate the risk of improper activities; established an
infrastructure to enforce, test, and measure compliance through
our various Compliance, Internal Audit, and Risk Management
divisions; and established a Board of Directors that can oversee
the Banks’ activities and can work with our leadership to continually improve and enhance the Bank’s corporate governance
practices.
A commitment to Compliance is one of the core values of the
Bank’s Executive Management and the Bank strongly believes
that this commitment is the key to sustaining confidence in the
Bank and retaining the continued trust of its clients, both of
which are critical to the Bank’s long-term success.
While our commitment to our clients is our first priority, the
Bank is also dedicated to fostering growth and the sense of
community that is essential to a private bank, within our own
employee family. In recruiting, training, developing, and investing
in our employees, the Bank encourages entrepreneurial innovation, which adds to the continued growth of the Bank, improves
our product and service offerings, and ensures a Bank that will
retain a competitive edge amongst its peers. With a low employee
turn-over rate, our clients recognize that the long-term relationships of both the client, and their account officers, are vitally
important to our institution.
Board of Directors
The Board of Directors of Safra National
Bank of New York is the ultimate governing
body of Safra National Bank of New York
and its subsidiaries. The Board advises
on the strategic direction of the Bank,
oversees the Bank’s overall activities, and
sets the tone and establishes guidelines
on the nature and amount of risk the Bank
may take. Collectively, the members of
the Board have a thorough understanding of the financial industry, in general,
as well as the regulatory environment in
which the Bank operates.
As of December 31, 2014, the composition of the Board of Directors of Safra
National Bank of New York was as follows:
Joseph Y. Safra
Carlos Alberto Vieira
Simoni Morato
Mark S. Grunwald
Stephen Gardner
Anne Vitale
Peter J. Mansbach
Chairman
President
Member
Member
Member*
Member*
Member*
*Independent
The Board of Directors of Safra National
Bank of New York has also set up an Executive and Examination Committee.
Executive Committee
The Board of Directors delegates the
responsibility for the direct management
of the Bank to the CEO and the Executive Committee. The Executive Committee
assures the implementation of all directives issued by the Board of Directors
and provides the Board of Directors with
all information necessary to enable the
Board to sufficiently carry out its supervisory obligations. Furthermore, the Executive Committee is responsible for the
implementation of supervisory and control
functions within each of the main functions and departments of the Bank:
•C ompliance and Legal
•Enterprise Risk Management
•Credit
•Treasury and Finance
•Treasury Risk Management /
Management Information Systems
•Information Security
•Internal Audit
The duties, responsibilities and functions
of the above are governed by the various
committees appointed by the Board of
Directors and written policies which are
subject to annual review and approval by
the Board of Directors.
Examination Committee
As of December 31, 2014, the Examination
Committee was composed of the following
members:
Peter J. Mansbach
Anne Vitale
Stephen Gardner
Chairman
Member
Member
Collectively, the members of the Exami
nation Committee have a thorough understanding of the financial industry, in gene
ral, as well as the regulatory environment
in which the bank operates. The Examination Committee maintains regular contact with the other member of the Bank’s
Board of Directors and receives copies of
Internal Audit Reports in order to oversee
the Bank’s adherence to its’ policies and
procedures as well as the Bank’s compli
ance with all its legal and regulatory obligations.
The Examination Committee is also responsible for the review of the consolidated
statements of Safra National Bank of New
York and its subsidiaries before they are
presented and approved by the Board of
Directors. The Examination Committee
ensures contact with the external auditor
of the Bank at the level of the Board of
Directors and monitors their performance
and independence.
Duration and Scope of Mandate
of the External Auditor
Deloitte and Touche, LLP has been
ap
p ointed as external auditor of Safra
National Bank of New York for the year
2014. The audit firm is appointed by the
Examination Committee of Safra National
Bank of New York for a one-year term.
Internal Audit
The Internal Audit function reports to the
Examination Committee and is responsible for providing the Bank and its subsidiaries with independent and objective
evaluations on the effectiveness of the
institutions risk management, control, and
governance processes by assessing:
•t he effectiveness of processes implemented to define strategy and risk tolerance, as well as the overall adherence to
the strategy approved by the Executive
Committee and the Board of Directors;
•effectiveness of governance processes;
•effectiveness of risk management, in
cluding whether risks are appropriately
identified and managed;
•effectiveness of internal controls, speci
fically whether they are commensurate
with the risks taken;
•effectiveness and sustainability of remedial actions, if any;
•r eliability and integrity of financial and
operational information (i.e. whether activities are properly, accurately, and
completely recorded, and the quality of
underlying data and models) and;
•c ompliance with legal, regulatory, and
statutory requirements, as well as with
internal policies and procedures.
Consolidated
Financial
Statements
Mexico | Mexico City | Palacio de Bellas Artes
Independent Auditors’ Report | 26
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Consolidated Statements of Financial Condition | 28
Consolidated Statements of Income | 30
Consolidated Statements of Comprehensive Income | 31
Consolidated Statements of Changes in Stockholders’ Equity | 32
Consolidated Statements of Cash Flows | 33
Notes to Consolidated Financial Statements | 35
Independent Auditors’ Report
To the Board of Directors and Stockholders of
New York, NY
We have audited the accompanying consolidated financial state
ments of Safra National Bank of New York and its subsidiaries
(the “Bank”), which comprise the consolidated statements of
financial condition as of December 31, 2014 and 2013, and
the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity, and cash flows for the
years then ended, and the related notes to the consolidated
financial statements.
Management’s Responsibility for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presen
tation of these consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and
fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our
audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of
material misstatement.
Independent Auditors’ Report
Auditors’ Responsibility (continued)
An audit involves performing procedures to
obtain audit evidence about the amounts
and disclosures in the consolidated finan
cial statements. The procedures selected
depend on the auditor’s judgment, includ
ing the assessment of the risks of material
misstatement of the consolidated finan
cial statements, whether due to fraud or
error. In making those risk assessments,
the auditor considers internal control rele
vant to the Bank’s preparation and fair
presentation of the consolidated financial
statements in order to design audit proce
dures that are appropriate in the circum
stances. An audit also includes evaluating
the appropriateness of accounting policies
used and the reasonableness of significant
accounting estimates made by manage
ment, as well as evaluating the overall
presentation of the consolidated financial
statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly,
in all material respects, the financial posi
tion of Safra National Bank of New York and
its subsidiaries as of December 31, 2014
and 2013, and the results of their opera
tions and their cash flows for the years
then ended in accordance with accounting
principles generally accepted in the United
States of America.
New York, NY
March 16, 2015
Safra National Bank of New York and Subsidiaries – Consolidated Financial Statements
Consolidated Statements
of Financial Condition
As of
As of
12.31.2014
12.31.2013
Assets
US$ 000
US$ 000
CASH AND DUE FROM BANKS (Notes 3, 10, 14 and 17)
125,011
62,471
INTEREST-BEARING DEPOSITS WITH BANKS (Notes 2, 10, and 17):
Pledged as collateral (Note 2)
Unencumbered
Total interest-bearing deposits with banks
50,000
1,059,717
1,553,235
1,938,247
1,603,235
2,997,964
2,014
4,062
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
(Notes 4, 10, 14, and 17)
SECURITIES HELD-TO-MATURITY, AMORTIZED COST
(Notes 5, 10, and 17):
Unencumbered
525
593
2,695
3,262
3,220
3,855
1,075,294
663,505
541,514
371,483
1,616,808
1,034,988
Total securities held-to-maturity
(fair value – $3,520 and $4,255 on December 31, 2014 and 2013, respectively)
SECURITIES AVAILABLE-FOR-SALE, FAIR VALUE (Notes 5, 10, and 17):
Unencumbered
Total securities available-for-sale
TRADING SECURITIES, FAIR VALUE (Notes 6, 10, and 17):
Unencumbered
Total trading securities
–
66,809
49,708
36,690
49,708
103,499
2,594,608
2,331,835
LOANS – net of allowance for loan losses, unearned discounts,
and deferred loan fees (includes loans at fair value – $991,167
and $798,488 on December 31, 2014 and 2013, respectively)
(Notes 3, 7, 8, 10, and 17)
OTHER ASSETS:
Interest receivable (Note 3)
17,590
36,703
Premises and equipment, net (Note 9)
19,298
19,894
Customers’ liability on acceptances outstanding (Notes 10 and 17)
1,400
2,826
Cash surrender value of life insurance
70,353
68,218
Net deferred tax asset (Note 12)
18,994
25,091
9,602
9,602
Derivative assets (Notes 17 and 18)
30,486
33,021
Other (Note 3)
49,621
34,917
Total other assets
217,344
230,272
6,211,948
6,768,946
Federal reserve stock
TOTAL
See notes to the consolidated financial statements.
(Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
As of
As of
12.31.2014
12.31.2013
US$ 000
US$ 000
1,588,431
1,241,117
111,859
126,989
LIABILITIES:
Deposits (Notes 3, 11, and 17):
Demand
Money market, NOW, and savings
Time (includes time deposits at fair value – $61,396 and $3,101
on December 31, 2014 and 2013, respectively)
3,323,031
3,893,812
5,023,321
5,261,918
409,300
813,300
Securities sold under agreements to repurchase (Notes 12 and 17)
2,172
4,381
Interest payable (Notes 3 and 17)
4,573
6,728
Acceptances outstanding (Note 17)
1,400
2,826
15,816
16,156
Total deposits
Overnight borrowings (Note 3)
Accrued compensation
Accrued taxes payable
Derivative liabilities (Notes 17 and 18)
Other liabilities (Note 3)
9,596
10,753
73,331
43,509
56,390
37,019
5,595,899
6,196,590
18,956
18,956
Additional paid-in capital
292,601
292,601
Retained earnings
286,284
264,979
Total liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Note 16)
STOCKHOLDERS’ EQUITY:
Common stock, $100 par value – authorized, 500,000 shares;
issued and outstanding, 189,560 shares
Accumulated other comprehensive income (loss) – net of tax expense (benefit)
Total stockholders’ equity
TOTAL
18,208
(4,180)
616,049
572,356
6,211,948
6,768,946
(Concluded)
Consolidated Statements of Income
For the
For the
Year Ended
Year Ended
12.31.2014
12.31.2013
US$ 000
US$ 000
73,749
64,633
INTEREST INCOME:
Loans – including realization of deferred fees and accretion
of discounts on loans (Note 3)
Securities
36,179
18,897
Interest-bearing deposits with banks
38,880
66,595
Securities purchased under agreements to resell
Total interest income
1
29
148,809
150,154
28,017
33,488
INTEREST EXPENSE:
Deposits and overnight borrowings (Note 3)
Securities purchased under agreements to repurchase (Note 4)
NET INTEREST INCOME
115
–
120,677
116,666
NET PROVISION FOR CREDIT LOSSES – including off-balance sheet reserve
(Notes 8 and 13)
Net interest income after provision for credit losses
227
–
120,450
116,666
26,601
23,054
(60,252)
(3,080)
OTHER INCOME:
Net gain on securities transactions and interest-bearing deposits with banks
(includes $888 and $1,657 accumulated other comprehensive income (“OCI”)
reclassifications for realized net gains on available-for-sale securities sold/calls
for the years ended December 31, 2014 and 2013, respectively) (Notes 5 and 6)
Net (loss) on fair value measurements (includes derivative net interest
(expense) of $(30,166) and $(12,291) for the years ended December 31,
2014 and 2013, respectively) (Note 17)
Net gain (loss) on foreign currency valuation on securities and
interest-bearing deposits with banks
2,404
(10,530)
Fees and service charges (Note 3)
17,685
15,282
Other income
11,986
11,227
(1,576)
35,953
Salaries and employee benefits
51,267
46,396
Occupancy (Notes 3, 9, and 15)
6,131
5,950
12,310
11,043
Total other (loss) income
OTHER EXPENSES:
Professional fees (Note 3)
Communications and data processing
Other operating (Note 9)
4,327
4,271
11,065
17,014
Total other expenses
85,100
84,674
INCOME BEFORE INCOME TAXES
33,774
67,945
INCOME TAXES (includes $355 and $663 income taxes from reclassification items
from OCI for the years ended December 31, 2014 and 2013, respectively) (Note 12)
NET INCOME
7,469
27,670
26,305
40,275
of Comprehensive Income
NET INCOME
For the
For the
Year Ended
Year Ended
12.31.2014
12.31.2013
US$ 000
US$ 000
26,305
40,275
22,921
(9,147)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES:
Securities available-for-sale:
Net unrealized gains (losses) during the period (net of tax expense (benefit)
of $15,281 and $(6,099), on December 31, 2014 and 2013, respectively)
Reclassification adjustment for realized gains for securities sold/calls
included in net income (net of tax expense of $355 and $663,
(533)
(994)
Other comprehensive income (loss)
on December 31, 2014 and 2013, respectively)
22,388
(10,141)
TOTAL COMPREHENSIVE INCOME
48,693
30,134
Consolidated Statements of Changes
in Stockholders’ Equity
US$ 000
Accumulated
Other Comprehensive
Additional
For the Years ended
BALANCE – December 31, 2012
Income
Common
Paid-In
Retained
Stock
Capital
Earnings
(Loss)
Total
18,956
292,601
229,704
5,961
547,222
(5,000)
Payment of dividends (Notes 1 and 17)
–
–
(5,000)
–
Net income
–
–
40,275
–
40,275
Other comprehensive loss
–
–
–
(10,141)
(10,141)
18,956
292,601
264,979
(4,180)
572,356
Payment of dividends (Notes 1 and 17)
–
–
(5,000)
–
(5,000)
Net income
–
–
26,305
–
26,305
Other comprehensive income
–
–
–
22,388
22,388
18,956
292,601
286,284
18,208
616,049
of Cash Flows
For the
For the
Year Ended
Year Ended
12.31.2014
12.31.2013
US$ 000
US$ 000
26,305
40,275
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Net provision for credit losses
227
–
Depreciation and amortization
1,948
1,991
Deferred income taxes
(8,829)
(2,768)
Net amortization/(accretion) of securities premium/(discounts)
12,985
(36,070)
(888)
(1,657)
(1,032)
–
Trading securities
53,791
(13,486)
Interest receivable
19,113
(8,051)
2,535
(25,321)
(14,712)
1,425
Net gain on sales/calls of securities available-for-sale
Net gain on sales of securities available-for-sale (fair value option)
Net decrease (increase) in operating assets:
Derivative assets
Other assets
Net increase (decrease) in operating liabilities:
Interest payable
(2,155)
(374)
Accrued compensation
(340)
12,598
Accrued taxes payable
(1,157)
860
Derivative liabilities
29,822
1,916
Other liabilities
19,371
(1,485)
136,984
(30,147)
512,289
423,965
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from paydowns, sales, calls, and maturities of securities availablefor-sale
Proceeds from paydowns and maturities of securities held-to-maturity
Purchases of securities
632
2,069
(1,067,857)
(897,018)
Purchases of premises and equipment
(1,345)
(2,024)
Increase in cash surrender value of life insurance
(2,135)
(2,190)
1,394,729
(311,669)
Net decrease (increase) in:
Interest-bearing deposits with banks
Loans
Customers’ liability on acceptances outstanding
Net cash provided by (used in) investing activities
2,048
(1,774)
(262,999)
(133,414)
1,426
(56)
576,788
(922,111)
(Continued)
For the
For the
Year Ended
Year Ended
12.31.2014
12.31.2013
US$ 000
US$ 000
(5,000)
(5,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends
Net increase (decrease) in:
Deposits
(238,597)
309,225
Overnight borrowings
(404,000)
668,500
(2,209)
1,913
Federal funds purchased and securities sold under agreements to
repurchase
Acceptances outstanding
(1,426)
56
(651,232)
974,694
NET INCREASE IN CASH AND DUE FROM BANKS
62,540
22,436
CASH AND DUE FROM BANKS – Beginning of year
62,471
40,035
125,011
62,471
60,424
46,156
Net cash (used in) provided by financing activities
CASH AND DUE FROM BANKS – End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits, borrowed funds, and derivative transactions
Income taxes – (net of refunds received of $ – and $5 in 2014 and 2013,
respectively)
17,505
22,320
(Concluded)
Notes to Consolidated
Financial Statements
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013.
(Dollars in thousands)
1. Organization and summary of
significant accounting policies
Basis of Presentation
The consolidated financial statements
include the accounts of Safra National
Bank of New York (“SNBNY”) and its
wholly owned subsidiaries, Joseph Safra
Management Corporation, J. Safra Invest
ment Corporation, Safra Securities LLC
(“SSL”) and 3050 Aventura Owner, LLC
(collectively, the “Bank”). SNBNY engages
in wholesale and private banking under
a federal charter and is a member of the
Federal Deposit Insurance Corporation
(“FDIC”) and the Federal Reserve System
(“FED”). The Office of the Comptroller of
the Currency (the “OCC”) regulates and
supervise SNBNY. The Bank is a whollyowned subsidiary of Safra New York Cor
poration (the “Parent”), a U.S. holding
company.
The Bank declared and paid dividends
to shareholders of $5,000 in 2014.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the
Bank and are prepared in accordance with
accounting principles generally accepted
in the United States of America (here
inafter referred to as “generally accepted
accounting principles” or “GAAP”). All significant intercompany accounts and trans
actions within the Bank have been elimi
nated in consolidation.
Use of Estimates in the Preparation of
Consolidated Financial Statements
The preparation of the consolidated finan
cial statements in conformity with GAAP
requires management to make estimates
and assumptions that affect the reported
amounts of assets and liabilities and dis
closure of contingent assets and liabilities
at the date of the consolidated financial
statements, and the reported amounts of
revenues and expenses during the report
ing period. Actual results could materially
differ from these estimates. Significant
accounting estimates reflected in the
Bank’s consolidated financial statements
include the allowance for loan losses, the
realization of deferred tax assets, the
other-than-temporary impairment of avail
able-for-sale securities, and the fair value
of financial instruments.
Cash and Due from Banks
For purposes of the consolidated state
ments of cash flows, cash and due from
banks are comprised of cash on hand, cash
items in the process of collection, and
amounts due from banks and other finan
cial institutions. All such amounts have
an original maturity of 90 days or less and
do not bear any interest. Cash in SNBNY’s
vault at December 31, 2014 and 2013,
was $592 and $346, respectively.
Interest-Bearing Deposits with Banks
Interest-bearing deposits with banks con
sist principally of money market accounts,
due from the Federal Reserve Bank of New
York and time deposits with other deposi
tory institutions. The Bank pledged inter
est-bearing deposits as collateral for a
credit line with the Federal Reserve Bank of
New York and securities transactions with
other financial institutions.
Securities Sold under Agreements to
Repurchase (“Repurchase Agreements”)
and Securities Purchased under
Agreements to Resell (“Reverse
Repurchase Agreements”)
Repurchase agreements and reverse
repurchase agreements are recorded as
collateralized financing transactions and
are carried at the contract value as speci
fied in the respective agreements. Accrued
interest on these transactions is recorded
within interest receivable or payable in
the consolidated statements of finan
cial condition. Interest on these transac
tions is recorded within interest income
or interest expense in the consolidated
statements of income. It is the policy of
the Bank to obtain possession of collate
ral with a fair value equal to or in excess
of the principal amount loaned under the
reverse repurchase agreements. Collate
ralized reverse repurchase agreements
may result in credit exposure in the event
the counterparties to the transactions are
unable to fulfill their contractual obliga
tions. The Bank minimizes the credit risk
associated with this activity by monitor
ing credit exposure and collateral values,
and by requiring additional collateral to be
promptly deposited with or returned to the
Bank when deemed necessary.
Securities
Securities accounted for under Account
ing Standards Codification (“ASC”) 320,
Investment – Debt and Equity Securities
(“ASC 320”), are categorized as held-tomaturity, available-for-sale, or trading.
Debt securities that the Bank has the
positive intent and ability to hold to matu
rity are classified as held-to-maturity and
are carried on the consolidated state
ments of financial condition at amortized
cost unless a decline in value is deemed
other-than-temporary as a result of a
credit deterioration of the issuer, in which
case the carrying value is adjusted. The
amortization of premium or accretion of
discount, as well as any unrealized loss
deemed other-than-temporary due to
credit deterioration, is included in cur
rent period earnings. Securities that were
bought and held principally for the purpose
of selling them in the near term are classi
fied as trading securities. Trading securi
ties are carried at fair value with changes
in unrealized gains and losses included
in current earnings. Interest revenue aris
ing from trading securities is included on
the consolidated statements of income as
part of net interest income. Securities not
classified as trading or as held-to-maturity
are classified as available-for-sale. These
securities are carried in the consolidated
statements of financial condition at fair
value with changes in unrealized hold
ing gains and losses reported as other
comprehensive income (loss) (“OCI”),
net of deferred income taxes, in the con
solidated statements of comprehensive
income. The Bank elected the fair value
option for certain available-for-sale secu
rities at the inception of such contracts.
The changes in unrealized gains and
losses for these are included in current
earnings. For available-for-sale securi
ties that are deemed to have other-thantemporary impairment due to a change in
the Bank’s intent to sell, the full decline
in fair value below cost is included in cur
rent earnings. For available-for-sale secu
rities that are deemed to have other-thantemporary impairment as a result of credit
impairment, only the decline in fair value
for credit-related impairment below cost is
included in current earnings. Impairments
related to other factors are recorded in
OCI, net of applicable taxes.
Gains and losses on disposition of
securities are based on the net proceeds
received as compared to the adjusted
carrying amount of the securities sold by
using the specific identification method,
see Notes 5 and 6 for further details.
Loans
Loans are stated at the principal amount
outstanding, reduced by unearned dis
counts, deferred loan fees and allowance
for loan losses. Interest is calculated by
using the simple interest method on daily
balances of the principal amount outstand
ing. Unearned discounts are recognized as
interest income over the term of the loans.
Loan fees and certain direct costs asso
ciated with originating or acquiring loans
are deferred and amortized over the term
of the loan using straight-line method.
Certain loans are recorded and measured
at fair value in accordance with ASC 825,
Financial Instruments (“ASC 825”) as the
Bank has elected the fair value option
for such loans. Such loans and accrued
interest are stated at fair value with unre
alized gains and losses included in cur
rent earnings. Interest revenue arising
from those loans is included in the con
solidated statements of income as part
of net interest income. All up-front fees,
costs, premiums and discounts related to
those loans are recognized as net interest
income as incurred and not deferred. The
allowance for loan losses is not applied to
such loans. Refer to Note 17 for further
details.
Nonaccrual loans are those loans on
which the accrual of interest ceases when
principal or interest payments are past
due 90 days or more, unless, in the opin
ion of management, based upon a review
of the borrower’s or guarantor’s financial
condition, collateral value or other fac
tors, full repayments are expected. A loan
may be placed on nonaccrual status prior
to the 90-day period if, in management’s
opinion, conditions warrant nonaccrual
status. Generally, accrued interest is
reversed when a loan is placed on nonac
crual status. Interest payments received
on this loan may be recognized as income
or applied to principal depending on mana
gement’s judgment.
A modified loan is considered a troub
led debt restructuring (“TDR”) when the
borrower is experiencing financial difficul
ties and the Bank grants a concession to
the borrower that would not typically be
considered. No single factor, by itself, is
indicative of whether restructuring a debt
is a TDR. The Bank evaluates the overall
general decline in the economy and dete
riorations of the borrower’s financial con
dition. The Bank grants a concession when
the nature and amount of the additional
collateral or guarantees received as part
of a restructuring debt do not serve as
adequate compensation for other terms
of the restructuring. When additional gua
rantees are received in a restructuring,
the Bank evaluates both the guarantor’s
ability and willingness to pay the balance
owed. The Bank reports all TDR loans as
impaired loans until they mature or are
paid down.
Allowance for Loan Losses
The allowance for loan losses is estab
lished through a provision for credit
losses, which is charged to expense and
is based upon management’s estimate of
probable incurred and inherent losses in
the loan portfolio, current domestic and
international economic conditions, and
other factors.
ASC 310, Receivables (“ASC 310”),
requires all creditors to account for
impaired loans, except those loans that
are accounted for at fair value or at the
lower of cost or fair value, at the present
value of the expected future cash flows
discounted at the loan’s original effective
interest rate or, as an expedient, at the
loans observable market price or the fair
value of the collateral.
The Bank’s allowance for loan losses is
estimated considering the following fac
tors: whether the loan is impaired, the
type of loan product, the availability of first
loss insurance, the estimated credit risk
associated with a loan or pool of loans,
the default and loss rates experienced by
the Bank and industry, and the economic
environment.
If a loan is considered impaired, the
Bank will measure the impairment based
on either the present value of estimated
future cash flows, fair value of the loan,
or, if the loan is collateral dependent, the
fair value of the collateral less estimated
costs to sell. Fair value of the collateral
is generally determined by third-party appraisals for residential mortgage loans,
quoted market prices for securities, and
estimated fair values for other assets. For
all impaired loans, the amount by which
the loan balance exceeds the impairment
measure is included as a component of
the allowance for loan losses estimate.
The Bank’s methodology to determine
the allowance for loan losses and the pro
vision for the off-balance sheet reserve
for the non-impaired loans is based on the
level of risk associated with each loan.
The entire loan portfolio is divided into
pools based on Facility Risk Grades on a
scale from 1 to 11, 1 being minimal risk
of loss and 11 being a loss. Each Faci
lity Risk Grade has an approximated cor
relation with rating scales from national
recognized rating agencies. These grades
are then assigned both default rates and
recovery rates using current data from
the national recognized rating agencies
adjusted by qualitative factors, such as
concentration of risk, profitability, quality
of assets, liquidity and cash flows, capi
talization and indebtedness, economic
environment and positioning, industry,
sensitivity scenarios and the quality of
the debtor’s management and sharehol
ders.
Loss rates are determined by subtract
ing the recovery rates from 100%. For
each Facility Risk Grade, the reserve allo
cation factor is the Facility Risk Grade’s
average probability of loss given default.
Qualitative adjustments are added to the
factor, if required. The loan balances for
each Facility Risk Grade category is then
multiplied by the reserve allocation fac
tor to calculate the required allowance for
loan losses for each Facility Risk Grade
category. The determination of the allow
ance is complex and requires judgment
by management, and is therefore inhe
rently uncertain.
A general description of the Bank’s Faci
lity Risk Grade categories is as follows:
Facility Risk
Grades
Classification Description
1 to 3
Top Quality
These loans are well collateralized with certificate of deposits, diversified
readily marketable securities, and letters of credit from investment grade banks.
4 to 6
Normal
These loans are performing, however, the Bank assigns a reserve as a
contingency in the event of any adverse condition such as a review of the
borrower’s financial statements shows a decline in earnings from one year to
the next or a reduction in the borrower’s available credit with other financial
institutions affecting the borrower’s ability of payment.
7
Management
These are not criticized loans, but due to specific reasons such as the property
Attention
(collateral) sustained partial damage due to a hurricane or other natural disaster
or the the property’s value has declined resulting in the LTV increasing for the
loan, may represent higher credit risk.
8
9
Special
These loans are examined to determine whether the collateral has been
Mention
impaired and payments have been received on a timely basis.
Substandard
These loans are assessed for evidence of deterioration of the value of the
collateral, and/or the collectability and timing of payments does not allow the
borrower to satisfy payments on the agreed terms, endangering recovery of
unpaid balances.
These loans present evidence that the borrower may have an impaired financial
10
Doubtful
11
Loss
and economic situation, and the likelihood of recovery for these loans is low.
These loans are designated as a loss and are to be charged off, as there is no
potential for recovery.
In order to maintain the quality of the loan
portfolio, the credit quality of each loan
is reviewed at least annually. This lending
policy is applicable to all classes of loans.
Premises and Equipment
Premises and equipment, including land,
building and improvements, and artworks
are stated at cost, less any accumulated
depreciation and amortization. Depre
ciation of furniture, equipment, computer
software and hardware is computed by the
straight-line method based on the esti
mated useful lives of the assets, which
are in the range of three to five years.
Depreciation of building is computed by
the straight-line over the estimated use
ful life of 41 years. Improvements are
amortized over the shorter of the life of
the related lease or the estimated useful
lives of the assets. Artwork and land are
carried at cost.
Derivative Financial Instruments
The Bank uses various derivative instru
ments outside of its trading activities,
including interest rate swaps and foreign
exchange contracts, to manage the inte
rest rate characteristics of certain assets
or liabilities and to economically hedge
against the effects of fluctuations in inte
rest rates or foreign exchange rates.
The Bank adheres to ASC 815, Deri
vatives and Hedging (“ASC 815”), which
establishes accounting and reporting
standards for derivative instruments, as
well as certain derivative instruments
embedded in other contracts that are out
side of the Bank’s trading activities.
All derivatives are recorded at fair value
as derivative assets or derivative liabili
ties on the consolidated statements of
financial condition.
The Bank does not apply hedge account
ing for the Bank’s derivative transactions
that are not designated as a hedge, the
activities are included in the Bank’s trad
ing portfolio, with changes in fair value
reflected in net loss on fair value measu
rements in the consolidated statements
of income. The derivative assets and lia
bilities related interest income (expense)
is also recorded in net loss on fair value
measurements in the consolidated state
ments of income.
To reduce credit exposures on deriva
tives transactions, the Bank enters into
master netting agreements with counter
parties that permit it to offset receivables
and payables with such counterparties.
The Bank records the foreign exchange
contracts, included within the derivative
assets and liabilities, on a net-by-counter
party basis (i.e., the net payable or receiv
able for derivative assets and liabilities
for a given counterparty) in the consoli
dated statements of financial condition
when a legal right of setoff exists under
ASC 210-20-45, Balance Sheet Offsetting,
or ASC 815-10-45, Derivatives and hedg
ing – Balance Sheet Netting. The Bank
has elected not to offset interest-bearing
deposits collateral with counterparties for
the derivative assets and liabilities in the
consolidated statements of financial con
dition.
Deposits Deposits consist of demand, money mar
ket, NOW, savings, and time deposits
accounts. Included within time deposits
are brokered certificate of deposits issued
by the Bank. The Bank has elected the fair
value option in accordance with ASC 825
for certain brokered time deposits. Refer
to Note 17 for further details of the fair
value for deposit liabilities.
Overnight Borrowings
Overnight borrowings are loans with affi
liated banks that are payable the next
business day and generally bear interest
at a spread under the federal funds rate.
Foreign Currency Transactions
Foreign currency transactions are accounted
for at the exchange rates prevailing on the
related transaction dates. Assets and lia
bilities denominated in foreign currencies
are recorded and reported in the accompa
nying consolidated statements of financial
condition using the period-end exchange
rates. Gains and losses resulting from the
settlement of foreign currency transactions
and from the revaluation of assets and lia
bilities denominated in foreign currencies
are recognized as net income (loss) on for
eign currency valuation on securities and
interest-bearing deposits with banks in the
consolidated statements of income.
Federal Reserve Bank Stock
The Bank’s investment in Federal Reserve
Bank stock is carried at par value. The
Bank is required to maintain a minimum
level of investment in Federal Reserve
Bank stock based on the capital of the
Bank.
Other Income
Other income primarily consists of com
mission income recorded on trade date
basis by SSL, the Bank’s broker-dealer
subsidiary. Also included within other
income is other commissions earned by
the Bank, realized gains and losses result
ing from the settlement of foreign currency
transactions, and interest income earned
from bank owned life insurance.
Income Taxes
The Bank accounts for income taxes in
accordance with the provisions of ASC 740,
Income Taxes (“ASC 740”), which requires
that an asset and liability approach be
applied in accounting for income taxes
and that deferred tax assets and liabili
ties be reflected for temporary differences
using tax rates expected to be in effect
when such differences reverse. Deferred
tax assets and liabilities are reco
g nized
for the estimated future tax consequences
attributable to temporary diffe
r ences
between the financial statement carrying
amounts of existing assets and liabilities
and their respective tax basis. In assess
ing the usability of deferred tax assets,
management considers whether it is more
likely than not that some portion or all of
the deferred tax assets will be realized.
The Bank is included in the consolidated
federal income tax return and combined
state/city tax returns of the Parent. Cur
rent and deferred taxes are allocated to
the Bank under the “benefits for loss”
method. Under this method, the Bank is
assumed to file a separate return with
the taxing authority, thereby reporting
their taxable income or loss and pay
ing the applicable tax to or receiving the
appropriate refund from the Parent as if
the Bank was a separate taxpayer, except
that net operating losses (or other current
or deferred tax attributes) are character
ized as realized (or realizable) by the Bank
when those tax attributes are realized (or
realizable) by the consolidated federal and
combined state/city tax return group even
if the Bank would not otherwise have real
ized the attributes on a stand-alone basis.
The Bank believes the method for allo
cating income tax expense, pursuant to
their tax-sharing agreement is systematic,
rational and consistent with the broad
principles of ASC 740, Income Taxes.
The Bank recognizes tax positions in the
consolidated financial statements only
when it is more likely than not that the
position will be sustained upon examina
tion by relevant taxing authorities based
on the technical merits of the position. A
position that meets this standard is meas
ured at the largest amount of benefit that
will more likely than not be realized upon
settlement. A liability is established for
differences between positions taken in a
tax return and amounts recognized in the
consolidated financial statements.
The Bank recognizes interest and penal
ties related to such a position within the
income tax expense line in the accompa
nying consolidated statements of income.
Fair Value Option for Financial
Instruments
ASC 825 permits entities to elect to mea
sure financial instruments and certain
other items at fair value upon entering into
the transaction. The objective of the fair
value option is to improve financial report
ing by providing entities with the opportu
nity to mitigate volatility in reported earn
ings caused by measuring related assets
and liabilities differently without having
to apply complex hedge accounting provi
sions. The Bank has elected the fair value
option for certain loans and time deposits.
Refer to Note 17 for further details of such
financial instruments.
Fair Value Hierarchy
Transfers between levels of the fair value
hierarchy are recorded at the value as
of the beginning of the reporting period.
Determining the significance of transfers
into and out of level, the Bank considers
both the fair value of the assets or liabili
ties transferred between the levels (com
pared to total assets or liabilities of the
Bank, respectively) as well as the change
in fair value during the period associated
with the transferred assets or liabilities
(compared to the Bank’s earnings).
Recent Accounting Pronouncements
In February 2013, the Financial Account
ing Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) No.
2013-02, Reporting of Amounts Reclassi
fied Out of Accumulated Other Comprehen
sive Income (Topic 220), which requires
the Bank to provide information about the
amounts reclassified out of accumulated
other comprehensive income by compo
nent. In addition, the Bank is required to
present, either on the face of the state
ment where net income is presented or
in the notes to the consolidated financial
statements, significant amounts reclassi
fied out of accumulated other comprehen
sive income by the respective line items of
net income but only if the amount reclas
sified is required to be reclassified to net
income in its entirety in the same report
ing period under GAAP. Effective January
1, 2014, the Bank adopted ASU No. 201302 and the information about the amounts
reclassified out of accumulated compre
hensive income were included in the con
solidated statements of income.
In January 2014, the FASB issued ASU
No. 2014-04, Receivables – Troubled Debt
Restructurings by Creditors (Subtopic
310-40): Reclassification of Residen
tial Real Estate Collateralized Consumer
Mortgage Loans upon Foreclosure. The
amendments clarify that an in substance
repossession or foreclosure occurs, and
a creditor is considered to have received
physical possession of residential real
estate property collateralizing a consumer
mortgage loan, upon either (1) the credi
tor obtaining legal title to the residential
real estate property upon completion of a
foreclosure or (2) the borrower conveying
all interest in the residential real estate
property to the creditor to satisfy that
loan through completion of a deed in lieu
of foreclosure or through a similar legal
agreement. Additionally, the amendments
require disclosure of both (1) the amount
of foreclosed residential real estate pro
perty held by creditor and (2) the recorded
investment in consumer mortgage loans
collateralized by residential real estate
property that are in the process of fore
closure according to local requirements of
the applicable jurisdiction. The effective
date of this ASU is annual periods begin
ning after December 15, 2014. The Bank
is currently evaluating the impact that the
adoption of this ASU will have on its con
solidated financial statements.
In May 2014, the FASB issued ASU No.
2014-09, Revenue from Contracts with
Customers. ASU No. 2014-09 outlines a
single comprehensive model for entities
to use in accounting for revenue arising
from contracts with customers and super
sedes most current revenue recognition
guidance, including industry-specific guid
ance. The guidance requires a company to
recognize revenue when it transfers pro
mised services to customers in an amount
that reflects the consideration to which
the company expects to be entitled in
exchange for those services and requires
enhanced disclosures to help users of
financial statements better understand
the nature, amount, timing, and uncer
tainty of revenue that is recognized. The
new guidance is effective for annual and
interim periods beginning after Decem
ber 15, 2017, for nonpublic entities. Early
adoption is permitted as early as the pub
lic company effective date of annual periods beginning after December 15, 2016.
The new guidance can be applied either
retrospectively to each prior reporting
period presented, or as a cumulativeeffect adjustment as of the date of adop
tion. The Bank is currently evaluating the
effect, if any, the new guidance may have
on its consolidated financial statements.
In June 2014, the FASB issued ASU No.
2014-11, Transfers and Servicing (Topic
860) – Repurchase-to-Maturity Transac
tions, Repurchase Financings, and Dis
closures. The ASU changes the account
ing for repurchase- and resale-to-maturity
agreements by requiring that such agree
ments be recognized as financing arrange
ments, and requires that a transfer of a
financial asset and a repurchase agree
ment entered into contemporaneously
be accounted for separately. The amend
ment also requires additional disclosures
about certain transferred financial assets
accounted for as sales and certain securi
ties financing transactions. The account
ing changes and additional disclosures
about certain transferred financial assets
accounted for as sales are effective for
the first interim and annual reporting
pe
r iods beginning after December 15,
2014. The additional disclosures for secu
rities financing transactions are required
for annual reporting periods beginning
after December 15, 2014 and for interim
reporting periods beginning after March
15, 2015. The Bank is currently evaluat
ing the impact that the adoption of this
ASU will have on its consolidated financial
statements.
2. Interest-bearing deposits with banks
As of December 31, 2014, interest-bear
ing deposits with banks in the amount of
$1,603,235 on the consolidated state
ments of financial condition consist princi
pally of money market and time deposits,
with maturities ranging from January 2015
to January 2017, and interest rates rang
ing from 0.10% to 4.50%.
As of December 31, 2013, interestbearing deposits with banks in the amount
of $2,997,964 on the consolidated state
ments of financial condition consist princi
pally of money market and time deposits,
with maturities ranging from January 2014
to January 2017, and interest rates rang
ing from 0.10% to 5.96%.
Included in the interest-bearing deposits
with banks amounts noted above are also
deposits with the Federal Reserve Bank
of New York bearing interest of 0.25%
amounting to $757,470 and $1,190,437
at December 31, 2014 and 2013, respec
tively. Regulations of the Federal Reserve
Board require depository institutions to
maintain reserves, which are not avai
lable for investment purposes. On aver
age, included within deposits held at the
Federal Reserve Bank of New York were
required cash reserves of $135,960 and
$108,523 during the years ended Decem
ber 31, 2014 and 2013, respectively. On
average, included within deposits held at
the Federal Reserve Bank of New York
were $566,655 and $789,696 in excess
of the required reserve during the years
ended December 31, 2014 and 2013,
respectively.
At December 31, 2014 and 2013,
the Bank had interest-bearing deposits
amounting to $7,810 and $1,704, respec
tively, in margin accounts held at financial
institutions for derivative transactions.
At December 31, 2014 and 2013, the
Bank pledged $50,000 and $1,059,717,
respectively, of interest-bearing deposits
as collateral for a credit line with the Fede
ral Reserve Bank of New York and other
financial institutions.
3. Related-party transactions
The ultimate shareholder of the Bank
also controls various other companies
(affiliates) located in the United States
of America, Latin America, and Europe.
Transactions with such affiliates arise in
the normal course of business. A sum
mary of transactions and balances with
affiliates as of and for the years ended
December 31, 2014 and 2013, are as
follows:
2014
Cash and due from banks
Loans
2013
US$
US$
3,763
6,290
143,006
142,706
Interest receivable
30
29
Other assets
16
78
32,389
24,719
Demand deposits
Money market accounts, NOW, and
savings deposits
3,846
4,371
Time deposits
125,786
138,632
Overnight borrowings
409,300
813,300
Interest payable
Other liabilities
246
382
4,567
2,891
1,547
1,901
1,286
2,026
4,107
3,721
3,185
3,185
Income and expense for the years
ended December 31:
Fees and service charges and
interest income on loans
Interest expense on deposits and
overnight borrowings
Consulting fee expense
(included in professional fees)
Rental expense
(included in occupancy expenses)
Pursuant to service level agreements,
SNBNY charges certain affiliates to reimburse SNBNY for expenses which are
included in the income and expenses
shown above. The allocation of expenses
from SNBNY to certain affiliates is based
on SNBNY’s proportionated head counts
and allocated time.
In August 2006, a loan of $263,738 was
provided to the Parent to acquire and
retire 50% of the Parent’s equity shares.
As of December 31, 2014 and 2013, the
loan balance was reduced to $134,650.
The loan is fully secured by U.S. agency/
government securities or deposits. All
other loans provided to affiliates as
of December 31, 2014 and 2013 of
$8,356 and $8,056, respectively, are
fully secured by U.S. agency/government
securities or deposits. The average inte
rest rates on all loans provided to related
parties for the years ended December 31,
2014 and 2013, were 1.08% and 1.33%,
respectively. As of December 31, 2014
and 2013, affiliates have provided gua
rantees for several loans amounting to
$2,435 and $8,944, respectively. As of
December 31, 2014 and 2013, letters of
credit of $3,421 and $6,133 have been
issued on behalf of affiliates, respectively.
The average balance of overnight bor
rowing transactions, all of which are with
affiliates, during the years of 2014 and
2013 were $411,743 and $494,687,
respectively, and the average interest rate
during the years of 2014 and 2013 were
0.14% and 0.15%, respectively.
4. Securities purchased under
agreements to resell and Securities sold
under agreements to repurchase
Information concerning financial assets
purchased under agreements to resell is
summarized as follows:
2014
2013
Balance as of December 31
$ 2,014
$ 4,062
Average balance during the year
$ 2,061
$ 2,471
0.04%
(1.19%)
$ 2,422
$ 4,062
Average interest rate earned (paid)
during the year
Highest balance at the end of any
month end
At December 31, 2014 and 2013, securi
ties purchased under agreements to resell
with a face value of $2,014 and $4,062,
and fair value of $2,008 and $3,810,
respectively, were used as collateral for
the repurchase transaction noted below.
The Bank has entered into repurchase
agreements to obtain short-term financ
ing. The counterparties to these agree
ments may have sold, loaned, or other
wise disposed of such financial assets to
other parties in the normal course of their
operations, and have agreed to resell to
the Bank identical financial assets at the
maturities of these agreements.
Information concerning securities sold
under agreements to repurchase is sum
marized as follows:
Balance as of December 31
Average balance during the year
2014
2013
$ 2,172
$ 4,381
$ 40,590
$ 17,126
0.27%
0.01%
$ 188,872
$ 90,417
Average interest rate paid during
the year
Highest balance at the end of any
month end
The Bank does not net securities pur
chased under agreements to resell and
securities sold under agreements to repur
chase.
5. Securities – Available-for-sale &
held-to-maturity
The amortized cost, gross unrealized
gains and losses, and fair value of securi
ties as of December 31, 2014 and 2013,
were approximately as follows:
Securities at December 31, 2014
Gross
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Obligations of U.S. government
62,996
29
–
63,025
Non-U.S. government debt securities
28,377
6
(26)
28,357
308,160
1,142
(7,417)
301,885
local and political subdivisions
553,971
35,140
–
589,111
Agency mortgage-backed securities
631,925
2,776
(271)
634,430
1,585,429
39,093
(7,714)
1,616,808
3,220
300
–
3,520
Total held-to-maturity securities
3,220
300
–
3,520
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
$
Fair Value
Available-for-Sale Securities:
Corporate debt securities
Obligations of states,
Total available-for-sale securities
Held-to-Maturity Securities:
Gross
$
Fair Value
Obligations of U.S. government
72,981
55
–
73,036
447,589
1,075
(6,884)
441,780
303,922
292
(2,343)
301,871
17,545
1,578
–
19,123
199,920
–
(742)
199,178
1,041,957
3,000
(9,969)
1,034,988
3,855
400
–
4,255
3,855
400
–
4,255
Obligations of states,
Sponsored agencies issued securities
Available-for-sale securities with unreal
ized losses as of December 31, 2014 and
2013, are presented in the following table
by the length of time, in which individual
securities have been in a continuous
unrealized loss position. There were no
gross unrealized losses for held-to-matu
rity securities as of December 31, 2014
and 2013.
As of December 31, 2014
Less Than 12 Months
Amortized
$
Cost
Fair Value
Greater Than 12 Months
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
Losses
Fair Value
Losses
Fair Value
Losses
16,567
16,541
(26)
16,541
(26)
–
–
241,735
234,318
(7,417)
167,208
(4,997)
67,110
(2,420)
142,457
142,186
(271)
142,186
(271)
–
–
Total
400,759
393,045
(7,714)
325,935
(5,294)
67,110
(2,420)
Less Than 12 Months
Amortized
$
Greater Than 12 Months
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
Cost
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
165,194
158,310
(6,884)
146,672
(5,762)
11,638
(1,122)
263,830
261,487
(2,343)
261,487
(2,343)
–
–
199,923
199,181
(742)
199,181
(742)
–
–
Total
628,947
618,978
(9,969)
607,340
(8,847)
11,638
(1,122)
Obligation of states,
The number of available-for-sale securi
ties with unrealized losses were 29 and
53 at December 31, 2014 and 2013,
respectively. The unrealized losses asso
ciated with available-for-sale securities
are related to changes in interest rates
and do not affect the expected cash flows
of the underlying collateral or issuer. The
decline in fair value at December 31,
2014 and 2013, below the amortized cost
of the investments is deemed to be tem
porary because the Bank does not have
the intent to sell nor is it probable that
the Bank will be forced to sell such securi
ties. In addition, there has been no credit
impairment noted. The Bank considered
all available evidence to evaluate the real
izable value of its investments, including
factors, such as the associated credit
risk, interest rate, and prepayment risk.
The amortized cost and fair value of secu
rities at December 31, 2014 and 2013,
by contractual maturity, are shown below.
Expected maturities may differ from con
tractual maturities because borrowers
may have the right to call or prepay obliga
tions with or without call or prepayment
penalties.
Amortized
$
Cost
Fair Value
Due in one year or less
130,941
130,711
Due after one year through five years
110,389
106,505
Due after five years through 15 years
693,487
726,882
Over 15 years
18,687
18,280
953,504
982,378
631,925
634,430
1,585,429
1,616,808
3,220
3,520
3,220
3,520
Amortized
$
Cost
Fair Value
Due in one year or less
238,911
239,290
Due after one year through five years
147,401
147,945
Due after five years through 15 years
638,100
628,630
1,024,412
1,015,865
and zero, were recorded on calls of secu
rities and included in net gain on securi
ties transaction in the consolidated state
ments of income during the years ended
December 31, 2014 and 2013, respec
tively.
Bank pledged available-for-sale securi
ties with an approximate fair value of
$1,075,294 and $663,505, respectively,
and held-to-maturity securities with an
amortized cost of $525 and $593, respec
tively, as collateral for a credit line with
the Federal Reserve Bank of New York
and Federal Home Loan Bank of New York
(“FHLBNY”) and for securities transactions
with other financial institutions. The Bank
became a member of FHLBNY in 2014. To
become a member, the Bank was required
to purchase FHLBNY stock of $2,708 and
included this in other assets in the con
solidated statement of financial condition.
6. Trading securities
During the years ended December 31,
2014 and 2013, trading securities
gains were approximately $23,381 and
$21,301, respectively, included in net
gain on securities transactions in the con
solidated statements of income.
A summary of trading securities at
December 31, 2014 and 2013, is as
follows:
17,545
19,123
1,041,957
1,034,988
3,855
4,255
3,855
4,255
Equities
$
2014
Total trading securities
Proceeds from sales of available-forsale securities during the years ended
December 31, 2014 and 2013, were
approximately $10,106 and $389,190,
respectively.
During the years ended
December 31, 2014 and 2013, net gains
of approximately $114 and $1,657 were
recorded on sales of securities and are
included in net gain on securities trans
actions in the consolidated statements of
income. Net gains of approximately $774
2013
–
40,240
41,808
55,364
7,900
7,895
49,708
103,499
Bank pledged trading securities with a fair
value of $0 and $66,809, respectively, as
collateral for securities transactions with
a financial institution.
7. Loans
A summary of the composition of the
loan portfolio at December 31, 2014 and
2013, is as follows:
$
2014
2013
1,467,504
1,200,859
Commercial and industrial:
Domestic
Foreign
Total commercial and industrial
Individuals
Foreign banks
Total loans
942,481
986,218
2,409,985
2,187,077
192,302
150,704
20,081
20,205
2,622,368
2,357,986
3,288
3,114
Less:
Deferred loan fees and unearned discounts
Allowance for loan losses
Loans – net of allowance for loan losses, deferred loan fees and unearned discounts
24,472
23,037
2,594,608
2,331,835
The Bank recorded loans at fair value of
$991,167 and $798,488 as of Decem
ber 31, 2014 and 2013, respectively, see
Note 17. A summary of loans not recorded
at fair value before allowance for loan
losses, deferred loan fees and unearned
discounts classified by Facility Risk Grade
according to the Bank’s methodology as
discussed in Note 1 is as follows:
$
Commercial & Industrial
Foreign
Facility Risk Grade
Domestic
Foreign
Individuals
Banks
Total
467,497
899,342
178,552
20,081
1,565,472
7
57,638
–
–
–
57,638
8
221
–
–
–
221
9
7,870
–
–
–
7,870
–
–
–
–
–
533,226
899,342
178,552
20,081
1,631,201
1– 6
10 – 11
Totals
$
Foreign
Facility Risk Grade
Domestic
Foreign
Individuals
Banks
Total
404,796
943,797
145,278
20,205
1,514,076
7
35,198
–
–
–
35,198
8
242
–
–
–
242
9
9,982
–
–
–
9,982
–
–
–
–
–
450,218
943,797
145,278
20,205
1,559,498
1– 6
10 – 11
Totals
The maturities of the loans portfolio at
December 31, 2014 and 2013 before
allowance for loan losses, deferred loan
fees and unearned discounts is summa
rized as follows:
$
2014
2013
Three months or less
817,519
792,184
Over three months through 12 months
453,523
388,525
Over one year through three years
364,678
310,905
Over three years through five years
491,684
413,494
Over five years through 15 years
Totals
494,964
452,878
2,622,368
2,357,986
Bank pledged a value of $164,875 and
$246,079, respectively, of loans before
allowance for loan losses, deferred loan
fees and unearned discounts, with the
Federal Reserve Bank of New York.
8. Allowance for loan losses and
off-balance sheet commitment losses
Change in the allowance for loan and offbalance sheet commitment losses for
the years ended December 31, 2014 and
2013, was as follows:
LOANS
Off-balance
Foreign
$
Sheet Com-
Domestic
Foreign
Individuals
Banks
Total
mitments
16,648
6,324
475
232
23,679
1,655
–
–
–
–
–
–
19
–
26
–
45
–
(455)
(232)
–
–
(687)
–
16,212
6,092
501
232
23,037
1,655
1,104
(408)
281
(16)
961
(734)
470
–
4
–
474
–
17,786
5,684
786
216
24,472
921
Balance –
December 31, 2012
Provisions
Loan recoveries
Loans charged off
Balance –
December 31, 2013
Provisions (Reversals)
Loan recoveries
Balance –
December 31, 2014
The following table presents information
about the Bank’s impaired loans and
loans that are past due and on nonaccrual
status, net of allowance for loan loss:
Past due 90 days
Past due more than
or less and classified
90 days and classified
as nonaccrual status
as nonaccrual status
Non-
Non-
Impaired
Impaired
impaired
Impaired
impaired
loans
loans
loans
loans
loans
7,869
3,499
–
–
–
8,988
–
–
4,545
–
$
The following table presents average
impaired loans and related interest
income, and interest forgone on nonac
crual loans reported by the Bank:
$
Average recorded
Interest income
Interest
investment in
recognized on
foregone on
impaired loans
impaired loans
nonaccrual loans
For the year ended December 31, 2014
7,560
255
313
For the year ended December 31, 2013
10,055
434
572
During the years ended December 31,
2014 and 2013, provision for credit
losses of $227 and zero, respectively,
were recorded. No specific reserves for
impaired loans was recorded during the
year ended December 31, 2014. The Bank
maintained specific reserves of $994 for
impaired loans that included $385 for TDR
loans or loans in default during the year
ended December 31, 2013.
The Bank does not collectively evaluate
any specific group of homogenous loans
for impairment. In accordance with ASC
310-10-35, the Bank evaluated $7,869
and $9,982 of loans as of December 31,
2014 and 2013, respectively, for impair
ment on an individual basis. The Bank
does not maintain any loan for which they
purchased with deteriorated credit as of
December 31, 2014 and 2013.
The Bank determined commercial
domestic loans of $7,869 and $6,938
qualified as TDRs at December 31, 2014
and 2013, respectively. During the years
the Bank recognized interest income on
these loans aggregating $255 and $434,
respectively. Under their original terms of
the loans, the Bank would have recognized
interest income totaling $313 and $298,
respectively. The Bank had no commit
ments to lend additional funds to borrow
ers whose loans were subject to TDR as of
9. Premises and equipment
Premises and equipment at December 31,
2014 and 2013, included the following:
$
2014
Land
Building and improvements
Furniture and equipment
Computer hardware and software
Artwork
2013
5,235
5,235
22,763
22,597
6,870
6,220
15,993
15,464
Substantially all of the Bank’s assets are
denominated in U.S. dollars.
11. Deposits – Liabilities
Deposits — liabilities are summarized as
follows:
$
Demand deposit – non-interest bearing
2014
2013
1,588,431
1,241,117
3,402
3,402
54,263
52,918
825,294
868,031
amortization
34,965
33,024
Certificate of deposits – brokered
2,497,737
3,025,781
Total premises and equipment, net
19,298
19,894
Total deposits – liabilities
5,023,321
5,261,918
Less accumulated depreciation and
10. Geographic concentrations
The following table classifies the inter
national assets (consisting primarily of
loans, acceptances, overdrafts, interestbearing deposits, securities, derivative
assets, and cash and due from banks) of
the Bank by region of ultimate risk (exclud
ing assets secured by cash deposits):
December 31, 2014
mental
$
54,528
72,484
NOW and savings
57,331
54,505
Certificate of deposits
The related depreciation and amortization
expense, included in occupancy and other
operating expenses in the consolidated
statements of income, was approximately
$1,941 and $1,965 in 2014 and 2013,
respectively.
Govern-
Money market
Private BusiFinancial
ness and
Obligations Institutions
Individuals
Total
The distribution of certificates of deposit
by remaining maturity was as follows:
$
Maturity in one year or less
2014
2013
2,679,595
2,749,914
Maturity in over one year through three
years
394,963
927,662
Maturity in over three years
248,473
216,236
3,323,031
3,893,812
Total
The aggregate amount of certificates of
deposit with a minimum denomination of
one-hundred thousand dollars or more was
approximately $795,443 and $836,434
at December 31, 2014 and 2013, respec
tively. The Bank recorded $61,396 and
$3,101 of certificates of deposit at fair
value due to the fair value option election
in accordance with ASC 825 as of Decem
ber 31, 2014 and 2013, respectively.
Western Europe
and Canada
297
276,901
44,386
321,584
Brazil
57,881
746,686
234,451
1,039,018
Other
50,742
455,845
87,185
593,772
108,920
1,479,432
366,022
1,954,374
Total
December 31, 2013
Governmental
$
Private BusiFinancial
ness and
Obligations Institutions
Individuals
Total
122,413
291,845
1,540,946
Western Europe
and Canada
–
169,432
Brazil
–
1,150,996
389,950
Other
42,838
643,471
446,886
1,133,195
Total
42,838
1,963,899
959,249
2,965,986
12. Income taxes
The components of the provision for income taxes for the years ended December
31, 2014 and 2013, are as follows:
$
2014
2013
Current tax provision:
Federal
State and city
Foreign
Total current tax provision
State and city
Total deferred tax benefit
Income taxes
300
325
Bank owned life insurance
(751)
(770)
16,298
30,438
Municipal interest income
(4,296)
(295)
(7,929)
(1,937)
(900)
(831)
(8,829)
(2,768)
7,469
27,670
10,351
10,672
Fair value measurements
11,678
19
41
1,357
Depreciation and amortization
1,737
2,331
Accrued expenses
6,281
6,500
Deferred taxes on unrealized losses
–
2,788
1,044
1,424
31,132
25,091
(12,138)
–
18,994
25,091
Deferred tax liabilities – deferred
taxes on unrealized gains included in
stockholders’ equity
Net deferred tax assets
State and city income taxes –
net of federal benefit
Dividend received deduction
Allowance for credit losses
Total deferred tax assets
5,379
9,866
2013
Other
3,527
20,247
2014
included in stockholders’ equity
2013
23,781
2,744
Deferred tax assets:
Contingency reserve
2014
11,821
13,254
The net deferred tax assets at December
31, 2014 and 2013, were composed of
the following:
$
$
Taxes at federal statutory rate
Deferred tax benefit
Federal
The provision for income taxes varied from
the federal statutory income tax rate for
2013, were as follows:
The Bank has determined that it is more
likely than not that the deferred tax assets
will be fully realized and therefore no valu
ation allowance against the deferred tax
assets is necessary.
Reversal of reserve
Other – net
Provision for income taxes
(101)
(81)
(2,834)
663
103
(1,007)
7,469
27,670
Income taxes are provided for using the
asset and liability method, which requires
the recognition of deferred tax assets
and liabilities for the expected future tax
consequences of events that have been
included in the consolidated financial
statements. Effective March 31, 2014,
enacted changes were made to New York
State corporation income tax law and
the impact of such changes have been
included in computing the deferred tax
assets and liabilities with any impact being
reflected in the income tax provision.
The Bank recognizes interest and penal
ties related to unrecognized tax benefits
within the income tax expense line in the
accompanying consolidated statements
of income. During 2014, a net decrease
of $2,834, which includes a decrease in
interest of $1,516, was recognized as it
relates to unrecognized tax benefits in the
accompanying consolidated statements
of income. During 2013, a net increase
of $663, which includes an increase in
interest of $677, was recognized as it
relates to unrecognized tax benefits in the
accompanying consolidated statements of
income. The decrease in the unrecognized
tax benefits results from a reassessment
of uncertain tax positions related to certain state and city tax positions as a result
of the enactment of new legislation. It is
reasonably possible to estimate that a
similar decrease could occur in next 12
months related to the same uncertain tax
positions. Accrued interest is included
within the related tax liability line in the
consolidated statements of financial condition.
Included in the balances of unrecognized tax benefit are tax benefits that if
recognized would affect the effective tax
rate as of December 31, 2014 and 2013.
These balances include accrued interest
as of December 31, 2014 and 2013, of
$6,137 and $8,469, respectively.
The Bank is subject to taxation in the
U.S. and state and local jurisdictions. As
of December 31, 2014, the Bank’s tax
years after 2010 are subject to examination by the taxing authorities and refund
claims for 2007-2009 are still subject to
review.
Pursuant to a tax sharing agreement
discussed previously, the Bank reimburses the Parent for all federal, state and
city taxes paid. The Bank had a tax payable of $1,785 and $108 included in other
liabilities, in the consolidated statements
of financial condition at December 31,
2014 and 2013, respectively. The Bank
remits all payments to the Parent. The
Bank believes the method for allocating
income tax expense, pursuant to their tax
sharing agreement is systematic, rational,
and consistent with the broad principles
of ASC 740.
performance, and other guarantees to
third parties or advance funds in the
form of loans. These commitments usually have fixed expiration dates and may
require payment of a fee. At December 31,
2014 and 2013, such obligations included
standby and commercial letters of credit
of approximately $35,787 and $55,875,
respectively. These amounts represent the
maximum principal which the Bank may be
required to disburse and the maximum
potential exposure if all such obligations
were ultimately to become worthless. The
arrangements have credit risks essentially
the same as that involved in extending
loans to customers and are subject to
the normal credit policies of the Bank. In
addition, the Bank’s outstanding unfunded
lending commitments were approximately
$8,745 and $20,845 at December 31,
2014 and 2013, respectively.
In connection with guarantees issued,
substantially, all such items were collate
ralized by deposits or highly liquid assets
at December 31, 2014 and 2013.
14. Credit-related risk concentrations
In the normal course of its business, the
Bank’s credit-related risk concentrations
as of December 31, 2014 and 2013, were
as follows:
% of Total Assets
2014
2013
15%
28%
its agencies
11%
4%
Real estate loan portfolio
19%
13%
45%
45%
Credit exposure in interest-bearing
deposits in foreign banks, and branches
and agencies of foreign banks in the
United States of America
Credit exposure in assets of the
13. Financial instruments with
off-balance sheet risk
Credit Related Instruments
The Bank enters into various types
of agreements with its customers to
enhance their credit standing, guarantee
consolidated statements of financial
condition in:
The U.S. federal government and
Totals
15. Commitments and
contingent liabilities
At December 31, 2014, the Bank was
obligated under non-cancelable leases for
the Bank’s premises expiring through July
2025. The leases contain renewal options
and escalation clauses.
Rental expense for 2014 and 2013
was $3,615 and $3,115, respectively,
included in occupancy expenses in the
consolidated statements of income. Mini
mum rental commitments on leases as of
December 31, 2014, were as follows:
Years Ending December 31,
$
Amount
2015
4,891
2016
4,848
2017
4,775
2018
4,791
2019
4,809
Thereafter
4,287
Total
28,401
As of December 31, 2013, the Bank, as a
lessor, had signed a lease contract with a
tenant expiring in the year 2014. The lease
contained renewal options and escalation
clauses. Rental income for 2014 and
2013 was $200 and $155, respectively,
included in other income in the accompa
nying consolidated statements of income.
As of December 31, 2014, there is no
minimum future rental income on leases.
Certain premises were held for the
above lease at December 31, 2014 and
2013, included the following:
$
Land
Building and improvements
Amount
5,235
6,021
11,256
Less accumulated depreciation
Total land, building and improvement, net
(786)
10,470
The Bank is a party to litigations involving
various aspects of its business, none of
which, in the opinion of management and
its legal counsel are expected to have a
material effect on the consolidated finan
cial statements. The Bank believes it has
strong defenses to and, where appropri
ate, will vigorously contest these matters
in accordance with ASC 450-10, Contin
gencies – Overall (“ASC 450-10”). When
resolution of cases is both probable and
estimable, the Bank will accrue a liability.
As of December 31, 2014, the Bank has
provided reserves for cases where the
outcome was deemed both probable and
estimable. The amount recorded for such
reserves is not material to the consoli
dated financial statements. The accrual
was determined by the Bank using mana
gement’s best estimate of probable loss
based on the specifics of the individual
cases, the Bank’s past experience with
similar cases, and/or in consultation with
external legal counsel.
The Bank, in the ordinary course of
business enters into certain transactions
that have tax consequences. From time to
time, tax authorities question and/or chal
lenge the tax position taken by the Bank
with respect to those transactions. As of
December 31, 2014 and 2013, all chal
lenges to the Bank’s tax position have
been resolved with no material adjust
ments.
In the normal course of business, SSL
may enter into contracts that contain vari
ous guarantees and indemnities including
contracts where it executes, as agent,
transactions on behalf of customers
through a clearing broker on a fully dis
closed basis. If the agency transactions
brokered by SSL do not settle because of
failure to perform by either counterparty,
SSL may be required to discharge the obli
gation of the nonperforming party and, as
a result, may incur a loss if the market
value of the underlying security is different
from the contract amount of the transac
tion. SSL has the right to pursue collection
or performance from the counterparties
who do not perform under their contrac
tual obligations. Although the right of the
clearing broker to charge SSL applies to
all trades executed through the clearing
broker, in general SSL’s obligations would
arise only if the clearing broker had pre
viously exhausted its resources. In addi
tion, any such guarantee obligation would
be apportioned among the other nondefaulting clients of the clearing firm. Any
potential contingent liability under these
fully disclosed agreements cannot be esti
mated. SSL has not recorded any con
tingent liability in the consolidated state
ments of financial condition for this and
believes that any potential requirement
to make payment under this agreement is
remote.
16. Regulatory matters
The Bank, as a national bank, is sub
ject to the dividend restrictions set forth
by the OCC. Under such restrictions, a
bank may not, without the prior approval
of the OCC, declare dividends in excess
of the sum of the current year’s earnings
(as defined) plus the retained earnings
(as defined) from the prior two years. In
accordance with the aforementioned cri
teria, the Bank had the ability to declare
dividends without the OCC’s approval up
to $77,869 and $68,821 as of Decem
ber 31, 2014, and 2013 respectively. In
accordance with this, the Bank declared
dividends of $5,000 and $5,000 during
2013, respectively.
The Bank is subject to various regula
tory capital requirements administered by
federal banking agencies. Failure to meet
minimum capital requirements can initiate
certain mandatory, and possible additional
discretionary actions by regulators that, if
undertaken, could have a direct material
effect on the Bank’s consolidated finan
cial statements. Under capital adequacy
guidelines and the regulatory framework
for prompt corrective action, the Bank
must meet specific capital guidelines
that involve quantitative measures of the
Bank’s assets, liabilities, and certain offbalance-sheet items as calculated under
regulatory accounting practices. The
Bank’s capital amounts and classification
are also subject to qualitative judgments
by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by
regulation to ensure capital adequacy
require the Bank to maintain minimum
amounts and ratios (set forth in the fol
lowing table) of total and Tier I capital
(as defined in the regulations) to riskweighted assets (as defined), and of Tier I
capital (as defined) to average assets (as
defined). As of December 31, 2014, the
Bank meets all capital adequacy require
ments to which it is subject.
As of December 31, 2014, the most recent
notification from the OCC categorized the
Bank as well capitalized under the regu
latory framework for prompt corrective
action. To be categorized as well capital
ized, the Bank must maintain minimum or
exceed total risk-based, Tier I risk-based,
Tier I leverage ratios as set forth in the
table. There are no conditions or events
since that notification that management
believes have changed the Bank’s cat
egory.
The Bank’s actual capital amounts and
ratios are presented in the following table.
To be Well Capitalized
Actual
For Capital
Under Prompt Corrective
Adequacy Purposes
Action Provisions
Amount $
Ratio (%)
Amount $
Ratio (%)
Amount $
Ratio (%)
517,491
16.10
257,111
8.00
321,388
10.00
544,969
16.96
128,555
4.00
192,833
6.00
544,969
9.10
239,677
4.00
299,597
5.00
507,335
13.73
295,640
8.00
369,550
10.00
529,589
14.33
147,820
4.00
221,730
6.00
529,589
8.03
263,811
4.00
329,764
5.00
As of December 31,
2014:
Total capital (to riskweighted assets)
Tier I capital (to riskweighted assets)
Tier I capital (to
average assets)
As of December 31,
2013:
Total capital (to riskweighted assets)
Tier I capital (to riskweighted assets)
Tier I capital
(to average assets)
SSL, a wholly-owned subsidiary broker
dealer of SNBNY, is subject to the Net
Capital Rule pursuant to Rule 15c31
under the Securities Exchange Act of
1934, which requires the maintenance of
minimum net capital, the greater of $250
or 6 2/3% of aggregate indebtedness, and
requires that the ratio of aggregate indebt
edness to net capital shall not exceed 15
to 1. At December 31, 2014, SSL had net
capital of $94,070 which was $93,820 in
excess of its required minimum net capital
of $250. SSL’s ratio of aggregate indeb
tedness to net capital was 1.7 to 1. At
December 31, 2013, SSL had net capital
of $79,301 which was $79,051 in excess
of its required minimum net capital of
$250. SSL’s ratio of aggregate indebted
ness to net capital was .02 to 1.
On December 10, 2013, the Federal
Reserve Board, Securities & Exchange
Commission, OCC, FDIC, and Commodity
Futures Trading Commission released final
rules implementing the Volcker Rule, a
part of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Volcker
Rule”). The implementing regulation for
the Volcker Rule becomes effective on
April 1, 2014 with a conformance period
that runs through July 21, 2015. The
Volcker Rule was designed to prohibit
banks from engaging in proprietary trading
and owning or engaging in certain transac
tions with hedge funds or private equity
funds. Under the Volcker Rule, certain
activities may be permitted to continue
(e.g. U.S. government, agency, state, and
municipal obligations, exemptions avai
lable for market making, underwriting,
and risk mitigating/hedging activities),
although under new, restrictive defini
tions. As required by the regulation, the
Bank is conducting a business assess
ment of its operations that are poten
tially subject to Volcker Rule restrictions,
evaluating the impact of these restrictions
on its operations and formulating a con
formance plan with actions to be taken to
be fully in compliance by the end of the
conformance period.
17. Disclosures about fair value
of financial instruments
The following disclosure of the fair value
of financial instruments is made in accord
ance with the requirements of ASC 825
and ASC 820.
ASC 820 offers enhanced guidance for
using fair value to measure assets and
liabilities. It provides a single definition
of fair value, together with a framework
for measuring it, and requires additional
disclosure about the use of fair value to
measure assets and liabilities. It defines
the fair value of a financial instrument as
the amount that would be received to sell
an asset or paid to transfer a liability in an
orderly transaction between market parti
cipants at the measurement date (the exit
price). Instruments that the Bank owns
(long positions) are marked to bid prices,
and instruments that the Bank has sold,
but not yet purchased (short positions),
are marked to offer prices. Fair value
measurements do not include transaction
costs. ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to
valuation techniques used to measure fair
value. The hierarchy gives the highest prio
rity to unadjusted quoted prices in active
markets for identical assets or liabilities
(Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3
measurements).
The three broad levels of the fair value
hierarchy under ASC 820 are described
below:
Level 1 Inputs – Unadjusted quoted
market prices in active markets for iden
tical assets or liabilities that the report
ing entity has the ability to access at the
measurement date. Valuation of these
assets and liabilities does not entail a
significant degree of judgment. Examples
of financial instruments with such inputs
include certain U.S. Government securities
and exchange-traded equity securities.
Level 2 Inputs – Inputs other than
quoted prices included within Level 1 that
are observable for the asset or liability,
either directly or indirectly. Examples of
financial instruments with such inputs
include U.S. Agency securities, municipal
bonds, deposits, corporate bonds, cer
tain mortgage-backed securities, overthe-counter derivatives (e.g. interest rate
swaps and foreign exchange contracts),
and certain sovereign bonds.
Level 3 Inputs – Unobservable inputs
for the asset or liability rely on mana
gement’s own assumptions which are
assumptions that management deter
mines market participants would use in
pricing the asset or liability. (The unob
servable inputs should be developed
based on the best information available
in the circumstances and may include
the Bank’s own data). Examples of finan
cial instruments with such inputs include
loans, hedge funds, and certain mortgagebacked securities.
The Bank has an established process
for determining fair values of financial
instruments. The Bank uses quoted mar
ket prices for identical assets or liabili
ties in active markets, when available,
to determine fair value and classifies
such financial instruments as Level 1.
In many cases, the Bank utilizes quoted
market prices for identical assets or lia
bilities in non-active markets or valuation
techniques based on models, where the
inputs to those models are observable for
substantially the full term of the asset or
liability, to determine fair value, in which
case the financial instruments are clas
sified as Level 2. Fair value may also be
based upon internally developed valuation
techniques that use unobservable inputs
reflecting the Bank’s own assumptions
with regards to the assumptions a market
participant would use in pricing the asset
or liability. Items valued using internal val
uation techniques are classified according
to the lowest level input that is significant
to the valuation, and are typically classi
fied as Level 3. Any transfers between
levels are recorded at the value as of the
beginning of the reporting period.
The following methods and assumptions
were used to calculate the fair value of
each class of financial instruments for
which it is practicable to calculate that
value.
Securities
The fair value of securities is based on
quoted market prices. In the absence of
quoted market prices, fair value is deter
mined by pricing vendors using models
which discount the future cash flows to
their present value using current rates
at which similar securities would be
bought with similar credit ratings and for
the same remaining maturities, or simi
lar techniques. These models use inputs
that are observable for substantially the
full term of the security, inputs that are
derived principally from or corroborated by
observable market data through correla
tion or other means for substantially the
full term of the security or internally devel
oped assumptions.
The following table describes the valua
tion methodologies used by the Bank to
measure its securities at fair value:
Classifications in the
Securities
Valuation
Type
Valuations
Hierarchy
Equities
Actively traded and valued using the
Level 1
exchange price
Debt
Quoted market prices are used where
Securities
available
Debt
In the absence of quoted market prices,
Securities
fair value is determined by pricing vendors
Level 2
Level 2 or 3
using models which discount the future
cash flows to their present value using
current rates at which similar securities
would be bought with similar credit ratings
and for the same remaining maturities,
or similar techniques In certain instances
unobservable inputs are used
(those would be Level 3)
Loans
The fair value of loans is calculated by using
a discounted cash flow model (“DCF”). For
loans measured at fair value in the accom
panying consolidated statements of finan
cial condition, the fair value approximates
the amount that would be received to sell
the loan (exit price). The DCF uses inputs
that are observable either directly or indirectly for substantially the full term of
the loan, such as interest rates as well as
internally developed assumptions, such
as credit risk and liquidity premium. Credit
risk is included as part of the valuation
process by considering expected rates of
return for market participants for similar
loans in the marketplace. For loans not
measured at fair value, on a recurring
basis, in the accompanying consolidated
statements of financial condition, the fair
value approximates the amount that simi
lar loans would be made to borrowers with
similar credit ratings and for the same
remaining maturities (entry price). The fair
value of impaired loans is determined by
discounting expected future cash flows
of principal and interest, and any costs
to sell the related collateral upon fore
closure. The DCF uses inputs that are
observable either directly or indirectly
for substantially the full term of the loan,
such as interest rates.
Deposit Liabilities
The fair value of demand deposits, sav ings
accounts, and certain money market
deposits approximate the carrying value
as they are equal to the amount payable
on demand at the reporting date includ
ing interest. For time deposits measured
at fair value in the accompanying consoli
dated statements of financial condition,
the fair value approximates the amount
that would be transferred with similar
credit ratings and for the same remain
ing maturities (exit price). The fair value
is calculated by using pricing models
discounting the required future cash out
flows to their present value using current
inputs that are observable either directly
or indirectly for substantially the full term
of the deposit, such as interest rates as
well as internally developed assumptions,
such as the Bank’s own credit risk. For
time deposits not measured at fair value,
on a recurring basis, in the accompany
ing consolidated statements of financial
condition, the fair value approximates the
amount that similar deposits would be
obtained for the same remaining maturi
ties (entry price). The fair value is calcu
lated by using pricing models discounting
the required future cash outflows to their
present value using current inputs that are
observable either directly or indirectly for
substantially the full term of the deposit,
such as interest rates.
Interest Rate Swap
The fair value of interest rate swaps is
determined using a discounted cash flows
pricing model with assumptions such
as yield curves and discount rates with
inputs that are observable either directly
or indirectly for substantially the full term
of the interest rate swap and internally
developed assumptions.
customers’ liability on acceptances out
standing, demand deposits, money mar
ket, NOW, and savings deposits, overnight
borrowings, federal funds purchased,
securities sold under agreements to repur
chase, unsettled securities purchased,
acceptances outstanding, and accrued
interest receivable and payable are not
included below because their carrying
amount approximates fair value due to
their short-term nature and frequent repric
ing. The Bank’s investment in Federal
Reserve Bank stock and FHLBNY stock
are carried at par. For such investments,
carrying value approximates fair value as
the Bank can only sell such investment to
the issuer at par value.
The following table presents carrying
amounts and estimated fair values of
the Bank’s financial instruments that are
not recorded at fair value as required by
ASC 825:
2014
$
Commercial and Standby Letters of
Credit and Bankers Acceptances
The fair value of letters of credit and ban
kers acceptances, based on the estimated
cost to terminate them or otherwise settle
the obligations with the counterparties at
the reporting date. The fair value of the
financial instruments was not material at
The fair value of cash and due from
banks, interest-bearing deposits in
banks (except time deposits), securities
purchased under agreements to resell,
Fair
Carrying
Fair
Amount
Value
Amount
Value
Financial assets:
Time deposits
Foreign Exchange Contracts
The fair values of foreign exchange for
ward contracts are based on current mar
ket quotations for similar agreements at
the reporting date, taking into account
current interest rates, foreign exchange
rates, and the current creditworthiness of
the counterparties.
2013
Carrying
657,439
665,776 1,616,903 1,629,559
Held-to-maturity
securities
3,220
3,520
3,855
4,255
Loans – net of
allowance for
loan losses and
deferred loan fees 1,603,441 1,605,738 1,533,347 1,530,517
Financial assets:
Time deposits
3,261,548 3,277,127 3,890,711 3,910,412
Certain financial assets and liabilities
measured at fair value on a nonrecurring
basis are classified according to ASC 820
valuation hierarchy; however, the assets
and liabilities not measured at fair value
on an going basis, are subject to fair value
adjustments in certain circumstances,
such as when there is evidence of im

pairment. For the years ended Decem
ber 31, 2014 and 2013, assets measured
at fair value on a nonrecurring basis were
as follows:
Financial Assets at Fair Value as of December 31, 2014 and 2013
Total Losses for
Fair Value at
$
the Year Ended
December 31,
Level 1
Level 2
Level 3
December 31,
7,869
–
–
7,869
–
8,988
–
–
8,988
(994)
2014:
Impaired loans
2013:
Impaired loans
The following table presents financial
assets and liabilities measured at fair
value on a recurring basis, including instru
ments for which the Bank has elected the
fair value option, classified according to
ASC 820 valuation hierarchy, as of Decem
ber 31, 2014 and 2013:
Financial Assets and Liabilities at Fair Value as of December 31, 2014
$
Level 1
Level 2
Level 3
Total
ASSETS
Available-for-sale securities:
Obligations of U.S. Government
–
63,025
–
63,025
–
28,357
–
28,357
–
301,885
–
301,885
Obligations of states, local and political
subdivisions
–
589,111
–
589,111
–
634,332
98
634,430
–
1,616,710
98
1,616,808
Trading securities:
–
41,808
–
41,808
7,900
–
–
7,900
7,900
41,808
–
49,708
–
–
991,167
991,167
Foreign exchange
–
27,961
–
27,961
Interest rate swaps
–
2,525
–
2,525
–
30,486
–
30,486
7,900
1,689,004
991,265
2,688,169
–
61,396
–
61,396
–
27,576
–
27,576
Equities
Loans
Derivative assets:
Total assets
LIABILITIES
Deposits – time deposits
Derivative liabilities:
Foreign exchange
Interest rate swaps
Total liabilities
–
45,755
–
45,755
–
73,331
–
73,331
–
134,727
–
134,727
Financial Assets and Liabilities at Fair Value as of December 31, 2013
$
Level 1
Level 2
Level 3
Total
ASSETS
Obligations of U.S. Government
–
73,036
–
73,036
–
441,780
–
441,780
subdivisions
–
301,871
–
301,871
–
8,660
10,463
19,123
Sponsored agencies issued securities
–
199,178
–
199,178
–
1,024,525
10,463
1,034,988
Obligations of states, local and political
Trading securities:
Non-U.S. Government debt securities
–
40,240
–
40,240
–
55,364
–
55,364
7 ,895
–
–
7,895
7 ,895
95,604
–
103,499
–
–
798,488
798,488
Foreign exchange
–
18,132
–
18,132
Interest rate swaps
–
14,889
–
14,889
–
33,021
–
33,021
7 ,895
1,153,150
808,951
1,969,996
–
3,101
–
3,101
–
29,243
–
29,243
Equities
Loans
Derivative assets:
Total assets
LIABILITIES
Deposits – time deposits
Derivative liabilities:
Foreign exchange
Interest rate swaps
Total liabilities
Methods Used to Fair Value Level 3
Assets
The fair value for agency mortgage-backed
securities was measured using the Trino
mial Lattice Model. This model is a singlefactor, no-arbitrage yield curve model in
which the short-term rate of interest is the
random factor or state variable. It uses an
arbitrage-free, trinomial lattice model for
computations with a neutral construction.
Inputs used including swap rates, volatil
ity and prepayment speed assumptions of
such agency mortgage-backed securities.
For alternative investments – hedge
funds, the fair value is determined using
the net asset value for the specific hold
ings of the fund as provided by the fund’s
investment manager.
–
14,266
–
14,266
–
43,509
–
43,509
–
46,610
–
46,610
The fair value for loans was measured
using DCF with contractual future cash
flows, since all loans measured at fair
value in the accompanying consolidated
statements of financial condition are per
forming loans. The discount rate was built
up using swap rates which effectively con
verts the discount rate from a floating rate
over Libor to a fixed rate for the duration
of the loan; plus, the contractual spread
over Libor for each loan; plus, interest rate
risk; plus a liquidity spread. The interest
rate risk has been accounted for in the
discount rate via a spread adjustment
reflecting current market conditions and
the resulting spreads as if the loan was to
be effectuated as of December 31, 2014.
The following table presents the quantita
tive information about Level 3 fair value
measurements as of December 31, 2014
and 2013:
Fair
ASSETS at
December 31, 2014
Significant
Value
Valuation
Unobservable
Range of
Weighted
$
Technique
Inputs
Inputs
Average
–
–
–
Interest rate
Agency Mortgage-backed
securities
98
Trinomial
volatility Pre-
19% – 22%
20%
Lattice Model
payment speed
19% – 20%
26%
Discounted
Loans
991,167
cash flows
150 bps –
Credit spreads
Discounted
Impaired loans
7,869
cash flows
Credit spreads
Value
Valuation
$
Technique
Fair
ASSETS at
December 31, 2013
338 bps
256 bps
230 bps –
325 bps
283 bps
Unobservable
Range of
Weighted
Inputs
Inputs
Average
–
–
–
Significant
Interest rate
Agency Mortgage-backed
securities
10,463
Trinomial
volatility Pre-
13% – 15%
14%
Lattice Model
payment speed
21% – 30%
27%
Discounted
Loans
798,488
cash flows
143 bps –
Credit spreads
Discounted
Impaired loans
8,988
cash flows
331 bps
246 bps
200 bps –
Credit spreads
325 bps
215 bps
The following table presents detailed
changes in the Bank’s Level 3 financial
assets and liabilities at fair value that
occurred during 2014 and 2013:
Level 3 — Financial Asset and Liabilities for Years Ended
Agency
$
Mortgage-
Alternative
backed
Investments –
Securities
Loans Hedge Funds
7,022
627,216
Total
14
634,252
(20,365)
Net realized/unrealized gains
(included in net loss on fair value measurements)
548
(20,913)
–
Sales and redemptions
–
–
(14)
(14)
Issuances
–
220,993
–
220,993
9,448
–
–
9,448
(6,463)
–
–
(6,463)
(92)
(28,808)
–
(28,900)
10,463
798,488
–
808,951
(2,858)
14,056
–
11,198
–
219,367
–
219,367
(7,505)
–
–
(7,505)
Transfers into level 3
Transfers from level 3
Settlements
Net realized/unrealized gains
(included in net loss on fair value measurements)
Issuances
Transfers from level 3
Settlements
(2)
(40,744)
–
(40,746)
98
991,167
–
991,265
4
13,979
–
13,983
Changes in unrealized gain related to assets
held at December 31, 2014
There were no transfers between Level 1
and Level 2 for the years ended December
31, 2014 and 2013.
For the years ended December 31, 2014
and 2013, the transfers from Level 3 into
Level 2 of agency mortgage-backed secu
rities were $7,505 and $6,463, respec
tively, due to the observability of the
inputs in the calculation becoming more
transparent.
There was no transfers into Level 3 from
Level 2 for the year ended December 31,
2014 and there were transfers of agency
mortgage-backed securities of $9,448
into Level 3 from Level 2 for the year
ended December 31, 2013, due to the
unavailability of observable inputs.
Fair Value Option
The Bank elected to account for some
fixed-rate loans at fair value under the pro
visions of ASC 825. These loans are eco
nomically hedged by certain derivatives
in accordance with the Bank’s risk mana
gement policies. The election of the fair
value option intends to align the account
ing for these loans with the related eco
nomic hedges. The Bank has not elected
the fair value option for the remainder of
the loan portfolio as these loans are not
economically hedged.
Loans for which the fair value option
have been elected had an aggregate fair
value of $991,167 and $798,488 and an
aggregate outstanding principal balance
of $976,392 and $797,692 at Decem
ber 31, 2014 and 2013, respectively,
were included in loans in the consolidated
statements of financial condition. As of
December 31, 2014 and 2013, the Bank
had no loans recorded at fair value that
were classified as nonaccrual and/or past
due. Accrued interest receivable of $2,263
and $2,011 at December 31, 2014 and
2013, respectively, were included in the
aggregate fair value of the loans recorded
at fair value. Interest revenue arising from
these loans is included in the consoli
dated statements of income as part of net
interest income. All up-front fees, costs,
premiums and discounts related to these
loans are recognized in interest income as
incurred and not deferred. An allowance
for loan loss is not applied to these loans.
Net gains (loss) resulting from changes in
fair value of these loans of $13,726 and
($21,582) were included in net loss on fair
value measurements in the consolidated
statements of income at December 31,
2014 and 2013, respectively. Changes in
fair value due to instrument specific credit
risk for the year 2014 were not material.
The changes in fair value of these loans
were partially offset by changes in the fair
value of the related financial derivatives
that economically hedged these loans.
The Bank also elected to account for cer
tain long-term time deposits at fair value
under the provisions of ASC 825, which
are economically hedged using deriva
tives. The Bank has not elected the fair
value option for the remainder of the time
deposit portfolio as they are not hedged.
Time deposits for which the fair value
option has been elected had an aggregate
fair value of $61,396 and $3,101 and an
aggregate outstanding principal balance
of $61,150 and $3,000 at December 31,
2014 and 2013, respectively, were
included in deposits in the consolidated
statements of financial condition. Interest
expense arising from these deposits is
included in the consolidated statements
of income as part of net interest expense.
All up-front fees, costs, premiums and
discounts related to these deposits are
recognized in interest expense as incurred
and not deferred. Net gains resulting from
changes in fair value of these deposits of
$246 and $101 were included in net loss
on fair value measurements in the consoli
dated statements of income at Decem
Changes in fair value due to instrument
specific non-performance risk for the year
2014 and 2013 were not material. The
changes in fair value of these deposits
were partially offset by changes in the fair
value of the related financial derivatives
that economically hedged these deposits.
and $320,500, respectively, of trading
interest rate swaps. As of December 31,
2014 and 2013, under the swap agree
ments, the Bank paid a fixed rate rang
ing from 0.8% to 6.7% and 0.8% to 6.7%,
respectively, or a variable rate ranging
from onemonth to six-month LIBOR rate
and received a fixed rate ranging from
0.8% to 2.4% and 0.8% to 2.4%, respec
tively, or a variable rate based on ranging
from onemonth to six-month LIBOR rate.
The Bank did not apply hedge account
ing, and did not elect the fair value option
for a certain securities portfolio for which
its interest rate risk is mitigated by such
interest rate swaps. As of December 31,
2014, the change in fair value of interest
rate swaps mitigating the interest rate risk
of such securities, was recorded as a net
loss of $32,465 and included in earnings.
The change in fair value of this securities
portfolio, was recorded as an unrealized
gain of $37,406 in OCI as of December
31, 2014.
Fair values of derivatives as of Decem
ber 31, 2014 and 2013, and gains/
(losses) of derivatives during the years
ended December 31, 2014 and 2013, are
as follows:
18. Derivate financial instruments
The Bank has limited involvement with
derivative financial instruments, utilizing
them primarily for protection against inte
rest rate and other market movements.
Foreign Exchange Contracts
The Bank uses foreign exchange contracts
as economic hedges against fluctuations
of assets and liabilities denominated in
foreign currencies to facilitate customer
transactions and for proprietary trading.
Interest Rate Swaps
The Bank uses interest rate swaps to
mitigate the effects of interest rate risks,
associated with the loans and securities
portfolios and for certain time deposits.
As of December 31, 2014 and 2013, the
Bank was a party to interest rate swaps,
with notional amounts totaling $1,952,496
and $1,146,607, respectively, and maturi
ties ranging from April 2015 to January
2025 and April 2014 to January 2024,
respectively. As of December 31, 2014
and 2013, the total notional amount out
standing consisted of $1,938,496 and
$826,107, respectively, of interest rate
swaps used as economic hedges $14,000
Derivatives not Designated as Hedging Instruments Under ASC 815
As of December 31,
2014
2013
Consolidated
Fair Consolidated
Statements of
Value Statements of
$ Financial Condition
Financial Condition
Fair
Value
$
Gross asset derivatives:
Foreign exchange contracts
Derivative assets
Foreign exchange contracts*
5,825 Derivative liabilities
Interest rate swaps
Derivative assets
2,525 Derivative assets
Total gross asset derivatives
21,758
3,443
14,889
42,408
40,090
32,686
Gross asset derivatives:
Foreign exchange contracts*
Derivative assets
Interest rate swaps
Total gross liability derivatives
3,626
14,266
85,253
50,578
* Derivative instruments within this category are subject to master netting agreements and are presented on a net basis in the
consolidated statements of financial condition in accordance with ASC 210-20-45.
The following amounts represent income
and gains on derivative transactions, and
are recorded in net gain (loss) on fair value
measurements on the consolidated state
ments of income:
Amount of Gain (Loss) Recognized in Consolidated Statements of Income
$
2014
2013
Interest (expense) on interest rate swaps – net
(30,166)
(12,291)
Unrealized gain (loss) interest rate swaps – net
(44,172)
30,611
Derivatives
Unrealized/realized gain foreign exchange contracts – net
Total
3,930
3,474
(70,408)
21,794
The following table presents, as of Decem
ber 31, 2014 and 2013, the fair value of
gross and net derivative assets and liabili
ties for which netting is permissible under
ASC 210-20-45, Balance Sheet Offset
ting, or ASC 815-10-45, Derivatives and
hedging – Balance Sheet Netting.
$
December 31, 2014
December 31, 2013
Derivative
Derivative
Derivative
Derivative
Assets
Liabilities
Assets
Liabilities
39,883
39,498
25,201
36,312
Gross derivative assets/liabilities:
Interest rate swaps
2,525
45,755
14,889
14,266
42,408
85,253
40,090
50,578
Foreign exchange contracts – derivative assets
(5,825)
(5,825)
(3,443)
(3,443)
Foreign exchange contracts – derivative liabilities
(6,097)
(6,097)
(3,626)
(3,626)
(11,922)
(11,922)
(7,069)
(7,069)
30,486
73,331
33,021
43,509
(1,704)
Total gross derivative assets/liabilities
Amounts netted on the consolidated statements
of financial condition:
Total amounts netted on the consolidated
statements of financial condition
Net derivative assets/liabilities in the consolidated
statements of financial condition
Amounts not netted on the consolidated statements
of financial condition:
Cash collateral received/(posted)
–
(7,810)
–
2,014
–
4,062
–
–
2,172
–
4,381
34,058
33,401
21,758
32,686
2,525
45,755
14,889
14,266
Foregin exchange contracts
Interest rate swaps
The Bank is required to pledge assets
under a bilateral margin arrangement,
including either cash or agency residen
tial mortgage-backed securities, as col
lateral for its foreign exchange contracts
and interest rate swaps, whose collat
eral requirements vary by counterparty
and change over time based on the mar
ket value, notional amount, and remain
ing term of the derivative agreements
(“Derivatives”). In the event the Bank was
unable to meet a margin call under one of
its Derivatives, thereby causing an event
of default or triggering an early termina
tion event under one of its Derivatives, the
counterparty to such Derivatives may have
the option to terminate all of such coun
terparty’s outstanding Derivatives with
the Bank. In addition, under this scenario,
any closed-out amount due to the coun
terparty upon termination of the counter
party’s transactions would be immedia
tely payable by the Bank pursuant to the
applicable agreement. The Bank was in
compliance with all margin requirements
under its Derivatives as of December 31,
2014 and 2013. The Bank had $7,810 and
1,704 of restricted cash related to margin
posted for foreign exchange contracts and
interest rate swaps as of December 31,
2014 and 2013, respectively, which is
included in interest-bearing deposits with
banks in the accompanying consolidated
statements of financial condition.
The use of foreign exchange contracts
and interest rate swaps exposes the Bank
to counterparty credit risks in the event
of a default by a Derivative counterparty.
If a counterparty defaults under the appli
cable Derivative agreement, the Bank may
be unable to collect payments to which
it is entitled under its Derivative agree
ments, and may have difficulty collecting
the assets it pledged as collateral against
such Derivative. The Bank currently has in
place with all outstanding Derivative coun
terparties bilateral margin agreements
thereby requiring a party to post collate
ral to the Bank for any valuation deficit.
This arrangement is intended to limit the
Bank’s exposure to losses in the event of
a counterparty default. The Bank also has
valid master netting agreements in place
with Derivative counterparties, which allow
payables and receivables to settle with a
net payment.
19. Employee benefit plans
The Bank sponsors a multiemployer profitsharing contribution plan covering sub
stantially all its employees. Profit sharing
expense included on the consolidated
statements of income in salaries and
employee benefits expenses for the years
were approximately $1,462 and $1,167,
respectively.
20. Custody services
The Bank provides custody services to its
customers related to domestic and for
eign fixed income instruments, equities,
mutual and hedge funds. The market value
of assets under custody was $8,013,535
and $7,055,748 at December 31, 2014
and 2013, respectively. These items are
not included in the consolidated state
ments of financial condition, since such
items are not assets of the Bank. These
instruments are not FDIC insured and are
held on behalf of customers, who bear all
risks. Custody fee revenue, included in
fees and service charges in the consoli
dated statements of income, was $9,451
and $8,698 for the years ended Decem
21. Subsequent events
Except for the item described below, there
were no subsequent events through the
date the consolidated financial state
ments were issued that would require
reco
g nition or disclosure in the consoli
dated financial statements.
SSL submitted a Continuing Member
ship Application with FINRA requesting
approval to be a self-clearing brokerdealer. The application is under review by
FINRA as of the issuance date of the con
solidated financial statements.
Locations
and Affiliates
Panama | Panama City | El Arco Chato
Locations and Affiliates
Locations and Affiliates
SAFRA NATIONAL BANK OF NEW YORK
SUBSIDIARIES
HEADQUARTERS
546 Fifth Avenue
New York, NY, 10036
+ 1 (212) 704 5500
Safra Securities LLC
546 Fifth Avenue
New York, NY, 10036
+ 1 (212) 704 5617
Member Federal Reserve System
Member Financial Industry Regulatory Authority
Member Federal Deposit Insurance Corporation
Member Securities Investor Protection Corporation
BRANCH OFFICES
Aventura
3050 Aventura Boulevard
Aventura, FL, 33180
+ 1 (305) 682 3800
J Safra Investment Corporation
1201 North Market Street, Suite 506
Wilmington, DE 19801
+ 1 (302) 571 0976
Brickell
1221 Brickell Avenue, Penthouse
Miami, FL, 33131
+ 1 (786) 777-6055
REPRESENTATIVE OFFICES
Brazil
Avenida Paulista, 2100
Sao Paulo, SP, Brazil - 01310-930
+ 55 (11) 3175-9911
Joseph Safra Management Corporation
1201 North Market Street, Suite 506
Wilmington, DE 19801
+ 1 (302) 571 0976
AFFILIATE
J. Safra Asset Management Corporation
550 Fifth Avenue
New York, NY, 10036
+ 1 (212) 704 5553
Mexico
Edificio Forum,
Andres Bello 10, Piso 19
11520, México D. F., México
+ 52 (55) 5279 4880
Panama
P.H. Torre Global
Calle 50, Piso 24, Oficina 2401/02
Panama, Republica de Panama
+ 50(7) 209 0955