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Signature Bank (SBNY) Up 1.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Signature Bank (SBNY). Shares have added about 1.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Signature Bank due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Signature Bank Q3 Earnings Beat, Expenses Rise

Signature Bank’s third-quarter 2018 earnings per share $2.84 surpassed the Zacks Consensus Estimate by a penny. Further, it compares favorably with $2.29 earned in the prior-year quarter.

Results reflected overall growth in revenues. In addition, loan and deposit balances displayed continued improvement. Moreover, lower provisions acted as tailwinds. Nevertheless, higher non-interest expenses were a headwind.

Net income for the third quarter was $155.4 million compared with $124.5 million recorded in the year-ago quarter.

Increase in Revenues Offset by Higher Expenses

Signature Bank’s total revenues in the quarter rose 3.9% from the prior-year quarter to $329.3 million. However, the reported figure missed the Zacks Consensus Estimate of $332 million.

Net interest income increased 5.2% year over year to $324.8 million with support from 11.3% rise in average interest earning assets. However, net interest margin contracted 17 bps from the year-ago quarter to 2.88%.

Non-interest income was $4.5 million, down nearly 44.4% year over year. The decline was primarily on account of an increase in tax credit investment amortization.

Non-interest expenses of $117.2 million were up 11% from the prior-year quarter. The rise was primarily a result of the addition of private client banking teams and an increase in costs in risk management and compliance-related activities.

Efficiency ratio was 35.6% compared with 33.3% reported as of Sep 30, 2017. Higher ratio indicates fall in profitability.

The company’s loans and leases, net as of Sep 30, 2018, were $34.9 billion, up 7.7% from Dec 31, 2017. Further, total deposits rose 7.9% from 2017-end to $36.1 billion.

Credit Quality: A Mixed Bag

The ratio of net charge-offs to annualized average loans were nil compared with 0.05% in the prior-year quarter. In addition, provision for loan and lease losses steeply declined to $7.4 million from the year-ago quarter tally of $14.3 million.

However, the allowance for loan losses represented 0.63% of total loans as of Sep 30, 2018, compared with 0.62% as of Sep 30, 2017.

Capital Ratios

As of Sep 30, 2018, Tier 1 risk-based capital ratio was 12.13% compared with 11.96% as of Sep 30, 2017. Further, total risk-based capital ratio was 13.44% compared with 13.32% in the prior-year quarter. Tangible common equity ratio was 9.15%, down from 9.44% as of Sep 30, 2017.

The return on average assets was 1.36% in the reported quarter compared with 1.21% in the prior-year quarter. As of Sep 30, 2018, return on average common stockholders' equity was 14.71%, up from 12.78% as of Sep 30, 2017.

Outlook

NIM is expected to contract 3-6 bps in fourth-quarter 2018.

Management expects the tax rate to be around 25%.

The company expects expenses to flare up nearly 10% in 2018.

Management anticipates balance sheet to be up in the range of $3-$5 billion in 2018. Increase in loans is expected to contribute to 75% of total assets growth. While commercial real estate loans are expected to contribute 75% growth in total loans, the balance is expected from commercial and industrial loans.

Management anticipates provision for loan losses to be in high single digits, mostly at the higher end of $10 million per quarter for the remaining of 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Signature Bank has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Signature Bank has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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