Why Is Signature Bank (SBNY) Up 0.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Signature Bank (SBNY). Shares have added about 0.3% in that time frame, underperforming 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 catalysts.

Signature Bank Q4 Earnings Top Estimates, Revenues Up

Signature Bank’s fourth-quarter 2019 earnings of $2.78 per share outpaced the Zacks Consensus Estimate of $2.69. However, the bottom line decreased 5.4% from the prior-year quarter’s reported figure.

Results reflect growth in revenues, and loan and deposit balances. However, fall in net interest margin (NIM), and escalating expenses and provisions acted as major drags.

Net income for the quarter came in at $148.2 million, down 7.8% from the previous-year quarter.

For 2019, earnings were $10.87 per share compared with the prior-year figure of $9.23. The bottom line surpassed the consensus estimate of $10.82. Net income increased 16.5% to $588.9 million.

Revenues Rise, Loans & Deposits Increase, Expenses Escalate

Signature Bank’s total revenues improved 1.4% from the prior-year quarter to $345.6 million. Also, the top line beat the consensus estimate of $335.9 million.

For 2019, total revenues of $1.3 billion matched the consensus estimate. Also, the same increased 1.3% year over year.

Net interest income increased 1% year over year to $338.3 million in the quarter, backed by rise in average interest earning assets. However, NIM contracted 18 basis points to 2.72%.

Non-interest income was $7.3 million, up 23.7% year over year. This upside primarily stemmed from an increase in fees and services charges.

Non-interest expenses of $138 million flared up 15.9% from the prior-year quarter. This upsurge chiefly stemmed from rise in all components of expenses, partially offset by lower FDIC assessment fees.

Efficiency ratio was 39.94% as of Dec 31, 2019 compared with 34.94% as of Dec 31, 2018. Higher ratio indicates fall in profitability.

The company’s loans as of Dec 31, 2019, were $39.1 billion, rising 3.1% on a sequential basis. Further, total deposits increased 3.4% sequentially to $40.4 billion.

Credit Quality: Mixed Bag

The company recorded net charge offs of $2.5 million in the fourth quarter against the prior-year quarter’s net recoveries of $2.9 million. In addition, provision for loan and lease losses jumped 51.5% year over year to $9.8 million.

The ratio of non-accrual loans to total loans was 0.15%, down from 0.30% recorded in the prior-year quarter.

Capital Ratios

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 11.62% compared with 12.11% on Dec 31, 2018. In addition, total risk-based capital ratio was 13.32% compared with the prior-year quarter’s 13.41%. However, tangible common equity ratio was 9.34% as of Dec 31, 2019, up from 9.21%.

Return on average assets was 1.17% in the quarter compared with the year-earlier quarter’s 1.37%. As of Dec 31, 2019, return on average common stockholders' equity was 12.36%, down from 14.76%.

Capital Deployment

During the December-end quarter, the company repurchased 722,420 shares of common stock at a total cost of $89.4 million.

Outlook

Looking at the future on the CECL, management has completed the implementation of various models and upon adoption in the first-quarter 2020, an increase of 15% to 20% in allowance for loan losses is expected. As for the provision moving forward, management expects greater volatility.

Management expects 15-12% expense range in 2020, with the declining trend.

Management anticipates deposits to be up near the higher end of the range $3-$5 billion in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Signature Bank has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Signature Bank has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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