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Signature Bank (SBNY) Stock Up 7.5% Despite Q2 Earnings Miss

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Signature Bank (SBNY - Free Report) reported second-quarter 2020 earnings per share of $2.21, missing the Zacks Consensus Estimate of $2.27. Also, the bottom line decreased 18.5% from the prior-year quarter’s reported tally.

Results were adversely impacted by escalating expenses and higher provisions. However, a rise in net interest margin acted as a tailwind. Also, higher loan and deposit balances display a strong capital position. The company’s shares appreciated 7.5% following the release most likely due to these positives.

Net income for the second quarter was $117.2 million compared with the previous-year quarter’s $147.3 million. Pre-tax pre-provision earnings came in at $247.9 million, up 17.3% year over year.

Revenues Fall, Loans & Deposits Increase, Expenses Escalate

Signature Bank’s total revenues decreased 18.3% from the prior-year quarter to $399.8 million. However, the top line outpaced the Zacks Consensus Estimate of $387.8 million.

Net interest income climbed 18.6% year over year to $387.1 million on rise in average interest earning assets. Further, net interest margin expanded 3 basis points to 2.77%.

Non-interest income was $12.7 million, down 25.3% year over year.

Non-interest expenses of $151.9 million flared up 15.2% from the prior-year quarter. This upsurge chiefly stemmed from rise in salaries and benefits due to massive hiring for new business initiatives.

Efficiency ratio was 38% compared with the 38.4% reported as of Jun 30, 2019. A lower ratio indicates a rise in profitability.

The company’s loans and leases, as of Jun 30, 2020, were $44.8 billion, up 10.3% sequentially. Further, total deposits rose 19% sequentially to $50.2 billion.

Credit Quality Deteriorates

The company recorded net charge-offs of $4.6 million in the June-end quarter compared with net recoveries of $3.7 million witnessed in the prior-year quarter. In addition, provision for loan and lease losses went up year over year to $93 million on coronavirus concerns.

The ratio of non-accrual loans to total loans was 0.10%, down from the 0.11% recorded in the prior-year quarter. Allowance for credit losses for loans and leases came in at $444.7 million, up 78% year over year.

Capital Ratios Deteriorates

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 10.40% compared with 11.55% on Jun 30, 2019. Furthermore, total risk-based capital ratio was 12.13% compared with the prior-year quarter’s 12.79%. Tangible common equity ratio was 7.99%, down from 9.41% recorded as of Jun 30, 2019.

Return on average assets was 0.82% in the reported quarter compared with the year-earlier quarter’s 1.21%. As of Jun 30, 2020, return on average common stockholders' equity was 9.79%, down from 12.89% witnessed as of Jun 30, 2019.

Our Viewpoint

Signature Bank’s second-quarter results reflect escalating expenses and provisions on the coronavirus scare. Nevertheless, the company displayed a robust balance sheet. It is focused on investing in technology by enhancing its payments platform and credit-approval system, which might further inflate costs.

Signature Bank Price, Consensus and EPS Surprise

Signature Bank Price, Consensus and EPS Surprise

Signature Bank price-consensus-eps-surprise-chart | Signature Bank Quote

Currently, Signature Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Banks

Associated Banc-Corp (ASB - Free Report) , Webster Financial Corporation (WBS - Free Report) and Camden National Corporation (CAC - Free Report) are scheduled to announce second-quarter results soon. While Associated Banc-Corp and Webster Financial Corporation will release earnings figures on Jul 23, Camden National Corporation will report on Jul 28.

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