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Why Is Signature Bank (SBNY) Up 28.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Signature Bank (SBNY - Free Report) . Shares have added about 28.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

Signature Bank Q3 Earnings Miss on Higher Expenses

Signature Bank reported third-quarter 2020 earnings per share of $2.62, marginally missing the Zacks Consensus Estimate of $2.78. Also, the bottom line decreased 4.4% from the prior-year quarter’s reported tally.

Results were adversely impacted by escalating expenses and higher provisions. Also, higher loan and deposit balances display a strong capital position. However, a fall in net interest margin acted as a headwind.

Net income for the third quarter was $138.6 million compared with the previous-year quarter’s $148.1 million. Pre-tax pre-provision earnings came in at $252.4 million, up 21.1% year over year.

Revenues, Loans & Deposits Increase, Expenses Flare Up

Signature Bank’s total revenues increased 20.5% from the prior-year quarter to $412.9 million. The top line, nonetheless, missed the Zacks Consensus Estimate of $419.8 million.

Net interest income climbed 18.5% year over year to $388.7 million on increase in average interest earning assets. Further, net interest margin shrunk 13 basis points to 2.55%.

Non-interest income was $24.2 million, up 64.6% year over year.

Non-interest expenses of $160.6 million flared up 19.6% from the prior-year quarter. This upsurge chiefly stemmed from rise in salaries and benefits due to massive hiring for new business initiatives. Furthermore, the bank incurred a penalty on prepayment of borrowings.

Efficiency ratio was 38.9% compared with the 39.2% reported as of Sep 30, 2019. A lower ratio indicates a rise in profitability.

The company’s loans and leases, as of Sep 30, 2020, were $45.7 billion, up 2% sequentially. Additionally, total deposits rose 8.2% sequentially to $54.3 billion.

Credit Quality Deteriorates

The company recorded net charge-offs of $10.5 million during the September-end quarter compared with net charge-offs of $2.9 million witnessed in the prior-year quarter. In addition, provision for loan and lease losses rose year over year to $52.7 million on coronavirus concerns.

The ratio of non-accrual loans to total loans was 0.18%, up from the 0.09% recorded in the prior-year quarter. Allowance for credit losses for loans and leases came in at $484.9 million, up significantly year over year.

Capital Ratios Deteriorates

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 10.26% compared with 11.89% on Sep 30, 2019. Furthermore, total risk-based capital ratio was 11.98% compared with the prior-year quarter’s 13.14%. Tangible common equity ratio was 7.75%, down from 9.46%.

Return on average assets was 0.90% in the reported quarter compared with the year-earlier quarter’s 1.18%. As of Sep 30, 2020, return on average common stockholders' equity was 11.20%, down from 12.56%.

Outlook

Management expects expense range in Q4 to be around 14%.

Management expects deposit costs to continue being significantly down in the upcoming quarters.

Tax rate is projected at 24-28%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Signature Bank has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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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