Signature Bank's ( SBNY Quick Quote SBNY - Free Report) improving revenues and a robust balance sheet position, aided by a rise in deposits and loan balances, give it a strong footing. However, escalating expenses and a low interest rate environment remain woes for the company.
Signature Bank's organic growth remains impressive. The company's net interest income witnessed a compound annual growth rate (CAGR) of 7.6% over the last five years (2015-2019), with the trend persisting in the first nine months of 2020. The favorable trend is majorly due to the rise in average interest-earning assets, which is likely to continue in the quarters ahead.
Moreover, the company's solid balance sheet position is a tailwind. Deposits witnessed a five-year (2015-2019) CAGR of 10.8%, backed by rising non-interest-bearing and interest bearing deposits. Additionally, the company's growth in loan balances (CAGR of 13.3%) was also impressive in the same time span. Notably, the uptrend continued in the first nine months of 2020 as well. Further, its total debt to total capital of 39.8% at the end of the third quarter improved sequentially. With a record of consistent earnings and cash, and due from banks worth $6.3 billion as of Sep 30, the company remains less prone to the risk of default of interest and debt repayments even if there is an economic downturn.
Shares of this Zacks Rank #3 (Hold) company have gained 27.9% over the past six months, outperforming the 24% rise recorded by the
industry. Furthermore, analysts seem to be bullish on the stock. The Zacks Consensus Estimate for earnings has been revised marginally and 1.3% upward for 2020 and 2021, respectively, in the past 60 days.
Nevertheless, escalating operating expenses is a cause of concern for Signature Bank. Non-interest expenses witnessed a CAGR of 11.6% over the last five years (2015-2019). Increased salaries and information-technology expenses mainly led to the rise in expenses. Therefore, continuation of such a trend will hurt profitability. Notably, the uptrend continued in the first nine months of 2020 as well.
Further, contraction of net interest margin (“NIM”) remains a concern for the company. The low interest rate environment has resulted in the NIM of the company declining from 3.36% in 2013 to 2.72% in 2019. Also, it shrank in the first nine months of 2020 as well due to significantly excess cash balances driven by strong deposit growth. Therefore, the company’s margin continues to remain under pressure in the current scenario.
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