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Signature Bank (SBNY) Up 4.4% Since Last Earnings Report: Can It Continue?

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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 4.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Signature Bank Q3 Earnings Top Estimates, Costs Rise

Signature Bank’s third-quarter 2021 earnings per share of $3.88 handily beat the Zacks Consensus Estimate of $3.69. The bottom line grew from $2.62 in the prior-year quarter.

Loan and deposit balance growth supported NII growth. This along with an increase in the non-interest income and lower provisions were the tailwinds. However, a rise in operating expenses was the undermining factor.

Net income was at a record $241.1 million, jumping 74.2% from the prior-year quarter. Pre-tax pre-provision earnings were a record $331 million, up 31.2% year over year.

Revenues, Loans & Deposits Rise, Expenses Increase

Total income increased 24% from the prior-year quarter to $512.2 million. The top line missed the Zacks Consensus Estimate of $512.91 million.

NII climbed 23.7% year over year to $480.9 million on an increase in average interest-earning assets. However, the NIM (on a tax-equivalent basis) contracted 67 basis points (bps) to 1.88%.

Non-interest income was $31.4 million, up around 30% from the year-ago quarter. Growth in fees and service charges led to the jump.

Non-interest expenses of $181.2 million rose 12.9%. The upsurge chiefly stemmed from the rise in salaries and benefits due to the massive hiring of private client banking teams.

The efficiency ratio was 35.4%, improving from 35.8% reported as of Sep 30, 2020. A lower ratio indicates a rise in profitability.

Net loans and leases, as of Sep 30, 2021, were $58 billion, up 7.5% sequentially. Total deposits rose 11.7% to $95.57 billion.

Credit Quality Deteriorates

Net charge-offs were $17.3 million in the September-end quarter, up from $10.5 million recorded in the prior-year quarter. The ratio of non-accrual loans to total loans was 0.28%, up 7 bps year over year.

Allowance for credit losses for loans and leases was $500.8 million, up from 484.9 million in the prior-year quarter. Nonetheless, provision for credit losses reduced to around $4 million from $52.7 million in the prior-year quarter, mainly driven by improved macroeconomic conditions.

Capital & Profitability Ratios Improve

As of Sep 30, 2021, Tier 1 risk-based capital ratio was 11.53%, up from 10.26% as of Sep 30, 2020. The total risk-based capital ratio was 12.96 % compared with the prior-year quarter’s 11.98%.

Return on average total assets was 0.93% in the reported quarter compared with the year-earlier quarter’s 0.83%. As of Sep 30, 2021, the return on average common stockholders' equity was 13.63%, up from 9.76%.

Outlook

Management expects loan balances to increase $1.5-$2 billion in the fourth quarter, with SBA loan growth of $10-$20 million. The investment portfolio is expected to increase $3-$5 billion.

Additional contributions from the $1.4 billion of loans settled and $-1 billion investment securities purchased in the third quarter are likely to drive NII in fourth-quarter 2021.

Management expects operating expenses to increase 14-16% in the fourth quarter on a year-over-year basis.

The effective tax rate is anticipated to be 28% going forward.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Signature Bank has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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