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Signature Bank's Revenues Gain From Rising Loans, Costs Jump

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Signature Bank (SBNY - Free Report) remains well positioned for organic growth, supported by a rise in loan and deposit balances. Also, strong capital position remains a key positive.

However, the company’s expenses remain elevated, which is likely to curb profitability. Also, rising interest rates might keep its margin strained.

The Zacks Consensus Estimate for the company’s current-year earnings has remained stable over the last seven days. The stock currently carries a Zacks Rank #3 (Hold).

Shares of Signature Bank have lost 15.9% so far this year against slight growth witnessed by the industry.



Signature Bank has solid organic growth potential as reflected by its rising loans and deposits balances. Deposits recorded a five-year (2013-2017) CAGR of 18.3% while loans witnessed a CAGR of 8.4% in the same time span. The increasing trend continued in the first six months of 2018 and is likely to continue further with support from improving economic backdrop.

Also, the company’s revenues have been rising primarily due to increasing net interest income (NII), which witnessed a CAGR of 12.6% in the last five years (ended 2017) and continued to rise in first half of 2018 with support from rising average interest-earning assets. Though revenues were partially offset by declining non-interest income on account of amortization of lower income housing tax credit investments, rising NII will continue supporting Signature Bank’s top line.

Furthermore, the company's strong capital position keeps it poised to undertake opportunistic expansions in different geographies thereby improving its growth prospects.

However, rising costs remain a key downside. The company’s non-interest expenses have witnessed a CAGR of 15.2% over the last five years (2013-2017). The uptrend continued in the first two quarters of 2018 as well. Moreover, management expects expense growth of 8-10% in 2018, excluding taxi medallions related charge-offs.

Further, a rising interest rate environment remains a headwind for Signature Bank’s net interest margin due to its liability-sensitive balance sheet. Notably, the net interest margin has declined from 3.36% in 2013 to 3.08% in 2017. Moreover, the metric further shrunk 15 basis points (bps) year over year in the first half of 2018. Also, for the remainder of 2018, management expects NIM to contract 3-6 bps per quarter.

Stocks to Consider

Some better-ranked stocks in the same space are Webster Financial Corporation (WBS - Free Report) , Great Western Bancorp (GWB - Free Report) and Citizens Financial Services Inc. (CZFS - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Webster Financial’s current-year earnings has been revised nearly slightly upward for 2018, in the last 30 days. Also, its share price has increased more than 35% in the past 12 months.

Great Western’ current-year earnings estimates have been revised 1% upward, over the last 30 days. Further, the company’s shares have rallied more than 15% in a year.

The Zacks Consensus Estimate for Citizens Financial Services’ current-year earnings has been revised nearly 6% upward, over the last 60 days. Moreover, in the past year, its shares have gained above 10%.

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