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Why Is Signature Bank (SBNY) Down 8.8% 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 lost about 8.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Signature Bank due for a breakout? 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 catalysts.

Signature Bank Q1 Earnings Miss on Lower Revenues

Signature Bank reported first-quarter 2019 adjusted earnings per share of $2.64, which lagged the Zacks Consensus Estimate of $2.76. Further, the bottom line fell from $2.69 earned in the prior-year quarter.

Results reflected growth in loan and deposit balances. Moreover, lower expenses and provisions acted as tailwinds. However, fall in fee income was a drag.

Net income for the first quarter was $144.1 million compared with $34.5 million a year ago.

Expenses Decline, Loans & Deposits Increase  

Signature Bank’s total revenues declined marginally from the prior-year quarter to $325.1 million. Also, the top line missed the Zacks Consensus Estimate of $332.4 million.

Net interest income increased slightly year over year to $319 million backed by rise in average interest earning assets. However, net interest margin contracted 26 basis points to 2.75%.

Non-interest income was $6.1 million, down nearly 15% year over year. The decline was primarily on account of an increase in tax credit investment amortization.

Non-interest expenses of $125.1 million were down 8.9% from the prior-year quarter. The decline was primarily due to the absence of write-downs on repossessed New York City taxi medallions that were taken in the prior-year quarter, partially offset higher salaries and equipment expenses.

Efficiency ratio was 38.5% compared with 42.2% reported as of Mar 31, 2018. Lower ratio indicates improvement in profitability.

The company’s loans and leases, as of Mar 31, 2019, were $37.2 billion, up 2.9% from Dec 31, 2018. Further, total deposits rose slightly sequentially to $36.6 billion.

Credit Quality Improves

The company recorded net charge-offs of $0.9 million in the quarter compared with $128.3 million in the prior-year quarter. In addition, provision for loan and lease losses declined significantly to $6.3 million.

The allowance for loan losses represented 0.63% of total loans as of Mar 31, 2019, stable year over year.

Capital Ratios

As of Mar 31, 2019, Tier 1 risk-based capital ratio was 11.97% compared with 12.09% on Mar 31, 2018. Further, total risk-based capital ratio was 13.24% compared with 13.45% in the prior-year quarter. Tangible common equity ratio was 9.29%, up from 8.95%.

Return on average assets was 1.22% in the reported quarter compared with 0.32% in the prior-year quarter. As of Mar 31, 2019, return on average common stockholders' equity was 13.04%, up from 3.48%.

Capital Deployment

During the reported quarter, the company repurchased 173,193 shares of common stock for a total cost of $22.9 million.

Outlook

Management expects the tax rate to be around 25%.

Management expects 12-14% expense growth in 2019.

Management anticipates deposits to be up in the range of $3-$5 billion in 2019. Increase in loans is expected to contribute to 75% of total assets growth. Growth in commercial and industrial loans is expected in 2019.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Signature Bank has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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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