Signature Bank (SBNY - Free Report) is well positioned for organic growth, supported by a rise in loan and deposit balances. Further, capital strength and improving economic backdrop are likely to support the company’s growth plans. However, rising operating expenses pose a key concern.
Continual rise in loans and deposit balances reflects Signature Bank potential for top-line growth. Deposits recorded a five-year (2014-2018) CAGR of 12.7%, backed by rising non-interest-bearing and interest bearing deposits. Also, loans witnessed a CAGR of 19.3%.
Further, the company’s revenues benefit from increasing net interest income, which witnessed a CAGR of 12.8% on the back of rising average interest-earning assets.
Signature Bank’s strong capital position backs its efforts to expand operations by making strategic hires, and opening new divisions and platforms. Also, it keeps the company well poised to undertake opportunistic expansions in different geographies, thereby improving its prospects.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 13.4% compared with 10.7% growth of the industry.
However, costs witnessed a CAGR of 13.5% over the last five years (ended 2018). The increase wass largely due to investments in technology and rise in salaries due to addition of new private client banking teams, including the Fund Banking Division and the Venture Banking Group. Management expects expenses to jump of 12-14% in 2019.
Further, a rising interest rate environment is a headwind for Signature Bank’s net interest margin (NIM) due to its liability-sensitive balance sheet. Notably, NIM declined from 3.36% in 2013 to 2.92% in 2018. The contraction resulted from rise in average cost of funds.
Led by these concerns, analysts seem to have a slightly bearish stance on Signature Bank. The Zacks Consensus Estimate for earnings has marginally been lowered for 2019 and 2020 over the past 30 days.
Stocks to Consider
Some better-ranked stocks in the same space are Orrstown Financial Services (ORRF - Free Report) , CNB Financial Corporation (CCNE - 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 Orrstown Financial’s current-year earnings has remained stable for 2019 in the past 30 days. Also, its share price has increased 16.7% in the past six months.
CNB Financial’s current-year earnings estimates have been revised 2.1% upward over the past 30 days. Further, the company’s shares have rallied 18.1% in the past six months.
The Zacks Consensus Estimate for Citizens Financial Services’ current-year earnings has been revised nearly 1% upward over the past 30 days. Moreover, in the past six months, its shares have gained 8.1%.
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