It has been about a month since the last earnings report for Signature Bank (SBNY). Shares have lost about 2.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Signature Bank Q2 Earnings Beat, Revenues Escalate
Signature Bank reported second-quarter 2019 earnings per share of $2.72, outpacing the Zacks Consensus Estimate of $2.71. Yet, the bottom line decreased 3.5% from the prior-year quarter’s reported tally.
Results reflect growth in revenues, aided by higher loan and deposit balances. Moreover, lower provisions acted as a tailwind. However, fall in net interest margin and escalating expenses were major drags.
Net income for the second quarter was $147.9 million compared with the previous-year quarter’s $154.6 million.
Revenues Rise, Loans & Deposits Increase, Expenses Escalate
Signature Bank’s total revenues increased 2.5% from the prior-year quarter to $334.9 million. Also, the top line outpaced the Zacks Consensus Estimate of $333.3 million.
Net interest income inched up 1.6% year over year to $326.3 million, backed by rise in average interest earning assets. However, net interest margin contracted 20 basis points to 2.74%.
Non-interest income was $8.6 million, up nearly 53.6% year over year. This rise was primarily due to an increase in all components of income.
Non-interest expenses of $131.9 million flared up 17.1% from the prior-year quarter. This upsurge primarily stemmed from rise in almost all components of expenses, partially offset by lower FDIC assessment fees.
Efficiency ratio was 39.4% compared with 34.5% reported as of Jun 30, 2018. Higher ratio indicates fall in profitability.
The company’s loans and leases, as of Jun 30, 2019, were $37.9 billion, up 1.2% sequentially. Further, total deposits rose 2.6% sequentially to $37.5 billion.
Credit Quality Improves
The company recorded net recoveries of $3.7 million in the quarter compared with net charge offs of $3 million in the prior-year quarter. In addition, provision for loan and lease losses plunged 32.5% year over year to $5.4 million.
The ratio of non-accrual loans to total loans was 0.11%, significantly down from 0.46% recorded in the prior-year quarter.
As of Jun 30, 2019, Tier 1 risk-based capital ratio was 11.59% compared with 12.11% on Jun 30, 2018. Further, total risk-based capital ratio was 12.82% compared with the prior-year quarter’s 13.43%. Tangible common equity ratio was 9.46%, up from 9.10%.
Return on average assets was 1.22% in the reported quarter compared with 1.39% in the year-earlier quarter. As of Jun 30, 2019, return on average common stockholders' equity was 12.88%, down from 15.22%.
During the reported quarter, the company repurchased 412,977 shares of common stock, at a total cost of $50 million.
Management expects the tax rate to be around 25%.
Management expects 12-16% expense rise in 2019. Further, NIM is expected to be stable in the third quarter.
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?
It turns out, estimates revision have trended downward during the past month.
Currently, Signature Bank has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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