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Why Is Signature Bank (SBNY) Up 10.2% Since Last Earnings Report?

Zacks Equity Research
Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

A month has gone by since the last earnings report for Signature Bank (SBNY). Shares have added about 10.2% 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 catalysts.

Signature Bank's Q4 Earnings Beat on High Revenues

Signature Bank’s fourth-quarter 2018 earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.

Results reflected overall growth in revenues. In addition, loan and deposit balances displayed continued improvement. Moreover, lower provisions acted as tailwinds. However, rise in expenses was a drag.

Net income for the fourth quarter was $160.8 million compared with $114.9 million recorded in the year-ago quarter.

For full-year 2018, earnings per share were $9.23 per share, surpassing the Zacks Consensus Estimate of $9.10. Further, the figure compares favorably with $7.12 per share earned in the prior year.

Rise in Revenues Partially Offset by Higher Expenses  

For full-year 2018, the company reported revenues of $1.32 billion, up around 3.8% year over year. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $1.31 billion.

Signature Bank’s total revenues in the quarter rose 3.9% from the prior-year quarter to $341 million. Also, the top line surpassed the Zacks Consensus Estimate of $331.5 million.

Net interest income increased 4.8% year over year to $335 million backed by rise in average interest earning assets. However, net interest margin contracted 17 basis points to 2.90%.

Non-interest income was $5.9 million, down nearly 30.3% year over year. The decline was primarily on account of an increase in tax credit investment amortization.

Non-interest expenses of $119.2 million were up 8.4% from the prior-year quarter. The rise was primarily a result of the addition of private client banking teams, and an increase in costs in risk management and compliance-related activities.

Efficiency ratio was 34.94% compared with 33.50% reported as of Dec 31, 2017. Higher ratio indicates fall in profitability.

The company’s loans and leases, net as of Dec 31, 2018, were $36.2 billion, up 11.7% from Dec 31, 2017. Further, total deposits rose 8.8% from 2017 end to $36.4 billion.

Credit Quality: A Mixed Bag

The company recorded net recoveries of $2.9 million in the quarter against net-charge offs of $38.8 million in the prior-year quarter. In addition, provision for loan and lease losses declined 84.6% to $6.4 million.

However, the allowance for loan losses represented 0.63% of total loans as of Dec 31, 2018, compared with 0.60% as of Dec 31, 2017.

Capital Ratios

As of Dec 31, 2018, Tier 1 risk-based capital ratio was 12.09% compared with 11.99% as of Dec 31, 2017. Further, total risk-based capital ratio was 13.39% compared with 13.32% in the prior-year quarter. Tangible common equity ratio was 9.21%, down from 9.29% as of Dec 31, 2017.

Return on average assets was 1.37% in the reported quarter compared with 1.08% in the prior-year quarter. As of Dec 31, 2018, return on average common stockholders' equity was 14.76%, up from 11.44% as of Dec 31, 2017.

During the reported quarter, the company repurchased 358,492 shares of common stock for a total cost of $41.8 million.

Outlook

NIM is expected to contract 2-4 bps in first-quarter 2019.

Management expects the tax rate to be around 25%.

Management anticipates balance sheet 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 an upward trend in fresh estimates.

VGM Scores

At this time, Signature Bank has a subpar Growth Score of D, however its Momentum Score is doing a lot 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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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