It has been about a month since the last earnings report for Signature Bank (SBNY). Shares have added about 6.1% 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 Q1 Earnings Miss, Provisions Up
Signature Bank reported first-quarter 2020 earnings per share of $1.88, missing the Zacks Consensus Estimate of $2.19. Also, the bottom line decreased 28.5% from the prior-year quarter’s reported tally.
Results were adversely impacted by escalating expenses and higher provisions. However, growth in revenues, aided by increases in net interest and non-interest income, was a positive. Moreover, a rise in net interest margin acted as a tailwind. Also, higher loan and deposit balances display a strong capital position.
Net income for the first quarter was $99.6 million compared with the previous-year quarter’s $143.5 million. Pre-tax pre-provision earnings came in at $218.5 million, up 5.1% year over year.
Revenues Rise, Loans & Deposits Increase, Expenses Escalate
Signature Bank’s total revenues increased 8.9% from the prior-year quarter to $362.4 million. Also, the top line outpaced the Zacks Consensus Estimate of $344 million.
Net interest income climbed 9.2% year over year to $348.3 million, backed by a rise in average interest earning assets. Further, net interest margin expanded 4 basis points to 2.79%.
Non-interest income was $14.2 million, up 2.26% year over year. This upside primarily resulted from an increase in all components of income.
Non-interest expenses of $144 million flared up 15.1% from the prior-year quarter. This upsurge chiefly stemmed from rise in almost all components of expenses, partially offset by lower FDIC assessment fees, along with reductions in occupancy and equipment costs.
Efficiency ratio was 39.7% compared with the 37.6% reported as of Mar 31, 2019. A higher ratio indicates a fall in profitability.
The company’s loans and leases, as of Mar 30, 2020, were $40.6 billion, up 4.4% sequentially. Further, total deposits rose 4.5% sequentially to $42.2 billion.
Credit Quality: A Mixed Bag
The company recorded net charge-offs of $1.7 million in the March-end quarter compared with net charge offs of $0.88 million witnessed in the prior-year quarter. In addition, provision for loan and lease losses significantly increased year over year to $66.8 million on coronavirus concerns.
The ratio of non-accrual loans to total loans was 0.14%, significantly down from the 0.25% recorded in the prior-year quarter. Allowance for credit losses for loans and leases came in at $356.3 million, up 54.4% year over year.
As of Mar 31, 2020, Tier 1 risk-based capital ratio was 11.05% compared with 11.91% on Mar 31, 2019. Furthermore, total risk-based capital ratio was 12.77% compared with the prior-year quarter’s 13.19%. Tangible common equity ratio was 8.90%, down from 9.25%.
Return on average assets was 0.78% in the reported quarter compared with the year-earlier quarter’s 1.22%. As of Mar 31, 2020, return on average common stockholders' equity was 8.42%, down from 13.05%.
During the January-March quarter, the company repurchased 392,959 shares of common stock, at a total cost of $50 million.
Management expects a 10-12% expense range in 2020, with the declining trend, while 14-15% in the second quarter.
Management anticipates deposits to be more than $2 billion in second-quarter 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, Signature Bank has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 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.
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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