Signature Bank's (SBNY) Q4 Earnings Top Estimates, Stock Up

Shares of Signature Bank (NASDAQ:SBNY) have rallied 6%, following the release of fourth-quarter 2019 results. Earnings of $2.78 per share outpaced the Zacks Consensus Estimate of $2.69. However, the bottom line decreased 5.4% from the prior-year quarter’s reported figure.

Results reflect growth in revenues, and loan and deposit balances. However, fall in net interest margin (NIM), and escalating expenses and provisions acted as major drags.

Net income for the quarter came in at $148.2 million, down 7.8% from the previous-year quarter.

For 2019, earnings were $10.87 per share compared with the prior-year figure of $9.23. The bottom line surpassed the consensus estimate of $10.82. Net income increased 16.5% to $588.9 million.

Revenues Rise, Loans & Deposits Increase, Expenses Escalate

Signature Bank’s total revenues improved 1.4% from the prior-year quarter to $345.6 million. Also, the top line beat the consensus estimate of $335.9 million.

For 2019, total revenues of $1.3 billion matched the consensus estimate. Also, the same increased 1.3% year over year.

Net interest income increased 1% year over year to $338.3 million, backed by rise in average interest earning assets. However, NIM contracted 18 basis points to 2.72%.

Non-interest income was $7.3 million, up 23.7% year over year. This upside primarily stemmed from an increase in fees and services charges.

Non-interest expenses of $138 million flared up 15.9% from the prior-year quarter. This upsurge chiefly stemmed from rise in all components of expenses, partially offset by lower FDIC assessment fees.

Efficiency ratio was 39.94% as of Dec 31, 2019 compared with 34.94% as of Dec 31, 2018. Higher ratio indicates fall in profitability.

The company’s loans as of Dec 31, 2019, were $39.1 billion, rising 3.1% on a sequential basis. Further, total deposits increased 3.4% sequentially to $40.4 billion.

Credit Quality: Mixed Bag

The company recorded net charge offs of $2.5 million in the fourth quarter against the prior-year quarter’s net recoveries of $2.9 million. In addition, provision for loan and lease losses jumped 51.5% year over year to $9.8 million.

The ratio of non-accrual loans to total loans was 0.15%, down from 0.30% recorded in the prior-year quarter.

Capital Ratios

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 11.62% compared with 12.11% on Dec 31, 2018. In addition, total risk-based capital ratio was 13.32% compared with the prior-year quarter’s 13.41%. However, tangible common equity ratio was 9.34% as of Dec 31, 2019, up from 9.21%.

Return on average assets was 1.17% in the quarter compared with the year-earlier quarter’s 1.37%. As of Dec 31, 2019, return on average common stockholders' equity was 12.36%, down from 14.76%.

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Capital Deployment

During the December-ended quarter, the company repurchased 722,420 shares of common stock at a total cost of $89.4 million.

Our Viewpoint

Steady growth in revenues, and loan and deposit balances will continue to boost Signature Bank’s profitability. Moreover, decent capital-deployment actions reflect the bank’s solid balance sheet position. Also, improved capital ratios are likely to impact the company’s financials positively. Nevertheless, rising expenses and provisions along with contracting NIM are major near-term concerns.

Zacks Rank

Currently, Signature Bank carries a Zacks Rank #3 (Hold). You can see Zacks Investment Research

Written By: Zacks Investment Research