Signature Bank's (SBNY) Shares Down 3.3% on Q3 Earnings Miss

Signature Bank SBNY reported third-quarter 2020 earnings per share of $2.62, marginally missing the Zacks Consensus Estimate of $2.78. Also, the bottom line decreased 4.4% from the prior-year quarter’s reported tally.

Results were adversely impacted by escalating expenses and higher provisions. Also, higher loan and deposit balances display a strong capital position. The company’s shares appreciated 3.3% following the release most likely on these positives. However, a fall in net interest margin acted as a headwind.

Net income for the third quarter was $138.6 million compared with the previous-year quarter’s $148.1 million. Pre-tax pre-provision earnings came in at $252.4 million, up 21.1% year over year.

Revenues, Loans & Deposits Increase, Expenses Flare Up

Signature Bank’s total revenues increased 20.5% from the prior-year quarter to $412.9 million. The top line, nonetheless, missed the Zacks Consensus Estimate of $419.8 million.

Net interest income climbed 18.5% year over year to $388.7 million on increase in average interest earning assets. Further, net interest margin shrunk 13 basis points to 2.55%.

Non-interest income was $24.2 million, up 64.6% year over year.

Non-interest expenses of $160.6 million flared up 19.6% from the prior-year quarter. This upsurge chiefly stemmed from rise in salaries and benefits due to massive hiring for new business initiatives. Furthermore, the bank incurred a penalty on prepayment of borrowings.

Efficiency ratio was 38.9% compared with the 39.2% reported as of Sep 30, 2019. A lower ratio indicates a rise in profitability.

The company’s loans and leases, as of Sep 30, 2020, were $45.7 billion, up 2% sequentially. Additionally, total deposits rose 8.2% sequentially to $54.3 billion.

Credit Quality Deteriorates

The company recorded net charge-offs of $10.5 million during the September-end quarter compared with net charge-offs of $2.9 million witnessed in the prior-year quarter. In addition, provision for loan and lease losses rose year over year to $52.7 million on coronavirus concerns.

The ratio of non-accrual loans to total loans was 0.18%, up from the 0.09% recorded in the prior-year quarter. Allowance for credit losses for loans and leases came in at $484.9 million, up significantly year over year.

Capital Ratios Deteriorates

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 10.26% compared with 11.89% on Sep 30, 2019. Furthermore, total risk-based capital ratio was 11.98% compared with the prior-year quarter’s 13.14%. Tangible common equity ratio was 7.75%, down from 9.46%.

Return on average assets was 0.90% in the reported quarter compared with the year-earlier quarter’s 1.18%. As of Sep 30, 2020, return on average common stockholders' equity was 11.20%, down from 12.56%.

Our Viewpoint

Signature Bank’s July-September quarter results reflect escalating expenses and provisions on the coronavirus scare. Nevertheless, the company has a robust balance sheet. It is focused on investing in technology by enhancing its payments platform and credit-approval system, which might further inflate costs.

Signature Bank Price, Consensus and EPS Surprise

Signature Bank Price, Consensus and EPS Surprise

Signature Bank price-consensus-eps-surprise-chart | Signature Bank Quote

Currently, Signature Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Results of Other Banks

BancorpSouth Bank BXS delivered an earnings surprise of 32.7% in third-quarter 2020 on higher interest income. Net operating earnings of 69 cents per share beat the Zacks Consensus Estimate of 52 cents. The bottom line, however, was flat year over year.

Zions Bancorporation’s ZION net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents in the September-end quarter. However, the bottom line compared unfavorably with the year-ago quarter’s $1.17.

Regions Financial RF reported third-quarter adjusted earnings of 49 cents per share, outpacing the Zacks Consensus Estimate of 34 cents. Also, results compared favorably with the prior-year period earnings of 39 cents.

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