It’s been about a month since Signature Bank’s (SBNY) last earnings report. Stocks lost about 0.5% during this period, outperforming the S&P 500.
Will the recent negative trend continue until its next earnings release, or should Signature Bank experience a breakout? Before we dive into the reaction of investors and analysts lately, let’s take a look at the latest earnings report to better understand the important factors.
Signature Bank’s fourth quarter earnings outpace revenue rise
Signature Bank reported Q4 2021 earnings per share of $4.34, beating Zacks’ consensus estimate of $3.97. Additionally, net income increased 33.1% from the reported number in the prior year quarter.
Record growth in loan and deposit balances shows a strong balance sheet position. In addition, revenue growth supported results. Nevertheless, Signature Bank recorded high expenses, a reduced capital position and poor credit quality.
Net income for the quarter was $272 million compared to $173 million in the prior year quarter. Earnings before taxes and provisions were $385.4 million, up 47.4%.
Earnings in 2021 were $15.03 per share, down from $9.96 a year earlier. The net result exceeded the consensus estimate of $14.68. Net income rose 73.8% to $918.4 million from the prior year figure.
Income, loans and deposits increase, expenses increase
Total revenue for the fourth quarter increased 35.8% from the year-ago quarter level to $569.4 million. The top line topped Zacks’ consensus estimate of $548.7 million.
For 2021, total revenue was $2 billion, up 25.5% year over year.
The NII climbed 35.7% year-over-year to $535.9 million on higher average interest-earning assets. However, the NIM (on a tax equivalent basis) contracted 32 basis points (bps) to 1.91%.
Non-interest revenue was $33.5 million, up 38.4% from the year-ago quarter. The growth in fees and service charges drove the jump.
Non-interest expense of $183.9 million increased 16.6%. The surge is mainly due to the increase in salaries and benefits due to the massive hiring of private banking teams.
The efficiency ratio was 32.3%, improving from the 35.4% reported as of December 31, 2020. A lower ratio indicates an increase in profitability.
Loans, excluding loans held for sale, as of December 31, 2021, were $64.8 billion, marking a record increase of 10.7%, sequentially. Total deposits rose a record 11.1%, sequentially, to $106.1 billion.
Credit quality: a mixed bag
Net write-offs were $33.7 million in the December quarter, compared to $11.4 million recorded in the prior year quarter. The ratio of outstanding loans to total loans was 0.34%, up 9 basis points year-on-year.
Nevertheless, the provision for credit losses for loans and leases was $474.4 million, compared to $508.3 million in the year-ago quarter. Provision for credit losses decreased to $6.9 million from $35.6 million in the prior year quarter, primarily due to improved macroeconomic conditions.
Weak capital position, profitability ratio improves
As of December 31, 2021, the Tier 1 risk-based capital ratio was 10.49%, compared to 11.2% as of December 31, 2020. The total risk-based capital ratio was 11.73% compared to to 13.54% in the prior year quarter.
The return on average total assets was 0.96% in the quarter under review, stable compared to the level of the previous quarter. As of December 31, 2021, return on average common shareholders’ equity was 14.76%, compared to 13.59% in the prior year quarter.
How have the estimates changed since then?
Over the past month, investors have witnessed an upward trend in new estimates.
The consensus estimate changed by 6.47% due to these changes.
Currently, Signature Bank has a mediocre growth score of F, but its Momentum score is doing much better with a C. However, the stock has been assigned an F rating on the value side, which places it in the lowest quintile for this investment strategy.
Overall, the title has an overall VGM score of F. If you’re not focused on a strategy, this score is the one you should be interested in.
Estimates have been trending higher for the stock overall, and the magnitude of these revisions looks promising. It comes with a little surprise Signature Bank has a Zacks rank #1 (strong buy). We expect above-average performance for the stock over the next few months.
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