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Solid Balance Sheet Supports Signature Bank Amid Rising Costs

On Jun 2, we issued an updated research report on Signature Bank SBNY. The company remains well-positioned for organic growth, supported by a rise in loan and deposit balances. Further, it is likely to gain from a strong capital position.

However, operating expenses are witnessing a rise. Also, declining fee income is expected to curb top-line growth.

Persistent rise in loans and deposit balances reflects Signature Bank’s organic growth potential. Deposits witnessed a five-year (2015-2019) CAGR of 10.8%, backed by rising non-interest bearing and interest-bearing deposits. Also, loans witnessed a CAGR of 13.3%.

As of Mar 31, 2020, the company holds a debt level of $4.9 billion and debt-capital of 51.75%. Its earnings before interest and tax were 6 times the interest expenses and have remained almost stable over the past few quarters. With a record of consistent earnings, Signature Bank has lower credit risk, and a lesser likelihood of default of interest and debt repayments if the economic situation worsens.

Further, the company’s top line benefits from net interest income growth, which witnessed a CAGR of 7.6%, with support from rising average interest-earning assets.

Signature Bank’s strong capital position backs its efforts to expand operations by making strategic hires, and opening new divisions and platforms. Also, it keeps the company well-poised to undertake opportunistic expansions in different regions, thereby improving its prospects.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have declined 16.9% compared with a 31.4% fall of the industry.

 

 

However, costs witnessed a CAGR of 11.6% over the last five years (ended 2019). The increase was largely due to investments in technology and rise in salaries due to the addition of new private client banking teams and information-technology expenses. Therefore, a continued rise in costs will hurt profitability.

Declining non-interest income remains a concern for Signature Bank. It witnessed a negative CAGR of 6.9% over the last four years (2016-2019), with some annual volatility. This was primarily on account of amortization of lower-income housing tax-credit investments.

Led by the concerns, analysts seem to have a slightly bearish stance on Signature Bank. The Zacks Consensus Estimate for earnings has been lowered for 2019 and 2020 over the past 60 days.

Stocks to Consider

ESSA Bancorp, Inc. ESSA witnessed an upward earnings estimate revision of 5.5% for 2020 over the past 30 days. Its shares have lost 13.4% over the past year. At present, it carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TFS Financial Corporation TFSL has witnessed a 1% upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #1 Ranked stock has lost 11.3% over the past year.

Prospect Capital Corporation PSEC witnessed an upward earnings estimate revision of 12.5% for the current year over the past 30 days. Its shares have lost 16.6% over the past year. At present, it carries a Zacks Rank of 2.

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Signature Bank (SBNY): Free Stock Analysis Report
 
TFS Financial Corporation (TFSL): Free Stock Analysis Report
 
Prospect Capital Corporation (PSEC): Free Stock Analysis Report
 
ESSA Bancorp, Inc. (ESSA): Free Stock Analysis Report
 
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