Signature Bank's Earnings Beat Fails to Impress - Analyst Blog

Shares of Signature Bank (SBNY) lost 1.1% since Apr 22 following its earnings release before the market opened. This price fall was despite the company's first-quarter 2014 earnings per share of $1.37 per share, which beat the Zacks Consensus Estimate of $1.35. Moreover, the reported figure compared favorably with $1.06 in the year-ago quarter.

Perhaps investors remained concerned over the headwinds faced by the company during the quarter. The quarter witnessed lower non-interest income and rise in expenses. However, a rise in revenues on the back of increased net interest income more than offset the negatives. Also loan and deposit balances showed improvement.   

Net income was $66.0 million compared with $50.6 million in the prior-year quarter. Notably, the reported figure included a tax charge of $1.8 million.

Quarter in Detail

Net revenue (net of interest expenses) came in at $193.6 million, surpassing the Zacks Consensus Estimate of $188.0 million. Further, it was up 23.4% from the prior-year quarter.

Net interest income increased 25.9% year over year to $186.5 million, primarily attributable to an increase in average interest-earning assets. However, net interest margin declined 4 basis points from the prior-year quarter to 3.39%.

Non-interest income decreased 18.9% on a year-over-year basis to $7.2 million. The decline was primarily due to decrease in net gains on sales of SBA loans.

Non-interest expense stood at $70.0 million, rising 18.8% from the prior-year quarter. The increase primarily resulted from the joining of new private client banking teams, addition of an asset-based lending team and the company's ongoing investment in Signature Financial.

Asset Quality

Asset quality was a mixed bag in the quarter. Provision for credit losses decreased 17.5% year over year to $8.2 million. Allowance for loan and lease losses to total loans was 1.01%, down from 1.09% in the year-earlier quarter.

Quarterly net recoveries as a percentage of average loans and leases on an annualized basis came in at 0.01%, compared with net-charge offs as a percentage of average loans and leases of 0.18% in the year-ago period. However, allowance for loan and lease losses increased 27.2% year over year to $143.5 million.

Loans and Deposits

As of Mar 31, 2014, Signature Bank's net loans and leases were $14.1 billion, up 5.2% from the previous quarter while total deposits were up 7.3 % to $18.3 billion.

Capital Ratios

The company's capital ratios deteriorated in the quarter. As of Mar 31, 2014, Tier 1 risk-based ratio fell to 14.05% from 15.21% in the year-ago quarter. Tier 1 leverage was 8.51%, down from 9.51% at the end of the prior-year quarter.     

Our Viewpoint

Signature Bank reported yet another impressive quarter and started 2014 on a positive note. The company's steadily growing loan and deposit balances and increase in the top line are commendable. However, mounting expenses, the prevalent low interest rate environment and stringent regulations remain major near-term concerns.

Currently, Signature Bank carries a Zacks Rank #2 (Buy).  

Performance of Other Banks

Webster Financial Corp.'s (WBS) first-quarter 2014 earnings per share of 50 cents beat the Zacks Consensus Estimate by a penny. Results benefited from a rise in both net interest income and non-interest income as well as a fall in non-interest expenses. These factors were partly offset by an increase in provision for loan losses. Loan and deposit balances showed continued improvement.

Huntington Bancshares Incorporated (HBAN) reported adjusted earnings per share of 19 cents in first-quarter 2014, beating the Zacks Consensus Estimate of 17 cents. Results were driven by top-line growth and lower provision for credit losses, partly offset by higher expenses. Further, loan and deposit balances exhibited growth.

Wintrust Financial Corporation (WTFC) reported earnings per share of 68 cents in first-quarter 2014, beating the Zacks Consensus Estimate of 66 cents per share. Results primarily reflected higher net interest margin, robust growth in loans and deposits, and an increase in non-performing asset levels.