Key Factors to Impact Signature Bank's (SBNY) Q4 Earnings
New lending verticals and dependence on non-interest-bearing deposits are likely to have driven NII for Signature Bank (SBNY) in Q4. Yet, escalating expenses are likely to have ailed the bottom...
Signature Bank SBNY is scheduled to report fourth-quarter and 2021 earnings, before the opening bell, on Jan 18. The company’s revenues and earnings are expected to have witnessed year-over-year increases.
Signature Bank is one of the preeminent banks catering to the cryptocurrency industry, with significant deposits from its digital asset business. The company became a member of the S&P 500 Index on Dec 20, 2021.
In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate on an increase in the non-interest income and lower provisions. However, a rise in operating expenses was the undermining factor.
Notably, Signature Bank has an impressive earnings surprise history. It surpassed estimates in all trailing four quarters, delivering an earnings surprise of 11.4%, on average.
The company’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of $3.93 has moved marginally upward in the past month. Also, the figure indicates a 20.6% rise from the year-ago reported number. The consensus estimate for revenues is pegged at $547.4 million, suggesting year-over-year growth of 30.6%.
Now let’s discuss the factors that are likely to have impacted the company’s fourth-quarter performance:
Net Interest Income (NII): Lending activity witnessed decent growth in the fourth quarter. Per the Fed’s latest data, commercial and industrial loan, real estate loan, and consumer loan portfolios remained strong in October and November. Also, as the fourth quarter is typically a seasonally-strong quarter for lending activity, this contributed to the resumption of loan growth.
New lending vertical onboarded in fourth-quarter 2021 is likely to have driven loan growth in the Small Business Administration (SBA) lending segment and the mortgage warehouse business.
Stimulus-driven liquidity injected in the banking system remained high in the fourth quarter, driving deposit balances. Nonetheless, non-interest-bearing deposits — a low-cost funding source — representing 36% of total deposits (as of the third-quarter end), is expected to have reduce interest expenses and alleviate pressure on NII.
The consensus estimate for NII before provision for credit losses is pegged at $517 million, suggesting 7.5% sequential growth. This is anticipated to have been aided by a rise in the average interest-earning assets. The Zacks Consensus Estimate for average interest-earning assets of $109.8 billion for the quarter indicates an 8% rise over the same period.
Management expects loan balances to increase $1.5-$2 billion in the fourth quarter, with SBA loan growth of $10-$20 million. The investment portfolio is expected to increase $3-$5 billion. Additional contributions from $1.4 billion of loans settled and $-1 billion investment securities purchased in the third quarter are likely to have driven NII in fourth-quarter 2021.
Non-Interest Revenues: Supported by continued growth of its business — West Coast expansion and digital deposit initiative — commissions are expected to have increased. The consensus mark for the same is pegged at $4.4 million, indicating a marginal increase.
Net gains on sale of loans are expected to be $3.5 million, down 3% sequentially.
The Zacks Consensus Estimate for fees and service charge is pegged at $20.2 million, suggesting a marginal increase from the prior quarter’s reported figure.
Overall, the Zacks Consensus Estimate for non-interest income is pegged at $31.4 million, suggesting a negligible decline from the prior quarter’s reported figure.
Expenses: Signature Bank’s costs are expected to have continued to flare up in the quarter under review, given the investments in technology and digitalization efforts. As the company has been continuing to expand, the hiring of private client banking teams and operational support to meet the bank’s needs are expected to have increased salary expenses. Additionally, the rising inflation is anticipated to have led to elevated non-interest expenses in the quarter to be reported. Such increase is likely to have hindered bottom-line growth in the fourth quarter.
Management expects operating expenses to increase 14-16% in the fourth quarter on a year-over-year basis.
Asset Quality: Card delinquency rates and commercial bankruptcies were low in fourth-quarter 2021, backed by a recovering economy. Given the backdrop of continued improvement in credit trends, Signature Bank is expected to have witnessed strong credit trends in the fourth quarter.
Now, let’s have a look at what our quantitative model predicts:
Our proven model shows that Signature Bank has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat this time around.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Signature Bank is +1.70%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
Other Stocks That Warrant a Look
First Republic Bank FRC, The PNC Financial Services Group, Inc. PNC and Huntington Bancshares Incorporated HBAN are a few other companies that you might want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for First Republicis +2.11% and it carries a Zacks Rank #3 at present. The company is slated to report the fourth-quarter and 2021 results on Jan 14.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved 2.1% upward.
PNC Financialis scheduled to release the fourth-quarter and 2021 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s fourth-quarter earnings estimates have moved marginally lower over the past month.
Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.46%.
The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has been unchanged over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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