Signature Bank (SBNY – Free Report) has a healthy balance sheet position, supported by robust growth in its loans and deposit balance. However, the high costs arising from spending on technology and human capital are likely to hamper its results.
Signature Bank has a healthy balance sheet. The company has achieved filing growth every year since its inception in 2001. SBNY has also geographically diversified its West Coast expansion.
Going forward, loan growth from new lending verticals should continue to support the bank’s growth outlook. As a result, deposit and loan balances are poised to grow, supported by a gradually improving economy and efforts to diversify lending segments.
Organic growth remains a key strength for Signature Bank, as evidenced by its history of net interest income (NII) growth. An increase in average interest-earning assets, supported by solid average growth in deposits and loans, is contributing to the growth in the NII. Additionally, management expects continued cash deployment and rising interest rates to drive NII growth in the coming year.
Therefore, we believe the company is well positioned to maintain the upward trend in revenue, given its customer-centric business model and expansion into strategic markets.
The company’s focus on digital asset banking is positive. In 2019, Signature Bank was the first FDIC-insured bank to launch a blockchain-based digital payment platform, Signet. Signet allows business customers to make real-time payments in US dollars at any time. The company believes that the customer pipeline for the digital asset industry will continue to be strong over the coming quarters. These dynamic movements are driving deposit growth and bode well for the long term.
However, escalating costs are the main drawback of SBNY. The surge is mainly due to the increase in salaries and benefits due to the massive recruitment of private banking teams. The continuation of such a trend will hamper the expansion of its bottom line. Additionally, management expects non-interest expenses to increase by 16% in 2022.
Its capital deployment activities keep us apprehensive. The company implemented a share buyback program, which was suspended after the coronavirus outbreak in March 2020. There remained $450 million under the modified program as of December 31, 2021. However, its debt ratio /equity does not compare favorably with the wider industry. Thus, the Company’s capital deployment activities may not be sustainable over the long term.
Currently, SBNY carries a Zacks Rank #3 (Hold). Over the past year, the company’s shares are down 7.1%, more than the 4.5% drop seen by the industry.
Image source: Zacks Investment Research
Actions worth a look
A few higher ranked stocks in the banking sector are Independent banking company (IBCP – free report) and Civista Bancshares, Inc. (CIVB – free report). IBCP currently sports a Zacks rank of 1 (strong buy), while CIVB carries a Zacks rank of 2 (buy). You can see the full list of today’s Zacks #1 Rank stocks here.
The independent bank’s Zacks consensus estimate for current-year earnings has been revised higher in the past 30 days. Over the past two years, IBCP shares have gained 48.7%.
Civista Bancshares has also seen an upward revision to 2022 earnings estimates over the past 30 days. CIVB shares have gained 37.4% over the past two years.