High Fee Income, NII to Aid Signature Bank's (SBNY) Q3 Earnings
Signature Bank SBNY is scheduled to report third-quarter 2022 earnings, before the opening bell, on Oct 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. In the last reported quarter, the bank’s earnings surpassed the Zacks Consensus Estimate on an increase in the non-interest income and net interest income (NII). 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 10.4%, on average.
Signature Bank Price and EPS Surprise
Signature Bank price-eps-surprise | Signature Bank Quote
The company’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for third-quarter earnings of $5.41 has moved marginally downward in the past week. Nonetheless, the figure indicates a 39.4% rise from the year-ago reported number. The consensus estimate for revenues is pegged at $730.1 million, suggesting year-over-year growth of 42.5%.
Now let’s discuss the factors that are likely to have impacted the company’s quarterly performance:
Loans: While lending activity improved sequentially in the third quarter, the pace of loan growth across most categories slowed as the quarter progressed. Per the Fed’s latest data, commercial and industrial loans, real estate loans, and consumer loans slightly moderated in July and August from the second quarter. Encouragingly, commercial real estate loan growth accelerated in the quarter under review.
From the start of the thirdquarter until Sep 2, 2022, SBNY’s loan balances moved up $2.39 billion. The improvement in lending activity was supported by the company’s efforts to expand geographically and add lending verticals.
In addition to onboarding eight private client banking teams in 2021, the bank has hired 11 private banking teams from the start of second-quarter 2022. Loan growth from new lending verticals and teams is expected to have continued to aid the bank’s lending activity.
NII: Management expects loan and investment security balances to increase $1-$3 billion in the third quarter of 2022. This is anticipated to have driven interest income in third-quarter 2022, in turn, driving the average interest-earning asset balance.
Moreover, higher interest rates are expected to have supported SBNY’s NII. In the third quarter, the Fed hiked interest rates by 150 basis points. With this, the level of the policy rate reached 3.0-3.25%, the highest since 2008. Hence, an asset-sensitive balance sheet and a growing focus on floating-rate loans are likely to have driven the company’s asset yield and NII.
Hence, average interest-earning assets and higher prevailing market interest rates are likely to have contributed to NII growth in the third quarter.
The consensus estimate for NII before provision for credit losses is pegged at $691 million, suggesting 6.5% sequential growth.
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 $4.39 million, indicating a 2.8.% sequential increase.
From the start of the quarter through Sep 2, deposit balances declined $1.64 billion. This was driven by outflows of $4.27 billion in the digital asset banking space due to the downturn in cryptocurrency markets. Nonetheless, deposit balances, excluding the digital asset banking business, increased $2.64 billion as of Sep 2. This is expected to have affected fees and service charges.
Nonetheless, higher lending fees are anticipated to have offered support to fees and service charges. The Zacks Consensus Estimate for the same is pegged at $25.75 million, suggesting a 3.9% increase from the prior quarter’s reported figure.
Overall, the Zacks Consensus Estimate for non-interest income is pegged at $38.5 million, suggesting a 2.3% increase 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 rise in salaries. Specifically, 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 an increase is likely to have hindered bottom-line growth in the third quarter. Management expects non-interest expenses to grow year over year in the low-20% range.
Earnings Whispers
Our proven model does not predict an earnings beat for SBNY this time around. This is because the company does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 -0.10%.
Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
A few finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Associated Banc-Corp ASB and QCR Holdings QCRH.
Associated Banc-Corp is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.57%.
The Earnings ESP for QCR is +5.71% and it has a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 26.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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