Signature Bank’s SBNY fourth-quarter 2022 earnings per share of $4.65 lagged the Zacks Consensus Estimate of $4.92. However, the bottom line increased 7.1% from the prior-year quarter. We had projected earnings of $5.42 per share.

Results were hurt by increases in non-interest expenses and provisions. However, higher revenues acted as a tailwind.

Investors seem encouraged by the rising rate environment, along with growth in loans, which has been aiding interest income growth. Thus, shares of SBNY gained 3.2% in pre-market trading despite worse-than-expected earnings. However, the full-day trading session will display a clearer picture.

Net income available to common shareholders was $291.7 million, up 11% from the previous-year quarter. Pre-tax pre-provision earnings were $450.6 million, up 16.9% year over year.

For 2022, earnings were $20.76 per share, which missed the Zacks Consensus Estimate of $21.01. The bottom line, however, increased 38.1% year over year. We had projected earnings of $21.55 per share for 2022. Net income was $1.30 billion, up 47.7% from the previous year’s reported figure.

Revenues Improve, Expenses Rise

Quarterly total revenues increased 20.1% from the prior-year quarter to $683.9 million. However, the top line lagged the Zacks Consensus Estimate of $687 million. Our estimate for revenues was $717.4 million.

For 2022, revenues were $2.70 billion, up 34.7% year over year. The top line met the Zacks Consensus Estimate. Our estimate for 2022 revenues was $2.73 billion.

Quarterly net interest income increased 19.2% year over year to $638.7 million mainly due to loans and securities growth, along with higher prevailing market interest rates. Our estimate for the metric was $671.8 million. The net interest margin was 2.30% in the fourth quarter, up from 1.90% a year ago. We had projected a net interest margin of 2.41% for the fourth quarter.

Non-interest income was $45.2 million, up 35.2% from the year-ago quarter’s number. Growth in fees and service charges, commissions and other income led to the increase in overall non-interest income. Our estimate for the metric was $45.6 million.

Non-interest expenses of $233.3 million rose 26.8% from the prior-year quarter. The rise was due to an increase in almost all cost components, except for FDIC assessment fees. We had projected non-interest expenses of $231 million for the quarter.

At the end of the fourth quarter of 2022, the efficiency ratio was 34.11%, up from 32.31% reported in the prior-year quarter. An increase in the efficiency ratio indicates a deterioration in profitability.

As of Dec 31, 2022, loans and leases, excluding loans held for sale, were $74.29 billion, up marginally from the end of the previous quarter. Total deposits were $88.59 billion, down 13.8% from the prior-quarter end.

Credit Quality: Mixed Bag

Allowance for credit losses for loans and leases was $489.9 million, up 3.3% from the prior-year quarter. The provision for credit losses increased significantly to $42.8 million from $6.9 million in the prior-year quarter.

However, the ratio of non-accrual loans to total loans was 0.25%, down 9 basis points (bps) year over year. Net charge-offs to average loans (annualized) was 0.10%, down from 0.22% a year earlier.

Profitability & Capital Ratios Strong

The return on average total assets was 1.06% in the reported quarter, up from 0.96% in the year-earlier quarter. The return on average common stockholders' equity was 16.35%, up from 14.76% in the year-ago quarter.

As of Dec 31, 2022, the Tier 1 risk-based capital ratio was 11.21%, up from 10.51% as of Dec 31, 2021. The total risk-based capital ratio was 12.33%, up from the prior-year quarter’s 11.76%.

Dividend Hike

Concurrent with the earnings release, the company declared a cash dividend of 70 cents per share, representing a hike of 25% from the prior payout. The dividend will be paid out on Feb 10, 2023, to shareholders of record as of Jan 27.

Our Take

With the rise in interest rates, Signature Bank’s NII and margins are positioned to increase further, which is encouraging. However, rising expenses due to private client banking team expansion might hinder the company’s bottom line to an extent in the quarters ahead. Also, SBNY’s capital deployment plans do not seem sustainable, which makes us apprehensive.

Currently, Signature Bank carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Bank of New York Mellon Corporation’s BK fourth-quarter 2022 adjusted earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.22. The bottom line reflects a rise of 25% from the prior-year quarter. Our estimate for earnings was $1.09.

BK’s results were aided by a rise in net interest revenues. However, asset balances witnessed a decline, which was a negative. Higher expenses and lower fee revenues hurt BK’s results to some extent.

Higher loan balance, rising rates and solid markets performance drove JPMorgan’s JPM fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. Results excluded gains from the sale of Visa B shares and net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.

As expected, the performance of JPM’s investment banking business was hugely disappointing. Further, mortgage fees and related income declined 69%, as mortgage rates remained above the 6% mark in the fourth quarter. Then again, higher interest rates and a solid rise in loan balance aided JPMorgan’s net interest income.

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