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    SBNY   US82669G1040

SIGNATURE BANK

(SBNY)
  Report
Delayed Nasdaq  -  04:00 2022-06-30 pm EDT
179.21 USD   -2.60%
09:05aWedbush Cuts Signature Bank's Price Target to $240 From $295, Citing 'Looming Recession;' Outperform Rating Kept
MT
06/27Raymond James Adjusts Signature Bank's Price Target to $305 from $350, Keeps Strong Buy Rating
MT
06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell 1000 Growth Index
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Signature Bank : Good prospects

06/03/2022 | 12:23pm EDT

Signature is an independent bank formed by the former directors of Republic National Bank, controlled until 2009 by Edmond Safra (A Lebanese-Brazilian billionaire banker, which was murdered in his Monaco apartment in 2008). Signature offers a wide range of banking products and services for companies and individuals, as well as investment, brokerage and asset management services. This relatively small bank has 37 private client offices in the New York metropolitan area, Connecticut, California and North Carolina.

Mainly active in New York and managed more like a private partnership than a listed financial institution, the bank distinguishes itself by the clientele it serves (wealthy families and other select institutions) and a niche portfolio of activities, concentrated for the most part in the financial sector.it serves (high net worth families and other carefully selected institutional clients) and a portfolio of niche activities, mostly focused on lending to investment funds (46% of the portfolio), high net worth families and (46% of the portfolio), wealthy families (a quarter of the portfolio) and commercial real estate operators (a fifth of the portfolio), as well as by an exceptional growth record over the last fifteen years (2006-2021), and a very conservative management style overall. There's a reason why  it is dubbed "New York's most successful bank" by Crain's New York Business.

Financial highlights:

Source: Signature Bank - Annual Report 2021

The bank's success and excellent reputation with its customers of collecting exponentially increasing deposits (from $4 billion to 106 billion in fifteen years), a good third of which is "non-interest bearing", i.e. without interest to be paid to customers. This feature is a kind of banking grail because it is equivalent to obtaining zero cost financing.

The loan portfolio is growing at a steady pace (from $1.5 billion to $65 billion) and cash is piling up in a big way (from $500 million to $30 billion), which reflects prudent management. Indeed, loans are growing much more slowly than deposits. That's the hallmark of a bank that doesn't rush to lend to the first guy who comes along and, no doubt, sets the stage for a future large acquisition. A little bird tells me that Signature has understood that certain states (such as California) are full of wealthy clients and the New York bank has been looking to expand on the West Coast for some time now.

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Source: Signature Bank - Annual Report 2021

Revenues from lending activities have increased 20-fold over the past 15 years (from $100 million to $2 billion), while the net interest margin has followed a roughly similar trajectory. Consulting and proprietary investments contribute one-fifth of overall revenue. Even with frequent stock issuances (stock option payouts), earnings per share increased fifteenfold between 2006 and 2021 (from $1 to $15).

Like a metronome, the bank delivers returns on equity slightly above 10% PER (smoothed over the cycle) with a standard use of leverage. It is worth noting that it has weathered the storm of 2008 perfectly well (unlike most other banks). If we look at recent history, a substantial part of the provisions made during the pandemic should be released as early as this year, and thus give a boost to the consolidated profit.

In terms of valuation, the bank is currently trading at 1.7 times equity value and 7.7 times expected net income next year, which are typical multiples.

However, no other bank has experienced such a growth track record over the last cycle, nor does it have Signature's development prospects

Imagine if management replicated its past cycle performance over the next cycle, the current valuation seems to be an excellent entry point.

In addition to the California expansion, the rise in interest rates is another major catalyst, as it should boost Signature's earnings power very significantly, both in terms of its cash and securities and its loan portfolio. The bank currently holds $30 billion in cash, which earns little or nothing (a 1% increase in rates results in $300 million in additional pre-tax profit on cash alone).In terms of financial performance, Signature combines the best of both banking worlds: on the one hand a well-secured loan portfolio, with a historically very low default rate (except for an isolated episode in 2018) and reduced provisioning requirements, all with a negligible funding rate. On the other hand, its cost structure is reduced to the extreme (activity concentrated on a "high net yield" portfolio).

The prestige of the bank helps with recruitment (this is another dimension of its success and of prestigious financial institutions in general), especially when it serves a wealthy clientele. It attracts the best elements of private bankers with a very low attrition rate: a sign that the corporate culture is healthy (banks with a high turnover is on the contrary a clear sign of a failing corporate culture). This flywheel effect on both employees and clients acts as a virtuous circle that strengthens over time.

Evolution of the income statement in annual data from 2012 to 2024 (actual and estimated):

Source: MarketScreener

The main risk of a stock like this is that the bank's executives could capture most of the value created by the business in bonuses, salaries and other remunerations to the detriment of shareholders. For the moment, their track record pleads in their favor, but one must of course remain vigilant on this point. If the bank is still managed by its founders, their direct participation in the capital remains limited (we would have liked to see more Insider ownership).

Another risk is that the bank has developed a crypto-asset business with nearly 15 billion dollars of deposits linked to these assets, considered speculative.This exposure to a tightening of regulations on crypto-currencies following repeated scandals in this polarized asset class, and/or massive client withdrawals following the bursting of the speculative bubble is to be taken into account, even if this risk is limited to one branch of Signature's activity.

A third risk is that the bank may in fact be a victim of its own success: deposits have grown much faster than loans, and it is not clear that Signature's teams will be as successful if they have to venture outside their historical expertise.

As you can see, Signature Bank is both a growth stock and a value stock that could benefit from the current high interest rate environment. Watch it closely.


© MarketScreener.com 2022
All news about SIGNATURE BANK
09:05aWedbush Cuts Signature Bank's Price Target to $240 From $295, Citing 'Looming Recession..
MT
06/27Raymond James Adjusts Signature Bank's Price Target to $305 from $350, Keeps Strong Buy..
MT
06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell 1000 Growth Index
CI
06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell 2500 Growth Index
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06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell Midcap Growth Index
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06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell 3000E Growth Index
CI
06/24SIGNATURE BANK(NASDAQGS : SBNY) added to Russell 3000 Growth Index
CI
06/17Standard & Poor's 500 Enters Bear Market Territory as Fed Pivot to Price Stability Fuel..
MT
06/13Signature Bank Appoints Five Private Client Banking Teams and Names Group Director to E..
BU
06/13Signature Bank Announces Management Changes
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Analyst Recommendations on SIGNATURE BANK
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Financials (USD)
Sales 2022 2 886 M - -
Net income 2022 1 382 M - -
Net Debt 2022 - - -
P/E ratio 2022 8,08x
Yield 2022 1,25%
Capitalization 11 165 M 11 165 M -
Capi. / Sales 2022 3,87x
Capi. / Sales 2023 3,07x
Nbr of Employees 1 854
Free-Float 98,0%
Upcoming event on SIGNATURE BANK
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 17
Last Close Price 179,21 $
Average target price 328,00 $
Spread / Average Target 83,0%
EPS Revisions
Managers and Directors
Joseph J. DePaolo President, Chief Executive Officer & Director
Stephen Wyremski Chief Financial Officer & Senior Vice President
Scott A. Shay Executive Chairman
Michael Sharkey Chief Operations Officer & Senior Vice President
Eric R. Howell COO, Executive VP-Corporate & Business Development
Sector and Competitors