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Why is Signature Bank (SBNY) Stock Out of Investor Favor?
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Signature Bank (SBNY - Free Report) has turned out to be one of the worst-performing stocks in the Finance sector this year. So far this year, shares of this bank have plunged 65.5% compared with the industry’s decline of 20.4%. Likewise, the stock is trading way below the Zacks Finance sector and the S&P 500, which have fallen 15.6% and 21%, respectively.
Despite the coronavirus-related mayhem and resultant unfavorable operating backdrop, Signature Bank’s performance was impressive over the last two years. The company’s earnings increased to $15.03 per share in 2021 from the pre-pandemic amount of $10.82 per share in 2019.
The increase was largely driven by tremendous growth in loan demand. In those two years, SBNY’s net loans and lease balance increased 65.7% to $64.4 billion.
However, since the start of 2022, the U.S. economy has been in the grip of 40-year-high inflation. To combat this, the central bank has been raising interest rates beginning this March. Despite higher interest rates, SBNY’s top line started getting affected because of slowed loan demand.
Also, the company witnessed a decline in non-interest-bearing demand deposits. As of Sep 30, 2022, almost 36% of the total deposits were non-interest-bearing, down from 42% at the end of 2021. This put pressure on the company’s net interest margin to some extent.
More so, after achieving significant growth from accepting crypto deposits, Signature Bank announced that it would reduce deposits tied to cryptocurrencies by $8 billion to $10 billion. The move comes in light of falling token prices and the FTX-inflicted turmoil in the cryptocurrency market, which has resulted in significant price volatility for SBNY.
These developments led to bearish investor sentiments and apathy toward the SBNY stock.
YTD Price Performance
Image Source: Zacks Investment Research
SBNY’s significant exposure toward the digital assets market will likely pose a major concern for the company in the coming quarters. Year 2022 has been turbulent for the cryptocurrency market. Tightening monetary policy, the FTX-led chaos and geopolitical pressures led to a major sell-off in the industry. While there is an expectation that the market will be back on its feet, we should not expect to see silver linings any time soon.
Notably, as of Nov 14, 2022, Signature Bank’s deposit balances in the digital asset space amounted to $23.5 billion or roughly 24% of total deposits. Signature Bank is one of the only federally regulated U.S. banks known to have accepted large-scale crypto deposits and crypto exchanges, stablecoin issuers, and bitcoin miners as customers.
While inflation is cooling down, the Fed is unlikely to stop raising rates (although the pace of the interest rate hikes has slowed). In December, the central bank raised interest rates by 50 bps after four consecutive 75-bps hikes. The Fed is projecting at least another 75-bps of rate hikes, peaking at 5.1% by the end of 2023.
The macroeconomic developments have raised the risk of a recession in the next six-nine months. Thus, it is going to be a tough time ahead for Signature Bank.
Analysts are also bearish on this Zacks Rank #5 (Strong Sell) stock. Over the past 30 days, the Zacks Consensus Estimate for SBNY’s 2022 and 2023 earnings has moved 1% and 9.1% lower, respectively.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 2.1% upward over the past 60 days. Over the past three months, STBA’s share price has increased 17%.
Mid Penn Bancorp’s current-year earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 5.1% over the past three months.
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Why is Signature Bank (SBNY) Stock Out of Investor Favor?
Signature Bank (SBNY - Free Report) has turned out to be one of the worst-performing stocks in the Finance sector this year. So far this year, shares of this bank have plunged 65.5% compared with the industry’s decline of 20.4%. Likewise, the stock is trading way below the Zacks Finance sector and the S&P 500, which have fallen 15.6% and 21%, respectively.
Despite the coronavirus-related mayhem and resultant unfavorable operating backdrop, Signature Bank’s performance was impressive over the last two years. The company’s earnings increased to $15.03 per share in 2021 from the pre-pandemic amount of $10.82 per share in 2019.
The increase was largely driven by tremendous growth in loan demand. In those two years, SBNY’s net loans and lease balance increased 65.7% to $64.4 billion.
However, since the start of 2022, the U.S. economy has been in the grip of 40-year-high inflation. To combat this, the central bank has been raising interest rates beginning this March. Despite higher interest rates, SBNY’s top line started getting affected because of slowed loan demand.
Also, the company witnessed a decline in non-interest-bearing demand deposits. As of Sep 30, 2022, almost 36% of the total deposits were non-interest-bearing, down from 42% at the end of 2021. This put pressure on the company’s net interest margin to some extent.
More so, after achieving significant growth from accepting crypto deposits, Signature Bank announced that it would reduce deposits tied to cryptocurrencies by $8 billion to $10 billion. The move comes in light of falling token prices and the FTX-inflicted turmoil in the cryptocurrency market, which has resulted in significant price volatility for SBNY.
These developments led to bearish investor sentiments and apathy toward the SBNY stock.
YTD Price Performance
Image Source: Zacks Investment Research
SBNY’s significant exposure toward the digital assets market will likely pose a major concern for the company in the coming quarters. Year 2022 has been turbulent for the cryptocurrency market. Tightening monetary policy, the FTX-led chaos and geopolitical pressures led to a major sell-off in the industry. While there is an expectation that the market will be back on its feet, we should not expect to see silver linings any time soon.
Notably, as of Nov 14, 2022, Signature Bank’s deposit balances in the digital asset space amounted to $23.5 billion or roughly 24% of total deposits. Signature Bank is one of the only federally regulated U.S. banks known to have accepted large-scale crypto deposits and crypto exchanges, stablecoin issuers, and bitcoin miners as customers.
While inflation is cooling down, the Fed is unlikely to stop raising rates (although the pace of the interest rate hikes has slowed). In December, the central bank raised interest rates by 50 bps after four consecutive 75-bps hikes. The Fed is projecting at least another 75-bps of rate hikes, peaking at 5.1% by the end of 2023.
The macroeconomic developments have raised the risk of a recession in the next six-nine months. Thus, it is going to be a tough time ahead for Signature Bank.
Analysts are also bearish on this Zacks Rank #5 (Strong Sell) stock. Over the past 30 days, the Zacks Consensus Estimate for SBNY’s 2022 and 2023 earnings has moved 1% and 9.1% lower, respectively.
Bank Stocks Worth Considering
A couple of bank stocks worth a look are S&T Bancorp (STBA - Free Report) and Mid Penn Bancorp (MPB - Free Report) . STBA currently carries a Zacks Rank #2 (Buy) and MPB sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for S&T Bancorp’s current-year earnings has been revised 2.1% upward over the past 60 days. Over the past three months, STBA’s share price has increased 17%.
Mid Penn Bancorp’s current-year earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 5.1% over the past three months.