Investment thesis

Signature Bank (NASDAQ: SBNY) is a full-service commercial bank headquartered in New York, United States. In this thesis, I will mainly analyze SBNY Q2 2022 results and future growth bank outlook. I will also analyze SBNY’s gross loan growth. I think SBNY is trading at an attractive valuation with significant growth prospects. I give SBNY a buy rating after analyzing all of these factors.

Q2 2022 results

SBNY reported strong second quarter 2022 results, beating EPS estimates by 4%. Turnover was in line with expectations. SBNY reported one of its best quarters for loan growth. I think the company is effectively improving its loan growth while maintaining the credit quality of the loans.

SBNY reported net interest income (before provisions for credit losses) of $649.1 million, compared to $457.2 million in the second quarter of 2021, a significant increase of 42%. This increase is mainly due to growth in interest-earning assets and higher interest rates. Non-interest revenue jumped 61% from $23.4 million in Q2 2021 to $37.7 million in Q2 2022. The increase was primarily due to higher service charges and fees . SBNY reported a net profit of $339.2 million, a 58% increase from $214.5 million a year ago. This increase is attributable to strong loan growth coupled with higher interest rates. SBNY reported diluted EPS of $5.26, compared to $3.57 in the corresponding quarter last year, an effective increase of 47%. SBNY declared a dividend of $0.56 per share payable August 12, 2022.

Joseph J. DePaolo, President and CEO of Signature Bank, said:

This quarter, we once again achieved a record profit of $339.2 million, achieving our strongest pre-provision net revenue growth of 54%, compared to the same period last year. We attribute this significant earnings growth to all of our businesses, collectively, as no one has gotten us to this point. Going forward, we will continue to take advantage of the many team integration opportunities that exist across our footprint and build on our proven approach to organic growth to continue generating profits, despite challenging times. difficult.

Let’s take a look at the raw evolution of SBNY’s loans. This is the second largest increase in SBNY history in loan amount growth. The gross lending increased by $5.6 billion qoq, from $66.4 billion in the first quarter of 2022 to $72 billion. And, compared to Q2 2022, the gross loan balance increased by $17.5 billion. This increase is very significant compared to industry standards. I think SBNY is on a growth path with steadily improving loan growth.

Overall, SBNY posted robust results with improved interest and non-interest income. SBNY launched New national banking practice, the Healthcare Banking and Finance team, in the second quarter of 2022 to expand its operations and increase deposits and loan balances. It integrated 11 private banking teams to execute this expansion plan. I think this will help SBNY maintain its growth trajectory going forward. Overall, SBNY posted strong results in the second quarter of 2022 with positive future growth prospects.

Key risk Factor

Credit risk: SBNY is involved in the banking industry and credit risk is the most important risk for any bank. Timely repayment and the value of the collateral backing the loan are affected by the borrower’s credit rating and business strength. Delay in repayment of loan and prepayment of loan can negatively affect the estimate of business profit.

Currently, the economy is facing a high inflationary environment which can put pressure on a customer’s margin and profitability. Economic downturn and declining customer revenue can negatively impact business performance. The company has been able to mitigate this risk by following a balanced loan portfolio, but it is a risk that should be considered before taking any position in the company.

Evaluation

SBNY is currently trading at $175.89 with a market cap of $11.07 billion, a P/E multiple of 10.30x. SBNY has seen strong growth in the last quarter, and I believe SBNY will continue to grow in the future. SBNY’s Quantitative SA rating also confirms strong growth ahead, as it has a growing A-factor rating. I estimate EPS for SBNY’s FY22 to be $22.30, giving the leading P/E multiple of 7.89x. After looking at SBNY’s growth prospects, a P/E multiple of 7.89x is inexpensive.

I think SBNY will be trading at a higher P/E multiple to justify the high growth scenario. I estimate that SBNY is trading at a P/E multiple of 11.2x, which gives us a target price of $249.76. This is a 42% increase from current levels.

Conclusion

SBNY posted strong quarterly earnings and has solid growth prospects for the period ahead. SBNY has shown significant loan growth with an effective lending credit profile, which is very attractive to investors in the current economic scenario. SBNY is the perfect combination of a robust growth stock trading at an inexpensive valuation. Thus, I give SBNY a buy rating.