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Rate Cuts, Provisions to Mar SVB Financial (SIVB) Q1 Earnings

Zacks Equity Research
·5 min read

SVB Financial Group SIVB is slated to announce first-quarter 2020 results on Apr 23, after the market closes. While the lending backdrop was strong in the first two months of the quarter, the coronavirus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt.

Nevertheless, the overall lending scenario remained decent during the quarter, with commercial loans (constituting major part of SVB Financial’s loan portfolio) having offered some support. The Zacks Consensus Estimate for average interest-earning assets of $67.2 billion suggests 22.3% growth from the prior-year reported figure.

Despite modest growth in loans, SVB Financial’s net interest income (NII) growth is expected to have been weak in the to-be-reported quarter owing to lower interest rates. The Federal Reserve slashed interest rates to near-zero level in March to support the U.S. economy amid coronavirus-induced slowdown. This is expected to have dampened the company’s net interest margin.

The consensus estimate for NII is pegged at $525 million for the first quarter, indicating a rise of 2.4% year over year.

Other Factors at Play

Muted Non-Interest Income Performance: SVB Financial is likely to have witnessed decent growth in credit card-related consumer loans in the first quarter. Supported by this, the company’s credit card fee is expected to have risen. The Zacks Consensus Estimate for credit card fees is pegged at $32.2 million, which indicates growth of 17.2% from the prior-year quarter.

Also, deposit service charges are likely to have been positively impacted by potential increase in deposit balances. The consensus estimate for the same is $24.5 million, suggesting a 17.1% rise on a year-over-year basis.

The consensus estimate for client investment fees of $46.8 million indicates a 5.2% rise from the prior-year quarter. The consensus estimate for foreign exchange fees is pegged at $43.6 million, which indicates 14.5% growth from the year-ago quarter.

However, the consensus estimate for lending-related fees is pegged at $12.9 million, indicating fall of 7.8% from the prior-year quarter. Further, given the decline in M&As during the quarter, investment banking fees are expected to have declined in the to-be-reported quarter. The Zacks Consensus Estimate for the same suggests a 9.6% year-over-year decrease to $45 million.

Therefore, non-interest income is likely to have declined from a year ago. The consensus estimate for the same is pegged at $279 million, suggesting a marginal decline from the prior-year reported figure.

Higher Expenses: SVB Financial’s expenses are likely to have increased in the first quarter, mainly due to continued spending on technology system overhaul and investments in franchise.

Worsening Asset Quality: SVB Financial is likely to have recorded a substantial increase in provision for credit losses, as it is expected to have build reserves to combat coronavirus-induced economic slowdown.

Nonetheless, the Zacks Consensus Estimate for total non-performing assets of $112 million suggests a decrease of 17.6% year over year.

Earnings Whispers

Our quantitative model does not conclusively predict an earnings beat for SVB Financial in the first quarter. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or better increases the odds of an earnings beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Its Earnings ESP is -15.86%.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Q1 Earnings & Sales Expectations

Activities of the company in the first quarter failed to encourage analysts to revise earnings estimates upward. Thus, the Zacks Consensus Estimate for earnings has been downwardly revised by 25.2% over the past 30 days to $3.09 per share. The figure indicates a decline of 43.2% from the year-ago reported number.

The consensus estimate for sales is pegged at $770.9 million, which suggests fall of 2.8% from the prior-year reported figure.

SVB Financial Group Price and EPS Surprise

SVB Financial Group Price and EPS Surprise
SVB Financial Group Price and EPS Surprise

SVB Financial Group price-eps-surprise | SVB Financial Group Quote

Stocks to Consider

Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

People's Utah Bancorp PUB is slated to release quarterly results on Apr 22. It presently has an Earnings ESP of +6.38% and a Zacks Rank #3.

Old Second Bancorp, Inc. OSBC is slated to release quarterly results on Apr 22. It currently has an Earnings ESP of +8.51% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Horizon Bancorp, Inc. HBNC has an Earnings ESP of +10.53% and a Zacks Rank #3 at present. The company is slated to release quarterly results on Apr 29.

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Horizon Bancorp (IN) (HBNC) : Free Stock Analysis Report
 
Old Second Bancorp, Inc. (OSBC) : Free Stock Analysis Report
 
SVB Financial Group (SIVB) : Free Stock Analysis Report
 
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