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Rate Hikes, Loan Growth Aid SVB Financial (SIVB) Amid Cost Woes

SVB Financial SIVB remains poised for top-line growth supported by higher interest rates, solid loan demand and efforts to improve non-interest income. Strategic acquisitions and global expansion strategy will likely keep aiding the company’s financials.

Analysts seem optimistic regarding SVB Financial’s earnings growth potential. The Zacks Consensus Estimate for its 2022 earnings has been revised marginally upward over the past 30 days.

However, several macroeconomic and geopolitical headwinds continue to weigh on market liquidity flows for “the foreseeable future”, which will likely hamper SIVB’s financials in the upcoming quarters. Moreover, elevated operating expenses are expected to hurt the bottom line. Thus, the company currently carries a Zacks Rank #3 (Hold).

Over the past year, shares of SVB Financial have lost 70.5% compared with the industry's decline of 35.7%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Looking at its fundamentals, SIVB’s net loans witnessed a compound annual growth rate (CAGR) of 41.6% over the last three years (2019-2021). Also, net interest income (NII) and deposits saw a CAGR of 23.1% and 28.5%, respectively, over the same time frame. The uptrend for loans, NII and deposits continued in the first nine months of 2022.

Moreover, with the Federal Reserve raising interest rates, SVB Financial’s net interest margin (NIM) is likely to witness improvement. After slashing rates thrice in 2019, the central bank cut interest rates to near zero in March 2020 to cushion the U.S. economy from the coronavirus-induced mayhem. This hurt the company’s NIM. Nevertheless, the current rising rate environment and steady rise in loan demand are expected to support NIM in the upcoming periods. In the first nine months of 2022, NIM witnessed a year-over-year rise.

SIVB has been undertaking efforts to expand globally. While its U.K. and Asia operations seem to be growing, the businesses in Canada and Germany are expected to further boost revenues. The company’s international (which reflects operations in the U.K., Europe, Israel, Asia and Canada) core fee income witnessed a five-year (ended 2021) CAGR of 34%.

Continuing with its efforts to expand into technology investment banking, SVB Financial acquired technology equity research firm, MoffettNathanson in December 2021. In July 2021, it acquired Boston Private, which is expected to further strengthen its private bank and wealth management offerings. These, along with the past few deals, will keep supporting SVB Financial’s position as one of the foremost providers of financing solutions to innovative companies.

However, over the last five years (2017-2021), SIVB’s non-interest expenses saw a CAGR of 32%, with the uptrend continuing in the first nine months of 2022. The increase was mainly due to a rise in compensation and benefit costs. As the company continues investing in technology upgrades, strategic buyouts and hiring, operating expenses are likely to remain elevated.

Stocks to Consider

A couple of better-ranked stocks from the finance space are S&T Bancorp, Inc. STBA and First Financial Northwest, Inc. FFNW. Both STBA and FFNW currently sport 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 9.1% upward over the past 60 days. Over the past year, STBA’s share price has increased 16.9%.

First Financial Northwest’s current-year earnings estimates have been revised 8.4% upward over the past 60 days. FFNW’s shares have lost 5.6% over the past year.

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SVB Financial Group (SIVB) : Free Stock Analysis Report

S&T Bancorp, Inc. (STBA) : Free Stock Analysis Report

First Financial Northwest, Inc. (FFNW) : Free Stock Analysis Report

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