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SVB Financial (SIVB) Q2 Earnings Beat, Revenues & Costs Rise

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SVB Financial Group’s SIVB second-quarter 2021 earnings per share of $9.09 comfortably outpaced the Zacks Consensus Estimate of $6.48. The bottom line reflected a substantial improvement from $4.42 per share earned in the year-ago quarter. The reported quarter’s results included merger-related charges in connection with Boston Private Financial Holdings.

Results largely benefited from growth in revenues and lower provisions. Loans and deposit balances also witnessed sequential improvement in the quarter. However, a rise in expenses and lower net interest margin (NIM) were the undermining factors.

Net income available to common shareholders was $502 million, up significantly from $229 million recorded in the prior-year quarter.

Revenues Improve, Expenses Rise

Net revenues (tax-equivalent) were $1.50 billion, jumping 68.8% year over year. The top line surpassed the Zacks Consensus Estimate of $1.12 billion.

Net interest income (NII) was $728 million, which grew 41.9% year over year. However, NIM (on a fully-taxable equivalent basis) contracted 74 basis points (bps) to 2.06%.

Non-interest income was $761 million, improving significantly from $369 million in the prior-year quarter. The upswing resulted from a rise in almost all fee income components, except for client investment fees, investment banking revenues and commissions.

Non-interest expenses increased 36% year over year to $653 million. An increase in all expense components, except for net occupancy, and business development and travel costs resulted in the rise. Notably, merger-related charges worth $19 million were recorded in the quarter.

Non-GAAP core operating efficiency ratio was 56.38%, up from 55.70% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Loans and Deposit Balances Increase

As of Jun 30, 2021, SVB Financial’s total loans amounted to $50.8 billion, increasing 6.5% from the prior quarter, while total deposits jumped 17.5% sequentially to $145.8 billion.

Credit Quality Improves

Provision for credit losses was $35 million, down 47% from the year-ago quarter. Also, the ratio of allowance for loan losses to total loans was 0.78%, down 83 bps year over year.

The ratio of net charge-offs to average loans was 0.10%, down from 0.12% in the year-earlier quarter.

Capital Ratios Mixed, Profitability Ratios Improve

At the end of the second quarter, common equity tier 1 risk-based capital ratio was 11.93% compared with 12.63% at the end of the prior-year quarter. Total risk-based capital ratio was 15.53%, up from 14.77%.

Return on average assets on an annualized basis was 1.34%, up from 1.17% recorded in the year-ago quarter. Return on average equity was 21.69%, which increased from 13.36%.

2021 Outlook (Including Boston Private Merger)

Average loans are expected to grow in the mid-40s. Average deposit balances are projected to grow in the low-90s.

NII is anticipated to grow in the mid-40s. NIM is projected to be 2.00-2.10%.

Core fee income (including client investment fees, foreign-exchange fees, credit card fees, deposit service charges, lending-related fees and letters of credit fees) is expected to increase at a percentage rate in the high teens.

SVB Leerink revenues are projected to be $480-$510 million.

Non-interest expenses (excluding merger-related charges) are projected to increase in the mid-30s.

Net loan charge-offs are expected to be 0.20-0.40% of average total loans.

The effective tax rate is expected to be 25-27%.

Our Take

On Jul 1, SVB Financial completed the acquisition of Boston Private for $1.2 billion, which has accentuated its commitment to the wealth management business. The adoption of Boston Private’s digital platforms will accelerate SVB Financial’s technology development.

Given its global diversification efforts, SVB Financial remains well-positioned for growth. However, continuously increasing expenses and pressure on margins are major near-term concerns.

SVB Financial Group Price, Consensus and EPS Surprise

SVB Financial Group Price, Consensus and EPS Surprise
SVB Financial Group Price, Consensus and EPS Surprise

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

SVB Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp FITB reported second-quarter 2021 adjusted earnings of 94 cents per share, beating the Zacks Consensus Estimate of 83 cents. Results compared favorably with the prior-year quarter’s earnings of 23 cents per share.

Comerica CMA delivered a second-quarter 2021 earnings surprise of 43.2%. Earnings per share of $2.32 easily surpassed the Zacks Consensus Estimate of $1.62. The bottom line compared favorably with 84 cents reported in the prior-year quarter.

M&T Bank Corporation MTB reported second-quarter 2021 negative earnings surprise of 6.76%. Net operating earnings per share of $3.45 lagged the Zacks Consensus Estimate of $3.70. The bottom line, however, compared favorably with $1.76 per share reported in the year-ago quarter.

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