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SVB Financial (SIVB) Q3 Earnings & Revenues Beat, Costs Rise

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SVB Financial Group’s SIVB third-quarter 2018 earnings of $5.10 per share significantly outpaced the Zacks Consensus Estimate of $4.44. Also, the figure compared favorably with the prior-year quarter’s earnings of $2.79 per share.

Results were primarily driven by higher net interest income (NII), non-interest income and lower credit cost. Moreover, loan and deposit balances reflected strength. However, higher non-interest expenses acted as a headwind.
Net income available to common shareholders was $274.8 million, up from $148.6 million registered in the prior-year quarter.

Increased Revenues Offset Rise in Expenses

Net revenues were $703.3 million, surging 32% year over year. Further, it beat the Zacks Consensus Estimate of $664.5 million.

NII for the quarter was $493.2 million, increasing 31.9% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 52 basis points (bps) to 3.62%.

Non-interest income of $210.1 million jumped 32.3% year over year.

Non-interest expenses increased 20% to $309.4 million. Rise in all expense components led to this increase.

Non-GAAP operating efficiency ratio was 44.22%, decreasing from 48.82% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Strong Loan and Deposit Balances

As of Sep 30, 2018, SVB Financial’s net loans amounted to $27.5 billion, increasing 5.8% from the prior quarter, while total deposits declined0.6% sequentially to $48.6 billion.

Credit Quality: A Mixed Bag

The ratio of allowance for loan losses to total gross loans was 1.03%, down 9 bps year over year. Also, provision for credit losses declined 26.8% to $17.2 million.

However, the ratio of net charge-offs to average gross loans was 0.30%, up from 0.19% registered in the year-ago quarter.

Capital & Profitability Ratios Improve

As of Sep 30, 2018, CET 1 risk-based capital ratio was 13.28% compared with 12.96% as of Sep 30, 2017. Total risk-based capital ratio was 14.34%, up from 14.29% a year ago.

Return on average assets on an annualized basis improved to 1.96% from 1.18% in the year-ago quarter. Also, return on average equity was 22.46%, increasing from 14.59% in the prior-year quarter.

Upbeat 2018 Outlook

SVB Financial provided the updated 2018 guidance, based on the assumption of no further change in the interest rate during the year. Average loan balance is now expected to increase at a percentage rate in the low twenties (up from prior guidance of high-teens). Further, average deposit balance is now projected to rise in the low-teens.

Further, NII is expected to rise at a percentage rate in the mid-thirtieswhile NIM is anticipated to be 3.55-3.65%.

Moreover, the company now anticipates core fee income, including foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees to increase at a percentage rate in the mid-thirties (up from low thirties guidance previously provided).

Further, non-interest expenses, net of non-controlling interests, areprojected to increase at a percentage rate in the mid-teens (increasing from the low teens rate).

On the credit quality front, net loan charge-offs are expected to be 0.20-0.40%of average total gross loans. Allowance for loan losses for total gross performing loans, as a percentage of total gross performing loans, is expected to remain flat year over year.

Non-performing loans, as a percentage of total gross loans, are anticipated to be 0.40-0.60%.

Effective tax rate is anticipated to be 26.0-28.0%.

Preliminary 2019 Outlook

Management provided preliminary 2019 guidance based on the expectations of no further rise in interest rates and no material deterioration in the overall economy.

The company projects average loan balance growth in the mid-teens, while average deposit balance growth is expected to be in the high single digits.

Additionally, NII is anticipated to increase in the high teens (assuming no Federal Reserve rate increases) and core fee income growth is expected to be in mid-teens.

Further, non-GAAP noninterest expense growth (excluding expenses related to non-controlling interests) will likely be in the mid-teens.

Notably, net loan charge-offs is projected to be between 0.20% and 0.40% of average total gross loans.

Our Viewpoint

SVB Financial remains well poised to capitalize on future opportunities on the back of its strong capital position and consistent growth in loans and deposits. Moreover, its focus on improving non-interest income is expected to support top-line growth. However, mounting operating expenses and deteriorating asset quality are the major near-term concerns.

SVB Financial Group Price, Consensus and EPS Surprise

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

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

Performance of Other Banks

First Republic Bank’s FRC third-quarter 2018 earnings per share came in at $1.19, missing the Zacks Consensus Estimate by a penny. However, the reported figure increased 1.7% from the year-ago tally.

East West Bancorp’s EWBC third-quarter 2018 adjusted earnings per share of $1.17 surpassed the Zacks Consensus Estimate of $1.15. Further, the figure compares favorably with the prior-year quarter’s adjusted earnings of 91 cents per share.

Zions Bancorporation ZION announced third-quarter 2018 earnings of $1.04 per share, which handily surpassed the Zacks Consensus Estimate of 96 cents. Also, the figure compares favorably with the prior-year quarter’s earnings of 72 cents.

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