It has been about a month since the last earnings report for SVB Financial (SIVB). Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SVB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
SVB Financial Q4 Earnings & Revenues Beat Estimates
SVB Financial’s fourth-quarter 2019 earnings of $5.06 per share outpaced the Zacks Consensus Estimate of $4.59. Also, the bottom line was 2% higher than the year-ago quarter’s reported figure.
Results were driven by higher revenues as well as growth in loan and deposit balances. Further, the SVB Leerink acquisition offered support. However, higher non-interest expenses and provisions along with contracting NIM were major headwinds.
Net income available to common shareholders was $262.9 million, down 1.3% from the prior-year quarter.
For 2019, earnings per share of $21.73 surpassed the consensus estimate of $21.23 and jumped 20% year over year. Net income available to common shareholders was $1.14 billion, up 16.7%.
Revenues & Expenses Rise
Net revenues were $847 million, increasing 20.8% year over year. Further, the top line surpassed the Zacks Consensus Estimate of $786.8 million.
For 2019, net revenues jumped 25.7% to $3.32 billion. Also, it beat the consensus estimate of $3.24 billion.
Net interest income was $533.7 million, increasing 3.7% year over year. However, NIM on a fully-taxable equivalent basis contracted 43 basis points (bps) to 3.26%.
Non-interest income was $313.3 million, surging 67.8% year over year. The upswing resulted from rise in all the components of fee income.
Non-interest expenses rose 49.8% to $460.8 million. Increase in all expenses resulted in the upside.
Non-GAAP core operating efficiency ratio was 54.40%, up from the prior-year quarter’s 45.42%. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Sep 30, 2019, SVB Financial’s loans, net of unearned income amounted to $33.2 billion, increasing 6.8% from the prior quarter, while total deposits grew 3.7% to $61.8 billion.
Credit Quality: Mixed Bag
The ratio of net charge-offs to average gross loans was 0.18%, down 2 bps. Also, ratio of allowance for loan losses to total gross loans was 0.91%, down 8 bps year over year.
However, provision for credit losses was $13.2 million, up 29.6% from the prior-year quarter.
Capital & Profitability Ratios Decline
As of fourth-quarter end, CET 1 risk-based capital ratio was 12.64% compared with 13.41% at the end of the prior-year quarter. Total risk-based capital ratio was 14.30% as of Dec 31, 2019, down from 14.45% on Dec 31, 2018.
Return on average assets on an annualized basis was 1.51%, down from the 1.83% recorded in the year-ago quarter. Also, return on average equity was 17.03%, decreasing from 20.61%.
Management provided 2020 guidance based on expectations of no further changes in the Federal Funds rates.
The company projects average loan balance growth in the low-teens, while average deposit balance growth is expected to be in the mid-teens.
Additionally, NII is anticipated to rise in low-single digits and NIM is projected to be 3.10-3.20%.
Further, core fee income is expected to grow in low-double digits. Including the SVB Leerink acquisition, it is likely to increase in high-single digits.
Non-GAAP non-interest expenses (excluding expenses related to non-controlling interests and including SVB Leerink) are projected to rise in the high-single-digit range.
Notably, net loan charge-offs are projected to be between 0.20% and 0.40% of average total gross loans. Non-performing loans as a percentage of total gross loans are likely to be 0.30-0.50%.
The effective tax rate is expected in the range of 26-28%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
Currently, SVB has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SVB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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