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SVB Financial (SIVB) Beats on Q2 Earnings, Provisions Fall

SVB Financial Group SIVB reported second-quarter 2017 earnings per share of $2.32, outpacing the Zacks Consensus Estimate of $2.05. Further, the bottom line jumped 30.3% from the year-ago figure.

The results were primarily driven by higher net interest income (NII) and non-interest income. A decline in provision for credit losses was also a positive for the company. Moreover, loan and deposit balances showed strength, and overall credit quality witnessed improvement. However, higher non-interest expense remained a headwind.

Net income available to stockholders was $123.2 million, up 32.5% year over year.

Increased Revenue Offsets Rise in Expenses

SVB Financial’s net revenue for the quarter was $471.2 million, up 19% year over year. Further, it surpassed the Zacks Consensus Estimate of $452.9 million.

NII grew 21% year over year to $342.7 million. Also, net interest margin (NIM), on a fully taxable equivalent basis, increased 27 basis points (bps) year over year to 3%.

Non-interest income of $128.5 million increased 13.9% year over year.

Non-interest expense increased 25.7% year over year to $251.2 million. A rise in all expense components led to this increase.

Non-GAAP operating efficiency ratio increased to 54.32% from 50.58% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Jun 30, 2017, SVB Financial’s net loans amounted to $20.7 billion, up 2.5% from the prior quarter, while total deposits rose 3.4% to $41.1 billion.

Enhanced Asset Quality

The ratio of allowance for loan losses to total gross loans came in at 1.12%, down 17 bps year over year. Also, provision for credit losses decreased 56.9% year over year to $15.8 million.

However, the ratio of net charge-offs to average gross loans came in at 0.44%, up 1 basis point year over year.

Profitability and Capital Ratios Enhanced

As of Jun 30, 2017, CET 1 risk-based capital ratio came in at 13.05% compared with 12.43% as of Jun 30, 2016. Total risk-based capital ratio came in at 14.39% compared with 13.92% as of Jun 30, 2016.

Further, non-GAAP return on average assets on an annualized basis improved to 1.04% from 0.86% in the year-ago quarter. Also, non-GAAP return on average equity was 12.75%, up from 10.83% in the prior-year quarter.

2017 Outlook

SVB Financial provided the updated 2017 guidance based on the assumption of no further change in interest rate during the year. Average loan balance is expected to grow at a percentage rate in the mid teens. Further, average deposit balance is projected to rise in the high single-digits rate.

Further, NII is expected to rise at a percentage rate in the high teens to low twenties, while NIM is anticipated in the range of 3.00–3.10%.

Moreover, the company anticipates core fee income, including foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees as well as letters of credit fees, to increase at a percentage rate in the mid teens.

Further, non-interest expense, net of non-controlling interests, is projected to increase at a percentage rate in the low teens.

On the credit quality front, net loan charge-offs are expected in the range of 0.3–0.5% 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 in the range of 0.60–0.80%.

Our Viewpoint

The company remains well positioned to capitalize on future opportunities on the back of its sturdy capital position and consistent growth in loans and deposits. Moreover, its focus on improving non-interest income is expected to support top-line growth. Also, it remains well positioned to benefit from an improved rate scenario. However, mounting operating expenses will likely weigh on the company’s performance in the near term.

SVB Financial Group Price, Consensus and EPS Surprise

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

Zions Bancorporation ZION reported second-quarter 2017 earnings of 73 cents per share, surpassing the Zacks Consensus Estimate of 62 cents. The results largely benefited from top-line growth and decline in provisions, partially offset by higher adjusted non-interest expenses.

First Republic Bank’s FRC second-quarter 2017 earnings per share came in at $1.06, missing the Zacks Consensus Estimate of $1.09. Higher revenues led to bottom-line improvement from the year-ago quarter. In addition, considerable rise in loans and deposit balances were recorded. Non-performing assets also declined. On the other hand, higher expenses and provisions were headwinds.

Associated Banc-Corp ASB reported second-quarter 2017 earnings per share of 36 cents, in line with the Zacks Consensus Estimate. Results benefited primarily from an improvement in revenues but were partially offset by higher expenses.

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