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SVB Financial (SIVB) Beats on Q3 Earnings, Revenues Grow

SVB Financial Group SIVB reported third-quarter 2017 earnings per share of $2.79, outpacing the Zacks Consensus Estimate of $2.29. Further, the bottom line jumped 31.6% from the year-ago quarter figure.

Results were primarily driven by higher net interest income (NII) and non-interest income. Moreover, loan and deposit balances showed strength. However, higher non-interest expenses acted as a headwind. Also, a rise in provision for credit losses was a negative for the company.

Net income available to stockholders was $148.6 million, increasing 33.8% year over year.

Increased Revenues Offset Rise in Expenses

SVB Financial’s net revenue for the quarter was $532.8 million, increasing nearly 23% year over year. Further, it surpassed the Zacks Consensus Estimate of $490.7 million.

NII grew 29.3% year over year to $374 million. Also, net interest margin (NIM), on a fully taxable equivalent basis, increased 35 basis points (bps) year over year to 3.10%.

Non-interest income of $158.8 million increased 10.2% year over year.

Non-interest expense increased 16.8% year over year to $257.8 million. A rise in all expense components led to this increase.

Non-GAAP operating efficiency ratio was 48.82%, decreasing from 51.45% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Strong Balance Sheet

As of Sep 30, 2017, SVB Financial’s net loans amounted to $21.9 billion, increasing 5.8% from the prior quarter, while total deposits rose 5.5% sequentially to $44.8 billion.

Credit Quality: Mixed Bag

The ratio of allowance for loan losses to total gross loans came in at 1.12%, down 13 bps year over year. Also, the ratio of net charge-offs to average gross loans came in at 0.19%, down from 0.48% registered in the year-ago quarter.

However, provision for credit losses increased 17.6% year over year to $23.5 million.

Profitability and Capital Ratios Enhanced

As of Sep 30, 2017, CET 1 risk-based capital ratio came in at 12.96% compared with 12.75% as of Sep 30, 2016. Total risk-based capital ratio came in at 14.29% compared with 14.22% as of Sep 30, 2016.

Further, non-GAAP return on average assets on an annualized basis improved to 1.18% from 1.02% in the year-ago quarter. Also, non-GAAP return on average equity was 14.59%, increasing from 12.32% 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 low twenties (down from the previous outlook of 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 high teens (up from prior guidance of mid-teens).

Further, non-interest expense, net of non-controlling interests, is projected to increase at a percentage rate in the mid-teens (up from prior guidance of 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 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 Bancorp. ZION reported third-quarter 2017 earnings of 72 cents per share, in line with the Zacks Consensus Estimate. Results to a great extent benefited from improvement in net interest income and lower provisions. Also, loan growth remained strong during the quarter. However, higher adjusted non-interest expenses and lower non-interest income acted as headwinds.

First Republic Bank’s FRC third-quarter 2017 earnings per share came in at $1.14, missing the Zacks Consensus Estimate of $1.16. Despite rising rates, net interest margin disappointed on high deposit costs. However, revenues improved from the prior-year quarter. Additionally, considerable rise in loans and deposit balances were registered.

Associated Banc-Corp ASB reported third-quarter 2017 earnings per share of 41 cents, outpacing the Zacks Consensus Estimate of 36 cents. Results benefited primarily from an improvement in net interest income and lower credit costs. The company also witnessed growth in loans and deposits. However, lower non-interest income and a slight rise in expenses were the headwinds.

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