Loans, Fee Income To Aid SVB Financial's (SIVB) Q4 Earnings

SVB Financial Group (NASDAQ:SIVB) is scheduled to announce fourth quarter and 2018 results on Jan 24, after market close. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Higher revenues and loan growth aided the results. However, higher non-interest expenses acted as a headwind.

The company boasts an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, the average beat being 14.1%.

However, activities of the company during the fourth quarter failed to encourage analysts. Thus, the Zacks Consensus Estimate for earnings for the to-be-reported quarter has moved nearly 1% lower to $4.69 over the past 30 days. Nonetheless, the figure represents year-over-year surge of 62.3%.

The consensus estimate for sales for the fourth quarter is $691.1 million, reflecting year-over-year growth of 26.6%.

Factors to Influence Q4 Results

Net interest income (NII) to improve: Per the Fed’s latest data, commercial loans (constituting a major part of SVB Financial’s loan portfolio), as well as real estate loans recorded improvement during the fourth quarter.

The Zacks Consensus Estimate for average interest earning assets of $56.1 billion for the quarter represents rise of 14.6% year over year. This, along with modest loan growth and higher interest rates, will likely support the bank’s NII.

Further, for 2018, management expects NII to rise at a percentage rate in the mid-thirties while net interest margin is anticipated to be 3.55-3.65%.

Fee income to slightly rise: Given the expectation of an increase in deposit balances in the fourth quarter, SVB Financial’s service charge on deposits is likely to improve. Moreover, supported by increase in credit card-related consumer loans during the to-be-reported quarter, the company’s credit card fees are expected to rise.

Thus, SVB Financial’s non-interest income is likely to witness a modest increase in the fourth quarter.

For 2018, the company 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.

Expenses to rise: SVB Financial’s adjusted non-interest expenses are expected to increase in the fourth quarter due to its continued spending on technology systems overhaul and investment in franchise.

Notably, management projects non-interest expenses, net of non-controlling interests to increase at a percentage rate in the mid-teens in 2018.

Asset quality not likely to lend much support: The Zacks Consensus Estimate for allowance for loan losses of $299 million reflects an increase of 17.3% from the year-ago quarter. Further, the consensus estimate for non-performing assets of $121 million indicates a rise of 1.7%.

For 2018, management expects net loan charge-offs 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%.

Here is what our quantitative model predicts:

The chances of SVB Financial beating the Zacks Consensus Estimate in the fourth quarter are low. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for SVB Financial is -0.18%.

Zacks Rank: SVB Financial has a Zacks Rank #3, which increases the predictive power of ESP. But we need to have positive Earnings ESP to be sure of earnings beat.

Stocks That Warrant a Look

Here are a few stocks that you may want to consider, as according to our model, these have the right combination of elements to come up with an earnings beat this quarter.

Huntington Bancshares Incorporated (NASDAQ:HBAN) is slated to release results on Jan 24. It has an Earnings ESP of +3.97% and a Zacks Rank #3.

Prosperity Bancshares, Inc. (NYSE:PB) is slated to announce results on Jan 30. It has an Earnings ESP of +1.11% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ares Capital Corporation (NASDAQ:ARCC) is scheduled to release results on Feb 12. It has an Earnings ESP of +1.10% and carries a Zacks Rank #3.

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