SVB Financial (SIVB) Beats on Q3 Earnings as Revenues Improve

SVB Financial Group’s SIVB third-quarter 2021 adjusted earnings per share of $7.26 comfortably outpaced the Zacks Consensus Estimate of $5.06. In the year-ago quarter, the company recorded earnings of $8.47 per share.

The reported quarter’s earnings figure excluded merger-related charges in connection with Boston Private Financial Holdings but included the day-one provision on non-purchased credit deteriorated loans and unfunded credit commitments acquired in connection with the merger.

Results largely benefited from growth in revenues. Loans and deposit balances witnessed a sequential improvement in the quarter. However, a rise in expenses and lower net interest margin (NIM) were the undermining factors.

Net income available to common shareholders (GAAP basis) was $365 million, down 17.4% from the prior-year quarter’s level.

Revenues Improve, Expenses Rise

Net revenues (tax-equivalent) were $1.53 billion, jumping 41.9% year over year. The top line surpassed the Zacks Consensus Estimate of $1.31 billion.

Net interest income (NII) was $852 million, which grew 61.4% year over year. However, NIM (on a fully-taxable equivalent basis) contracted 58 basis points (bps) to 1.95%.

Non-interest income was $672 million, improving 22.9% from the prior-year quarter’s tally. The upswing resulted from a rise in almost all fee income components, except for net gains on investment securities, client investment fees, investment banking revenues and other income.

Non-interest expenses increased 79% year over year to $879 million. An increase in all expense components resulted in the rise. Merger-related charges worth $83 million were recorded in the quarter.

Operating efficiency ratio was 57.68%, up from 45.66% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Loans and Deposit Balances Increase

As of Sep 30, 2021, SVB Financial’s total loans amounted to $61.5 billion, increasing 21.1% from the prior quarter’s level while total deposits jumped 17.4% sequentially to $171.2 billion.

Credit Quality: A Mixed Bag

In the reported quarter, the company recorded provision for credit losses of $21 million against a reduction for credit losses of $52 million recorded in the prior-year quarter.

However, the ratio of allowance for loan losses to total loans was 0.65%, down 69 bps year over year. The ratio of net charge-offs to average loans was 0.07%, down from 0.26% in the year-earlier quarter.

Capital Ratios Improve, Profitability Ratios Deteriorate

At the end of the third quarter, common equity tier 1 risk-based capital ratio was 12.74% compared with 12.31% at the end of the prior-year quarter. Total risk-based capital ratio was 15.89%, up from 14.19%.

Return on average assets on an annualized basis was 0.79%, down from 1.99% recorded in the year-ago quarter. Return on average equity was 12.47%, which decreased from 24.19%.

2021 Outlook (Including Boston Private Merger)

Average loans are expected to grow in the mid-40s. Average deposit balances are projected to grow in the mid-90s’ range (changed from the previous guidance of low-90s growth).

NII is anticipated to grow in the mid-40s. NIM is projected to be 2.00-2.10%.

Core fee income (including client investment fees, foreign-exchange fees, credit card fees, deposit service charges, lending-related fees, wealth management and trust fees, and letters of credit fees) is expected to increase at a percentage rate in the low twenties (changed from the prior guidance of high teens).

SVB Leerink revenues are projected to be $525-$550 million (changed from the prior guided range of $480-$510 million).

Non-interest expenses (excluding merger-related charges) are projected to increase in the low-40s (changed from the prior guidance of mid-30s).

Net loan charge-offs are expected to be 0.20-0.40% of average total loans.

The effective tax rate is expected to be 25-27%.

Preliminary 2022 Outlook (Including Boston Private Merger)

Average loans are expected to grow in the mid-20s. Average deposit balances are projected to grow in the low-40s.

NII is anticipated to grow in the mid-30s. NIM is projected to be 1.90-2.00%.

Core fee income (including client investment fees, foreign-exchange fees, credit card fees, deposit service charges, lending-related fees, wealth management and trust fees, and letters of credit fees) is expected to increase at a percentage rate in the mid-20s.

SVB Leerink revenues are projected to be $625-$675 million.

Non-interest expenses (excluding merger-related charges) are projected to increase in the low-20s.

Net loan charge-offs are expected to be 0.20-0.40% of average total loans.

The effective tax rate is expected to be 25-27%.

Our Take

On Jul 1, SVB Financial completed the acquisition of Boston Private for $1.2 billion, which accentuated its commitment to the wealth management business. The adoption of Boston Private’s digital platforms will accelerate SVB Financial’s technology development.

Given its global diversification efforts, SVB Financial remains well-positioned for growth. However, the continuous increase in expenses and pressure on margins are major near-term concerns.

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 (NASDAQ:ZION)’s ZION third-quarter 2021 net earnings per share of $1.45 surpassed the Zacks Consensus Estimate of $1.38. The bottom line represents an increase of 43.6% from the year-ago quarter’s number.

Hancock Whitney (NASDAQ:HWC) Corporation’s HWC third-quarter 2021 adjusted earnings of $1.45 per share outpaced the Zacks Consensus Estimate of $1.29. The bottom line improved 61.1% from the prior-year quarter’s figure.

First Horizon (NYSE:FHN) National Corporation’s FHN third-quarter 2021 earnings per share of 50 cents beat the Zacks Consensus Estimate of 41 cents. Results excluded an after-tax impact of 9 cents per share from notable items related to the IBERIABANK Corporation Merger and an early retirement of certain trust-preferred securities.

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