SVB Financial (SIVB) Q1 Earnings Beat Estimates, Expenses Up

SVB Financial Group’s (NASDAQ:SIVB) first-quarter 2018 earnings of $3.63 per share surpassed the Zacks Consensus Estimate of $3.13. Also, the figure compared favorably with the prior-year quarter’s earnings of $1.91 per share.

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

Net income available to common shareholders was $195 million, up from $101.5 million registered in the prior-year quarter.

Increased Revenues Offset Rise in Expenses

Net revenues for the quarter were $575.5 million, increasing 34.5% year over year. Further, it surpassed the Zacks Consensus Estimate of $535.6 million.

NII for the quarter was $419.9 million, increasing 35.5% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 50 basis points (bps) year over year to 3.38%.

Non-interest income of $155.5 million increased 32.1% year over year.

Non-interest expenses increased 11.7% year over year to $265.4 million. Rise in all expense components, except correspondent bank fees and other expenses, led to this increase.

Non-GAAP operating efficiency ratio was 47.09%, decreasing from 56.35% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Strong Balance Sheet

As of Mar 31, 2018, SVB Financial’s net loans amounted to $24.3 billion, increasing 6.4% from the prior quarter, while total deposits increased 3.8% sequentially to $45.9 billion.

Credit Quality Improves

The ratio of allowance for loan losses to total gross loans was 1.11%, down 7 bps year over year. Also, the ratio of net charge-offs to average gross loans was 0.15%, down from 0.25% registered in the year-ago quarter.

Further, provision for credit losses decreased 8.8% year over year to $28 million.

Capital Ratios Deteriorate, Profitability Ratios Enhance

As of Mar 31, 2018, CET 1 risk-based capital ratio was 12.87% compared with 13.05% as of Mar 31, 2017. Total risk-based capital ratio was 13.99% compared with 14.45% as of Mar 31, 2017.

Non-GAAP return on average assets on an annualized basis improved to 1.51% from 0.91% in the year-ago quarter. Also, non-GAAP return on average equity was 18.12%, increasing from 11.03% in the prior-year quarter.

2018 Outlook

SVB Financial provided the updated 2018 guidance, based on the assumption of no further change in the interest rate during the year. Average loan balance is expected to increase at a percentage rate in the high-teens. Further, average deposit balance is projected to rise in the low-double-digits rate.

Further, NII is expected to rise at a percentage rate in the low thirties while NIM is anticipated to be 3.50-3.60%.

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 twenties.

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

On the credit quality front, net loan charge-offs are expected to be 0.30-0.50% 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 0.50-0.70%.

Effective tax rate is anticipated to be 27.0-30.0%.

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. However, mounting operating expenses are likely to weigh on the company’s performance in the near term. Also, deteriorating asset quality witnessed over the past few years remains a concern.

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

Commerce Bancshares, Inc’s (NASDAQ:CBSH) first-quarter 2018 earnings per share of 92 cents surpassed the Zacks Consensus Estimate of 80 cents. Results primarily benefited from an improvement in both net interest income and non-interest income. However, higher expenses acted as a headwind.

First Republic Bank (NYSE:FRC) registered a positive earnings surprise of 1.29% in first-quarter 2018, reflecting higher revenues. Earnings per share were $1.13, outpacing the Zacks Consensus Estimate of $1.06. Revenues improved from the prior-year quarter. In addition, considerable rise in loans and deposit balances was recorded. However, despite rising rates, net interest margin disappointed on high deposit costs. In addition, higher provisions and expenses were undermining factors.

Zions Bancorporation’s (NASDAQ:ZION) earnings for the first quarter were $1.09 per share, comfortably surpassing the Zacks Consensus Estimate of 83 cents. Results, to a great extent, benefited from improvement in both net interest income and non-interest income. Also, the quarter witnessed overall improvement in credit quality. However, higher adjusted non-interest expenses remained a major headwind.

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