A month has gone by since the last earnings report for SVB Financial . Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SVB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
SVB Financial Q2 Earnings Beat, Provisions Increase
SVB Financial Group’s second-quarter 2020 earnings of $4.42 per share comfortably surpassed the Zacks Consensus Estimate of $2.96. However, the bottom line was down 27.3% year over year.
The results largely benefited from higher fee income, and improving loan and deposit balances. However, higher provisions, increase in operating expenses and contracting net interest margin (NIM) were the undermining factors.
Net income available to common shareholders was $228.9 million, down 28% from the prior-year quarter.
Revenues & Expenses Rise
Net revenues were $881.7 million, increasing 2.1% year over year. Also, the top line beat the Zacks Consensus Estimate of $757.2 million.
NII was $512.9 million, which declined 2.1% year over year. Further, NIM — on a fully-taxable equivalent basis — contracted 88 basis points (bps) to 2.80%.
Non-interest income was $368.8 million, which grew 10.5% from the prior year. The upswing primarily resulted from a drastic improvement in investment banking revenues.
Non-interest expenses increased 25.1% from the prior-year quarter to $479.6 million. Increase in all expense components, except for business development and travel costs, resulted in the upside.
Non-GAAP core operating efficiency ratio was 55.70%, up from the prior-year quarter’s 45.49%. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Jun 30, 2020, SVB Financial’s net loans amounted to $36.7 billion, increasing 1.9% from the prior quarter, while total deposits jumped 20.6% to $74.6 billion.
Credit Quality Deteriorates
Provision for credit losses increased significantly from $23.9 million in the year-ago quarter to $66.5 million. Also, the ratio of allowance for loan losses to total loans was 1.61%, up 58 bps year over year.
However, the ratio of net charge-offs to average loans was 0.12%, down 11 bps year over year.
Capital Ratios Mixed, Profitability Ratios Worsen
At second quarter-end, CET 1 risk-based capital ratio was 12.64% compared with 12.92% at the end of the prior-year quarter. Total risk-based capital ratio was 14.78% as of Jun 30, 2020, up from 13.97% in the corresponding period of 2019.
Return on average assets on an annualized basis was 1.17%, down from 2.10% recorded in the year-ago quarter. Also, return on average equity was 13.36%, which decreased from 23.29% a year ago.
Second-Half 2020 Outlook
Average loans are expected to be stable or slightly down from the second-quarter level. Further, average deposit balances are expected between $71 billion and $74 billion.
NII is anticipated between $1.05 billion and $1.09 billion.
NIM is projected to be 2.70-2.80%. In addition, NIM is expected within 2.75-2.85% for the fourth quarter of 2020. This includes 8-10 bps of favorable impact from estimated PPP forgiveness.
Core fee income (excluding SVB Leerink) is projected in the range of $255-$275 million.
Non-GAAP non-interest expenses (excluding costs related to non-controlling interests) are projected between $900 million and $930 million.
The effective tax rate is expected to be 27-29%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, SVB has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
SVB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is SVB (SIVB) Up 6.5% Since Last Earnings Report?
A month has gone by since the last earnings report for SVB Financial . Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SVB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
SVB Financial Q2 Earnings Beat, Provisions Increase
SVB Financial Group’s second-quarter 2020 earnings of $4.42 per share comfortably surpassed the Zacks Consensus Estimate of $2.96. However, the bottom line was down 27.3% year over year.
The results largely benefited from higher fee income, and improving loan and deposit balances. However, higher provisions, increase in operating expenses and contracting net interest margin (NIM) were the undermining factors.
Net income available to common shareholders was $228.9 million, down 28% from the prior-year quarter.
Revenues & Expenses Rise
Net revenues were $881.7 million, increasing 2.1% year over year. Also, the top line beat the Zacks Consensus Estimate of $757.2 million.
NII was $512.9 million, which declined 2.1% year over year. Further, NIM — on a fully-taxable equivalent basis — contracted 88 basis points (bps) to 2.80%.
Non-interest income was $368.8 million, which grew 10.5% from the prior year. The upswing primarily resulted from a drastic improvement in investment banking revenues.
Non-interest expenses increased 25.1% from the prior-year quarter to $479.6 million. Increase in all expense components, except for business development and travel costs, resulted in the upside.
Non-GAAP core operating efficiency ratio was 55.70%, up from the prior-year quarter’s 45.49%. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Jun 30, 2020, SVB Financial’s net loans amounted to $36.7 billion, increasing 1.9% from the prior quarter, while total deposits jumped 20.6% to $74.6 billion.
Credit Quality Deteriorates
Provision for credit losses increased significantly from $23.9 million in the year-ago quarter to $66.5 million. Also, the ratio of allowance for loan losses to total loans was 1.61%, up 58 bps year over year.
However, the ratio of net charge-offs to average loans was 0.12%, down 11 bps year over year.
Capital Ratios Mixed, Profitability Ratios Worsen
At second quarter-end, CET 1 risk-based capital ratio was 12.64% compared with 12.92% at the end of the prior-year quarter. Total risk-based capital ratio was 14.78% as of Jun 30, 2020, up from 13.97% in the corresponding period of 2019.
Return on average assets on an annualized basis was 1.17%, down from 2.10% recorded in the year-ago quarter. Also, return on average equity was 13.36%, which decreased from 23.29% a year ago.
Second-Half 2020 Outlook
Average loans are expected to be stable or slightly down from the second-quarter level. Further, average deposit balances are expected between $71 billion and $74 billion.
NII is anticipated between $1.05 billion and $1.09 billion.
NIM is projected to be 2.70-2.80%. In addition, NIM is expected within 2.75-2.85% for the fourth quarter of 2020. This includes 8-10 bps of favorable impact from estimated PPP forgiveness.
Core fee income (excluding SVB Leerink) is projected in the range of $255-$275 million.
Non-GAAP non-interest expenses (excluding costs related to non-controlling interests) are projected between $900 million and $930 million.
The effective tax rate is expected to be 27-29%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, SVB has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
SVB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.