SVB Financial Group reported first-quarter 2017 earnings per share of $1.91, which handily outpaced the Zacks Consensus Estimate of $1.86. Further, the bottom line compared favorably with the year-ago figure of $1.52.

Better-than-expected results were primarily driven by higher net interest income (NII) and non-interest income. A decline in provision for loan losses was also a positive for the company. Moreover, loan and deposit balances showed strength, while overall credit quality witnessed improvement. However, higher non-interest expense remained a headwind.

Net income available to stockholders was $101.5 million, up 28.2% year over year.

Revenue Growth Offsets Rise in Expenses

SVB Financial’s net revenue for the quarter was $427.7 million, up 16.4% year over year. Further, it surpassed the Zacks Consensus Estimate of $424 million.

NII grew 10.2% year over year to $310 million. Also, net interest margin (NIM), on a fully taxable equivalent basis, increased 21 basis points (bps) year over year to 2.88%.

Non-interest income of $117.7 million increased 36.7% year over year.

Non-interest expense increased 16.5% year over year to $237.6 million. A rise in all expense components except business development and travel, and correspondent bank fees led to this increase.

Non-GAAP operating efficiency ratio increased to 56.35% from 55.05% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Mar 31, 2017, SVB Financial’s net loans amounted to $20.2 billion, up 2.5% from the prior quarter, while total deposits rose 6% to $41.1 billion.

Improved Asset Quality

The ratio of allowance for loan losses to total gross loans came in at 1.18%, down 11 bps year over year. Also, provision for credit losses decreased 8.4% year over year to $30.7 million.

Further, the ratio of net charge-offs to average gross loans came in at 0.25%, down 24 bps year over year.

Profitability and Capital Ratios Improved

As of Mar 31, 2017, CET 1 risk-based capital ratio came in at 13.05% compared with 12.38% as of Mar 31, 2016. Total risk-based capital ratio came in at 14.45% compared with 13.90% as of Mar 31, 2016.

Further, non-GAAP return on average assets on an annualized basis improved to 0.91% from 0.72% in the year-ago quarter. Also, non-GAAP return on average equity was 11.03%, up from 9.59% in the prior-year quarter.

2017 Outlook

SVB Financial provided updated 2017 guidance based on the assumption of no further change in interest rate during the year, after the most recent Mar 2017 hike.  Average loan balance is expected to grow at a percentage rate in the high teens. Further, average deposit balance is projected to rise in the mid-single digits rate.

Further, NII is expected to rise at a percentage rate in the high teens, while NIM is anticipated in the range of 2.90–3.10%.

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.

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

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 the improved rate scenario. However, mounting operating expenses, domestic concentration and stringent regulations will likely weigh on the company’s performance in the near term.
 

SVB Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Zions Bancorporation (ZION Quick QuoteZION - Free Report) reported first-quarter 2017 earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 54 cents. The results largely benefited from top-line growth and decline in provisions, partially offset by higher adjusted non-interest expenses.

First Republic Bank’s first-quarter 2017 earnings per share came in at $1.01, in line with the Zacks Consensus Estimate. The figure improved 8.6% from the year-ago earnings. Higher revenues were primarily responsible for the bottom-line improvement. However, higher expenses and provisions remained a headwind.

Associated Banc-Corp (ASB Quick QuoteASB - Free Report) reported first-quarter 2017 earnings per share of 35 cents, outpacing the Zacks Consensus Estimate of 32 cents. Better-than-expected results were primarily driven by an improvement in revenues and lower expenses.

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