SVB Financial Group’s fourth-quarter 2019 earnings of $5.06 per share outpaced the Zacks Consensus Estimate of $4.59. Also, the bottom line was 2% higher than the year-ago quarter’s reported figure.
Results were driven by higher revenues as well as growth in loan and deposit balances. Further, the SVB Leerink acquisition offered support. However, higher non-interest expenses and provisions, along with contracting net interest margin (NIM), were major headwinds.
Net income available to common shareholders was $262.9 million, down 1.3% from the prior-year quarter.
For 2019, earnings per share of $21.73 surpassed the consensus estimate of $21.23 and jumped 20% year over year. Net income available to common shareholders was $1.14 billion, up 16.7%.
Revenues & Expenses Rise
Net revenues were $847 million, increasing 20.8% year over year. Further, the top line surpassed the Zacks Consensus Estimate of $786.8 million.
For 2019, net revenues jumped 25.7% to $3.32 billion. Also, it beat the consensus estimate of $3.24 billion.
Net interest income (NII) was $533.7 million, increasing 3.7% year over year. However, NIM on a fully-taxable equivalent basis, contracted 43 basis points (bps) to 3.26%.
Non-interest income came in at $313.3 million, surging 67.8% year over year. This upswing resulted from rise in all the components of fee income.
Non-interest expenses rose 49.8% to $460.8 million. Increase in all expense resulted in this upside.
Non-GAAP core operating efficiency ratio was 54.40%, up from the prior-year quarter’s 45.42%. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Sep 30, 2019, SVB Financial’s loans, net of unearned income amounted to $33.2 billion, increasing 6.8% from the prior quarter, while total deposits grew 3.7% to $61.8 billion.
Credit Quality: Mixed Bag
The ratio of net charge-offs to average gross loans was 0.18%, down 2 bps. Also, ratio of allowance for loan losses to total gross loans was 0.91%, down 8 bps year over year.
However, provision for credit losses came in at $13.2 million, up 29.6% from the prior-year quarter.
Capital & Profitability Ratios Decline
As of fourth-quarter end, CET 1 risk-based capital ratio was 12.64% compared with 13.41% at the end of prior-year quarter. Total risk-based capital ratio was 14.30% as of Dec 31, 2019, down from 14.45% on Dec 31, 2018.
Return on average assets on an annualized basis was 1.51%, down from the 1.83% recorded in the year-ago quarter. Also, return on average equity was 17.03%, decreasing from 20.61%.
2020 Outlook
Management has provided 2020 guidance based on expectations of no further changes in the Federal Funds rates.
The company projects average loan balance growth in the low-teens, while average deposit balance growth is expected to be in the mid-teens.
Additionally, NII is anticipated to be in the low single digits and NIM is projected to be 3.10-3.20%.
Further, core fee income is expected to grow in the low-double digits. Including the SVB Leerink acquisition, it is likely to increase in the high-single digits.
Non-GAAP non-interest expenses (excluding expenses related to non-controlling interests and including SVB Leerink) are projected to rise in high single digit range.
Notably, net loan charge-offs are projected to be between 0.20% and 0.40% of average total gross loans. Non-performing loans as a percentage of total gross loans are likely to be 0.30-0.50%.
The effective tax rate is expected in the range of 26-28%.
Our Viewpoint
SVB Financial remains well poised to gain from continued growth in loans and deposits. Moreover, its efforts to improve non-interest income are likely to stoke top-line growth. However, mounting non-interest expenses and lower interest rates 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
Commerce Bancshares, Inc.’s (CBSH - Free Report) fourth-quarter 2019 earnings per share of 93 cents surpassed the Zacks Consensus Estimate of 88 cents. The bottom line jumped 2.2% from the prior-year quarter.
Bank OZK’s (OZK - Free Report) fourth-quarter 2019 earnings per share of 78 cents surpassed the Zacks Consensus Estimate of 76 cents. However, the bottom line reflects a decline of 12.4% from the prior-year quarter figure.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.
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SVB Financial Group’s fourth-quarter 2019 earnings of $5.06 per share outpaced the Zacks Consensus Estimate of $4.59. Also, the bottom line was 2% higher than the year-ago quarter’s reported figure.
Results were driven by higher revenues as well as growth in loan and deposit balances. Further, the SVB Leerink acquisition offered support. However, higher non-interest expenses and provisions, along with contracting net interest margin (NIM), were major headwinds.
Net income available to common shareholders was $262.9 million, down 1.3% from the prior-year quarter.
For 2019, earnings per share of $21.73 surpassed the consensus estimate of $21.23 and jumped 20% year over year. Net income available to common shareholders was $1.14 billion, up 16.7%.
Revenues & Expenses Rise
Net revenues were $847 million, increasing 20.8% year over year. Further, the top line surpassed the Zacks Consensus Estimate of $786.8 million.
For 2019, net revenues jumped 25.7% to $3.32 billion. Also, it beat the consensus estimate of $3.24 billion.
Net interest income (NII) was $533.7 million, increasing 3.7% year over year. However, NIM on a fully-taxable equivalent basis, contracted 43 basis points (bps) to 3.26%.
Non-interest income came in at $313.3 million, surging 67.8% year over year. This upswing resulted from rise in all the components of fee income.
Non-interest expenses rose 49.8% to $460.8 million. Increase in all expense resulted in this upside.
Non-GAAP core operating efficiency ratio was 54.40%, up from the prior-year quarter’s 45.42%. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Sep 30, 2019, SVB Financial’s loans, net of unearned income amounted to $33.2 billion, increasing 6.8% from the prior quarter, while total deposits grew 3.7% to $61.8 billion.
Credit Quality: Mixed Bag
The ratio of net charge-offs to average gross loans was 0.18%, down 2 bps. Also, ratio of allowance for loan losses to total gross loans was 0.91%, down 8 bps year over year.
However, provision for credit losses came in at $13.2 million, up 29.6% from the prior-year quarter.
Capital & Profitability Ratios Decline
As of fourth-quarter end, CET 1 risk-based capital ratio was 12.64% compared with 13.41% at the end of prior-year quarter. Total risk-based capital ratio was 14.30% as of Dec 31, 2019, down from 14.45% on Dec 31, 2018.
Return on average assets on an annualized basis was 1.51%, down from the 1.83% recorded in the year-ago quarter. Also, return on average equity was 17.03%, decreasing from 20.61%.
2020 Outlook
Management has provided 2020 guidance based on expectations of no further changes in the Federal Funds rates.
The company projects average loan balance growth in the low-teens, while average deposit balance growth is expected to be in the mid-teens.
Additionally, NII is anticipated to be in the low single digits and NIM is projected to be 3.10-3.20%.
Further, core fee income is expected to grow in the low-double digits. Including the SVB Leerink acquisition, it is likely to increase in the high-single digits.
Non-GAAP non-interest expenses (excluding expenses related to non-controlling interests and including SVB Leerink) are projected to rise in high single digit range.
Notably, net loan charge-offs are projected to be between 0.20% and 0.40% of average total gross loans. Non-performing loans as a percentage of total gross loans are likely to be 0.30-0.50%.
The effective tax rate is expected in the range of 26-28%.
Our Viewpoint
SVB Financial remains well poised to gain from continued growth in loans and deposits. Moreover, its efforts to improve non-interest income are likely to stoke top-line growth. However, mounting non-interest expenses and lower interest rates 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
Commerce Bancshares, Inc.’s (CBSH - Free Report) fourth-quarter 2019 earnings per share of 93 cents surpassed the Zacks Consensus Estimate of 88 cents. The bottom line jumped 2.2% from the prior-year quarter.
Bank OZK’s (OZK - Free Report) fourth-quarter 2019 earnings per share of 78 cents surpassed the Zacks Consensus Estimate of 76 cents. However, the bottom line reflects a decline of 12.4% from the prior-year quarter figure.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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