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SVB Financial (SIVB) Stock Up on Q1 Earnings Beat, Costs Rise
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Shares of SVB Financial Group gained 8.1% in after-market trading following the release of its first-quarter 2022 results. Earnings per share of $7.92 comfortably outpaced the Zacks Consensus Estimate of $5.37. The bottom line reflects a decline of 21% from the prior-year quarter.
Results largely benefited from growth in net interest income (NII) and lower provisions. Loans and deposit balances witnessed sequential improvement in the quarter. However, a rise in expenses, lower net interest margin (NIM) and a fall in fee income were the undermining factors.
Net income available to common shareholders was $472 million, down 11.3% from the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues (tax-equivalent) were $1.61 billion, up 14.1% year over year. The top line surpassed the Zacks Consensus Estimate of $1.43 billion.
NII was $1.08 billion, which grew 63.9% year over year. NIM (on a fully-taxable equivalent basis) contracted 16 basis points (bps) to 2.13%.
Non-interest income was $517 million, down 30.5% from the prior-year quarter. The fall resulted from a decline in net gains on investment securities, net gains on equity warrant assets, investment banking revenues and other revenues.
Non-interest expenses increased 37.3% year over year to $873 million. An increase in all expense components resulted in the rise. Merger-related charges worth $16 million were recorded in the quarter.
The operating efficiency ratio was 54.60%, up from 45.31% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Mar 31, 2022, SVB Financial’s total loans amounted to $68.67 billion, increasing 3.6% from the prior quarter’s level. Total deposits jumped 4.7% sequentially to $198.13 billion.
Credit Quality Improves
In the reported quarter, the company recorded provision for credit losses of $11 million, down 42.1% from the prior-year quarter.
The ratio of allowance for loan losses to total loans was 0.61%, down 21 bps year over year. The ratio of net charge-offs to average loans was 0.05%, down from 0.79% in the year-earlier quarter.
Capital Ratios Mixed, Profitability Ratios Deteriorate
At the end of the first quarter, common equity tier 1 risk-based capital ratio was 12.11% compared with 12.18% at the end of the prior-year quarter. Total risk-based capital ratio was 16.41%, up from 14.62%.
Return on average assets on an annualized basis was 0.89%, down from 1.73% recorded in the year-ago quarter. Return on average equity was 15.28%, which decreased from 27.04%.
2022 Outlook
Average loans are expected to grow in the mid-30s, changed from the prior mentioned low-30s. Average deposit balances are projected to grow in the low-40s.
NII is anticipated to grow in the low-50s, up from the prior guidance of high-30s growth. NIM is projected to be 2.10-2.22%, up from the prior mentioned 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 the mid-40s percentage rate, up from the prior guidance of mid-20s.
SVB Securities revenues are projected to be $500-$550 million, changed from the prior mentioned $625-$675 million.
Non-interest expenses (excluding merger-related charges) are projected to increase in the high-20s, changed from the prior stated low-20s. A total of $40 million worth of pre-tax merger-related charges are anticipated, of which $15 million will be incurred in the second quarter of 2022 and $9 million will be incurred in the second half of the year.
Net loan charge-offs are expected to be 0.15-0.35% of average total loans.
The effective tax rate is expected to be 25-27%.
Our Take
The buyout of Boston Private (July 2021) accentuated SVB Financial’s commitment to the wealth management business. The adoption of Boston Private’s digital platforms will accelerate SVB Financial’s technology development. Moreover, the acquisition of New York-based independent sell-side research firm MoffettNathanson LLC (Dec 2021) will further help SIVB expand into technology investment banking.
Given its global diversification efforts, SVB Financial remains well-positioned for growth. However, the continuous increase in expenses will likely hurt the bottom line to some extent in the near term.
SVB Financial Group Price, Consensus and EPS Surprise
Truist Financial’s (TFC - Free Report) first-quarter 2022 adjusted earnings of $1.23 per share handily surpassed the Zacks Consensus Estimate of $1.12. The bottom line grew 4.2% from the prior-year quarter.
Truist Financial’s results were aided by modest average loan growth and provision benefits. However, lower revenues, a rise in expenses and relatively lower rates were the major headwinds.
U.S. Bancorp (USB - Free Report) reported first-quarter 2022 earnings per share of 99 cents, which beat the Zacks Consensus Estimate of 93 cents. However, the bottom line compares unfavorably with the prior-year quarter’s figure of $1.45.
U.S. Bancorp’s results were supported by an increase in revenues, loan growth and lower non-performing assets. USB’s capital position was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.
Fifth Third Bancorp (FITB - Free Report) reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, missing the Zacks Consensus Estimate of 70 cents. Including the impacts of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.
Fifth Third’s performance displays a revenue decline primarily due to a fall in the fee income. Margin contraction and capital position deterioration played spoilsports for FITB.
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SVB Financial (SIVB) Stock Up on Q1 Earnings Beat, Costs Rise
Shares of SVB Financial Group gained 8.1% in after-market trading following the release of its first-quarter 2022 results. Earnings per share of $7.92 comfortably outpaced the Zacks Consensus Estimate of $5.37. The bottom line reflects a decline of 21% from the prior-year quarter.
Results largely benefited from growth in net interest income (NII) and lower provisions. Loans and deposit balances witnessed sequential improvement in the quarter. However, a rise in expenses, lower net interest margin (NIM) and a fall in fee income were the undermining factors.
Net income available to common shareholders was $472 million, down 11.3% from the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues (tax-equivalent) were $1.61 billion, up 14.1% year over year. The top line surpassed the Zacks Consensus Estimate of $1.43 billion.
NII was $1.08 billion, which grew 63.9% year over year. NIM (on a fully-taxable equivalent basis) contracted 16 basis points (bps) to 2.13%.
Non-interest income was $517 million, down 30.5% from the prior-year quarter. The fall resulted from a decline in net gains on investment securities, net gains on equity warrant assets, investment banking revenues and other revenues.
Non-interest expenses increased 37.3% year over year to $873 million. An increase in all expense components resulted in the rise. Merger-related charges worth $16 million were recorded in the quarter.
The operating efficiency ratio was 54.60%, up from 45.31% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.
Loans and Deposit Balances Increase
As of Mar 31, 2022, SVB Financial’s total loans amounted to $68.67 billion, increasing 3.6% from the prior quarter’s level. Total deposits jumped 4.7% sequentially to $198.13 billion.
Credit Quality Improves
In the reported quarter, the company recorded provision for credit losses of $11 million, down 42.1% from the prior-year quarter.
The ratio of allowance for loan losses to total loans was 0.61%, down 21 bps year over year. The ratio of net charge-offs to average loans was 0.05%, down from 0.79% in the year-earlier quarter.
Capital Ratios Mixed, Profitability Ratios Deteriorate
At the end of the first quarter, common equity tier 1 risk-based capital ratio was 12.11% compared with 12.18% at the end of the prior-year quarter. Total risk-based capital ratio was 16.41%, up from 14.62%.
Return on average assets on an annualized basis was 0.89%, down from 1.73% recorded in the year-ago quarter. Return on average equity was 15.28%, which decreased from 27.04%.
2022 Outlook
Average loans are expected to grow in the mid-30s, changed from the prior mentioned low-30s. Average deposit balances are projected to grow in the low-40s.
NII is anticipated to grow in the low-50s, up from the prior guidance of high-30s growth. NIM is projected to be 2.10-2.22%, up from the prior mentioned 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 the mid-40s percentage rate, up from the prior guidance of mid-20s.
SVB Securities revenues are projected to be $500-$550 million, changed from the prior mentioned $625-$675 million.
Non-interest expenses (excluding merger-related charges) are projected to increase in the high-20s, changed from the prior stated low-20s. A total of $40 million worth of pre-tax merger-related charges are anticipated, of which $15 million will be incurred in the second quarter of 2022 and $9 million will be incurred in the second half of the year.
Net loan charge-offs are expected to be 0.15-0.35% of average total loans.
The effective tax rate is expected to be 25-27%.
Our Take
The buyout of Boston Private (July 2021) accentuated SVB Financial’s commitment to the wealth management business. The adoption of Boston Private’s digital platforms will accelerate SVB Financial’s technology development. Moreover, the acquisition of New York-based independent sell-side research firm MoffettNathanson LLC (Dec 2021) will further help SIVB expand into technology investment banking.
Given its global diversification efforts, SVB Financial remains well-positioned for growth. However, the continuous increase in expenses will likely hurt the bottom line to some extent in the near term.
SVB Financial Group Price, Consensus and EPS Surprise
SVB Financial Group price-consensus-eps-surprise-chart | SVB Financial Group Quote
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
Truist Financial’s (TFC - Free Report) first-quarter 2022 adjusted earnings of $1.23 per share handily surpassed the Zacks Consensus Estimate of $1.12. The bottom line grew 4.2% from the prior-year quarter.
Truist Financial’s results were aided by modest average loan growth and provision benefits. However, lower revenues, a rise in expenses and relatively lower rates were the major headwinds.
U.S. Bancorp (USB - Free Report) reported first-quarter 2022 earnings per share of 99 cents, which beat the Zacks Consensus Estimate of 93 cents. However, the bottom line compares unfavorably with the prior-year quarter’s figure of $1.45.
U.S. Bancorp’s results were supported by an increase in revenues, loan growth and lower non-performing assets. USB’s capital position was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.
Fifth Third Bancorp (FITB - Free Report) reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, missing the Zacks Consensus Estimate of 70 cents. Including the impacts of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.
Fifth Third’s performance displays a revenue decline primarily due to a fall in the fee income. Margin contraction and capital position deterioration played spoilsports for FITB.