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Shares of SVB Financial Group lost 8.1% in after-market trading following the release of its second-quarter 2022 results. Earnings per share of $5.60 lagged the Zacks Consensus Estimate of $7.68. The bottom line reflects a decline of 38.4% from the prior-year quarter.
Results were primarily hurt by a decline in non-interest income, higher expenses and provisions. Also, deposit balances witnessed a sequential decline. Nevertheless, driven by higher rates and loan growth, the company witnessed a rise in net interest income (NII), which, along with rising margins, was a positive.
Net income available to common shareholders was $333 million, down 33.7% from the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues (tax-equivalent) were $1.54 billion, up 2.9% year over year. The top line missed the Zacks Consensus Estimate of $1.64 billion.
NII was $1.17 billion, which grew 60.3% year over year. NIM (on a fully-taxable equivalent basis) expanded 18 basis points (bps) year over year to 2.24%.
Non-interest income was $362 million, down 52.4% from the prior-year quarter. The fall resulted from a decline in net gains on equity warrant assets. In the reported quarter, the company recorded a net loss on investment securities against a gain in the year-ago quarter.
Non-interest expenses increased 29.9% year over year to $848 million. An increase in all expense components, except for merger-related charges, resulted in the rise.
The operating efficiency ratio was 55.46%, up from 43.85% in the prior-year quarter. A rise in the efficiency ratio indicates lower profitability.
Loan Balances Rise, Deposits Decline
As of Jun 30, 2022, SVB Financial’s total loans amounted to $70.96 billion, increasing 3.3% from the prior quarter. Total deposits declined 5.1% sequentially to $187.95 billion.
Credit Quality: A Mixed Bag
In the reported quarter, the company recorded a provision for credit losses of $196 million, up significantly from $35 million recorded in the prior-year quarter. The ratio of net charge-offs to average loans was 0.12%, up from 0.10% in the year-earlier quarter.
However, the ratio of allowance for loan losses to total loans was 0.77%, down 1 bp year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
At the end of the second quarter, the common equity tier 1 risk-based capital ratio was 11.98% compared with 11.93% at the end of the prior-year quarter. Total risk-based capital ratio was 16.22%, up from 15.53%.
Return on average assets on an annualized basis was 0.61%, down from 1.34% recorded in the year-ago quarter. Return on average equity was 10.87%, which decreased from 21.69%.
2022 Outlook
Average loans are expected to grow in the high-20s, changed from the prior mentioned mid-30s. Average deposit balances are projected to grow in the high-20s, changed from the prior mentioned low-40s.
NII is anticipated to grow in the mid-40s, down from prior stated low-50s growth. NIM is projected to be 2.15-2.25%, up from the prior mentioned 2.10-2.20%.
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-50s percentage rate, up from the prior mentioned mid-40s.
SVB Securities revenues are projected to be $460-$500 million, changed from the prior mentioned $500-$550 million.
Non-interest expenses (excluding merger-related charges) are projected to increase in the low-20s, changed from the prior stated high-20s. A total of $40 million worth of pre-tax merger-related charges are anticipated, of which $30 million has already been incurred in the first six months of 2022 and $10 million is expected to 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
Given its global diversification efforts, SVB Financial remains well-positioned for growth. The acquisitions of Boston Private, MoffettNathanson and the debt investment business of WestRiver Group are expected to be earnings accretive and will likely help the company further cement its foothold in the innovation economy. 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) second-quarter 2022 adjusted earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.17. However, the bottom line declined 22.6% from the prior-year quarter.
TFC’s results were aided by average loan growth and higher rates, which drove net interest income. However, lower non-interest income and a rise in provisions were major headwinds.
Bank of America’s (BAC - Free Report) second-quarter 2022 earnings of 73 cents per share lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.
As expected, BAC’s investment banking business did not perform well. Also, the asset management business did not offer much support. However, driven by robust loan growth and rising interest rates, the company recorded an improvement in NII. Further, BAC’s trading numbers were good.
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SVB Financial (SIVB) Stock Dips on Q2 Earnings Miss, Costs Rise
Shares of SVB Financial Group lost 8.1% in after-market trading following the release of its second-quarter 2022 results. Earnings per share of $5.60 lagged the Zacks Consensus Estimate of $7.68. The bottom line reflects a decline of 38.4% from the prior-year quarter.
Results were primarily hurt by a decline in non-interest income, higher expenses and provisions. Also, deposit balances witnessed a sequential decline. Nevertheless, driven by higher rates and loan growth, the company witnessed a rise in net interest income (NII), which, along with rising margins, was a positive.
Net income available to common shareholders was $333 million, down 33.7% from the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues (tax-equivalent) were $1.54 billion, up 2.9% year over year. The top line missed the Zacks Consensus Estimate of $1.64 billion.
NII was $1.17 billion, which grew 60.3% year over year. NIM (on a fully-taxable equivalent basis) expanded 18 basis points (bps) year over year to 2.24%.
Non-interest income was $362 million, down 52.4% from the prior-year quarter. The fall resulted from a decline in net gains on equity warrant assets. In the reported quarter, the company recorded a net loss on investment securities against a gain in the year-ago quarter.
Non-interest expenses increased 29.9% year over year to $848 million. An increase in all expense components, except for merger-related charges, resulted in the rise.
The operating efficiency ratio was 55.46%, up from 43.85% in the prior-year quarter. A rise in the efficiency ratio indicates lower profitability.
Loan Balances Rise, Deposits Decline
As of Jun 30, 2022, SVB Financial’s total loans amounted to $70.96 billion, increasing 3.3% from the prior quarter. Total deposits declined 5.1% sequentially to $187.95 billion.
Credit Quality: A Mixed Bag
In the reported quarter, the company recorded a provision for credit losses of $196 million, up significantly from $35 million recorded in the prior-year quarter. The ratio of net charge-offs to average loans was 0.12%, up from 0.10% in the year-earlier quarter.
However, the ratio of allowance for loan losses to total loans was 0.77%, down 1 bp year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
At the end of the second quarter, the common equity tier 1 risk-based capital ratio was 11.98% compared with 11.93% at the end of the prior-year quarter. Total risk-based capital ratio was 16.22%, up from 15.53%.
Return on average assets on an annualized basis was 0.61%, down from 1.34% recorded in the year-ago quarter. Return on average equity was 10.87%, which decreased from 21.69%.
2022 Outlook
Average loans are expected to grow in the high-20s, changed from the prior mentioned mid-30s. Average deposit balances are projected to grow in the high-20s, changed from the prior mentioned low-40s.
NII is anticipated to grow in the mid-40s, down from prior stated low-50s growth. NIM is projected to be 2.15-2.25%, up from the prior mentioned 2.10-2.20%.
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-50s percentage rate, up from the prior mentioned mid-40s.
SVB Securities revenues are projected to be $460-$500 million, changed from the prior mentioned $500-$550 million.
Non-interest expenses (excluding merger-related charges) are projected to increase in the low-20s, changed from the prior stated high-20s. A total of $40 million worth of pre-tax merger-related charges are anticipated, of which $30 million has already been incurred in the first six months of 2022 and $10 million is expected to 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
Given its global diversification efforts, SVB Financial remains well-positioned for growth. The acquisitions of Boston Private, MoffettNathanson and the debt investment business of WestRiver Group are expected to be earnings accretive and will likely help the company further cement its foothold in the innovation economy. 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) second-quarter 2022 adjusted earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.17. However, the bottom line declined 22.6% from the prior-year quarter.
TFC’s results were aided by average loan growth and higher rates, which drove net interest income. However, lower non-interest income and a rise in provisions were major headwinds.
Bank of America’s (BAC - Free Report) second-quarter 2022 earnings of 73 cents per share lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.
As expected, BAC’s investment banking business did not perform well. Also, the asset management business did not offer much support. However, driven by robust loan growth and rising interest rates, the company recorded an improvement in NII. Further, BAC’s trading numbers were good.