SVB Financial Group’s (SIVB - Free Report) fourth-quarter 2018 adjusted earnings of $5.07 per share easily outpaced the Zacks Consensus Estimate of $4.69. Also, the figure compared favorably with the prior-year quarter’s earnings of $2.19 per share.
Results were primarily driven by increase in revenues, higher interest rates and lower credit cost. Moreover, loan and deposit balances reflected strength. However, higher non-interest expenses acted as a headwind.
Results in the reported quarter excluded legal and consulting fees related to the acquisition of Leerink Holdings LLC. (now SVB Leerink). After considering this, net income available to common shareholders was $266.3 million, up significantly from $117.2 million in the prior-year quarter.
For 2018, earnings of $18.11 per share outpaced the Zacks Consensus Estimate of $17.87. Also, the figure compared favorably with the prior-year quarter’s earnings of $9.20 per share. Net income available to common shareholders was $973.8 million, up 98.5%.
Revenues & Expenses Rise
Net revenues for the quarter were $701.2 million, increasing 28.4% year over year. Further, it beat the Zacks Consensus Estimate of $691.1 million.
Net revenues for 2018 jumped 33.4% to $2.64 million. Further, it surpassed the Zacks Consensus Estimate of $2.61 billion.
Net interest income (NII) for the quarter was $514.5 million, increasing 30.7% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 49 basis points (bps) to 3.69%.
Non-interest income of $186.7 million increased 22.6% year over year. Significant rise in client investment fees was the primary reason for the increase in fee income.
Non-interest expenses rose 16.5% to $307.6 million. Rise in all expense components except FDIC and state assessments costs led to this increase. Notably, the figure in the reported quarter included $8.5 million charges related to the acquisition of SVB Leerink.
Non-GAAP operating efficiency ratio was 44.22%, decreasing from 48.85% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Increase in Loan and Deposit Balances
As of Dec 31, 2018, SVB Financial’s net loans amounted to $28.3 billion, increasing 3.1% from the prior quarter while total deposits grew 1.6% sequentially to $49.3 billion.
Credit Quality Improves
The ratio of allowance for loan losses to total gross loans was 0.99%, down 11 bps year over year. Also, provision for credit losses declined 38.7% to $13.6 million.
Further, the ratio of net charge-offs to average gross loans was 0.20%, down 3 bps from the year-ago quarter.
Capital & Profitability Ratios Improve
As of Dec 31, 2018, CET 1 risk-based capital ratio was 13.41% compared with 12.78% as of Dec 31, 2017. Total risk-based capital ratio was 14.45%, up from 13.96% a year ago.
Return on average assets on an annualized basis improved to 1.83% from 0.92% in the year-ago quarter. Also, return on average equity was 20.61%, increasing from 11.09% in the prior-year quarter.
During the reported quarter, SVB Financial repurchased 0.72 million shares for $147.1 million.
Upbeat 2019 Outlook
Management provided 2019 guidance based on the expectations of no further rise in interest rates and no material deterioration in the overall economy.
The company projects average loan balance growth in the mid-teens while average deposit balance growth is expected to be in the high single digits.
Additionally, NII is anticipated to increase in the high teens and NIM is projected to be in the range of 3.80-3.90%.
Further, core fee income is now expected to grow at the rate of high 60s, up from the prior guidance of growth in mid-teens. This includes impact of the SVB Leerink deal.
Non-GAAP noninterest expenses (excluding expenses related to non-controlling interests) are now projected to increase at the rate of mid-30s, up from earlier outlook of rise in the mid-teens. This includes impact of the SVB Leerink deal.
Notably, net loan charge-offs are projected to be between 0.20% and 0.40% of average total gross loans. Nonperforming loans as a percentage of total gross loans will be in 0.30-0.50% range.
SVB Financial remains well poised to capitalize on future opportunities on the back of its strong capital position and consistent growth in loans and deposits. Moreover, its focus on improving non-interest income is expected to support top-line growth. However, mounting operating expenses and deteriorating asset quality are the 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
Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 4.3% in fourth-quarter 2018, riding on higher revenues. Adjusted earnings per share of 98 cents topped the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 38% from the prior-year quarter.
Signature Bank’s (SBNY - Free Report) fourth-quarter 2018 earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.
People's United Financial Inc. (PBCT - Free Report) reported fourth-quarter 2018 operating earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, the reported figure improved 16% year over year.
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