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SVB (SIVB) Up 7.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for SVB Financial (SIVB - Free Report) . Shares have added about 7.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SVB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

SVB Financial Q4 Earnings & Revenues Beat Estimates

SVB Financial Group’s 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’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.

Share Repurchases

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 non-interest expenses (excluding expenses related to non-controlling interests) are now projected to increase at the rate of mid-30s, up from the 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. Non-performing loans, as a percentage of total gross loans, will be in the 0.30-0.50% range.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, SVB has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

SVB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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