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SVB Financial (SIVB) Beats on Q1 Earnings, Stock Down 3.8%
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SVB Financial Group’s first-quarter 2019 earnings of $5.44 per share easily outpaced the Zacks Consensus Estimate of $4.73. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $3.63 per share.
Results were primarily driven by an increase in revenues, partly offset by higher expenses and rise in provisions. Moreover, the balance sheet position remained strong. Notably, the impact of the acquisition of Leerink Holdings (SVB Leerink), completed during the reported quarter, were included within the results.
Following the release, shares of SVB Financial lost almost 3.8% in after-market trading.
Net income available to common shareholders was $288.7 million, up from $195 million in the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues for the reported quarter were $793.3 million, increasing 37.9% year over year. Further, the top line beat the Zacks Consensus Estimate of $744.5 million.
Net interest income (NII) was $512.9 million, increasing 22.2% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 43 basis points (bps) to 3.81%.
Non-interest income of $280.4 million increased 80.3% year over year. All fee income components except for other income witnessed a rise.
Non-interest expenses rose 37.8% to $365.7 million. Rise in all expense components except for FDIC and state assessments costs led to this increase.
Non-GAAP core operating efficiency ratio was 44.71%, decreasing from 48.41% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Loans and Deposit Balances Increase
As of Mar 31, 2019, SVB Financial’s loans, net of unearned income amounted to $28.9 billion, increasing 1.8% from the prior quarter while total deposits grew 6.1% sequentially to $52.3 billion.
Credit Quality: A Mixed Bag
The ratio of allowance for loan losses to total gross loans was 1.03%, down 8 bps year over year. Further, the ratio of net charge-offs to average gross loans was 0.11%, down 4 bps from the year-ago quarter.
However, provision for credit losses increased 2.1% year over year to $28.6 million.
Capital Ratios Deteriorate, Profitability Ratios Improve
As of Mar 31, 2019, CET 1 risk-based capital ratio was 12.77% compared with 12.87% as of Mar 31, 2018. Total risk-based capital ratio was 13.81%, down from 13.99% a year ago.
Return on average assets on an annualized basis improved to 2.04% from 1.51% in the year-ago quarter. Also, return on average equity was 22.16%, increasing from 18.12% in the prior-year quarter.
Share Repurchases
During the reported quarter, SVB Financial repurchased 0.49 million shares for $116 million.
Upbeat 2019 Outlook
Management provided 2019 guidance based on expectations of no further rise in interest rates.
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 mid-teens (down from previous outlook of high teens) and NIM is projected to be in the range of 3.70-3.80% (down from previous range of 3.80-3.90%).
Further, core fee income is expected to grow at the rate of low-20s, up from the prior guidance of growth in high-teens. Including the expected results of the SVB Leerink acquisition, it is now expected to grow at the rate of low-70s, up from the prior guidance of growth in high-60s.
Non-GAAP non-interest expenses (excluding expenses related to non-controlling interests) are projected to increase at the rate of low teens, down from previous guidance of mid-teens. Including the impact of the SVB Leerink acquisition, it is now projected to increase at the rate of mid-30s.
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 likely be 0.30-0.50%.
The effective tax rate is expected to be in the range of 26-28%.
Our Viewpoint
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 higher debt obligation are the major near-term concerns.
SVB Financial Group Price, Consensus and EPS Surprise
Washington Federal’s (WAFD - Free Report) second-quarter fiscal 2019 (ended Mar 31) earnings were 63 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.5%.
Hancock Whitney Corporation’s (HWC - Free Report) first-quarter 2019 operating earnings per share of $1 surpassed the Zacks Consensus Estimate of 98 cents. Further, the reported figure was 11.1% higher than the year-ago figure.
Ally Financial Inc.’s (ALLY - Free Report) first-quarter 2019 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 68 cents.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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SVB Financial (SIVB) Beats on Q1 Earnings, Stock Down 3.8%
SVB Financial Group’s first-quarter 2019 earnings of $5.44 per share easily outpaced the Zacks Consensus Estimate of $4.73. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $3.63 per share.
Results were primarily driven by an increase in revenues, partly offset by higher expenses and rise in provisions. Moreover, the balance sheet position remained strong. Notably, the impact of the acquisition of Leerink Holdings (SVB Leerink), completed during the reported quarter, were included within the results.
Following the release, shares of SVB Financial lost almost 3.8% in after-market trading.
Net income available to common shareholders was $288.7 million, up from $195 million in the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues for the reported quarter were $793.3 million, increasing 37.9% year over year. Further, the top line beat the Zacks Consensus Estimate of $744.5 million.
Net interest income (NII) was $512.9 million, increasing 22.2% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 43 basis points (bps) to 3.81%.
Non-interest income of $280.4 million increased 80.3% year over year. All fee income components except for other income witnessed a rise.
Non-interest expenses rose 37.8% to $365.7 million. Rise in all expense components except for FDIC and state assessments costs led to this increase.
Non-GAAP core operating efficiency ratio was 44.71%, decreasing from 48.41% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Loans and Deposit Balances Increase
As of Mar 31, 2019, SVB Financial’s loans, net of unearned income amounted to $28.9 billion, increasing 1.8% from the prior quarter while total deposits grew 6.1% sequentially to $52.3 billion.
Credit Quality: A Mixed Bag
The ratio of allowance for loan losses to total gross loans was 1.03%, down 8 bps year over year. Further, the ratio of net charge-offs to average gross loans was 0.11%, down 4 bps from the year-ago quarter.
However, provision for credit losses increased 2.1% year over year to $28.6 million.
Capital Ratios Deteriorate, Profitability Ratios Improve
As of Mar 31, 2019, CET 1 risk-based capital ratio was 12.77% compared with 12.87% as of Mar 31, 2018. Total risk-based capital ratio was 13.81%, down from 13.99% a year ago.
Return on average assets on an annualized basis improved to 2.04% from 1.51% in the year-ago quarter. Also, return on average equity was 22.16%, increasing from 18.12% in the prior-year quarter.
Share Repurchases
During the reported quarter, SVB Financial repurchased 0.49 million shares for $116 million.
Upbeat 2019 Outlook
Management provided 2019 guidance based on expectations of no further rise in interest rates.
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 mid-teens (down from previous outlook of high teens) and NIM is projected to be in the range of 3.70-3.80% (down from previous range of 3.80-3.90%).
Further, core fee income is expected to grow at the rate of low-20s, up from the prior guidance of growth in high-teens. Including the expected results of the SVB Leerink acquisition, it is now expected to grow at the rate of low-70s, up from the prior guidance of growth in high-60s.
Non-GAAP non-interest expenses (excluding expenses related to non-controlling interests) are projected to increase at the rate of low teens, down from previous guidance of mid-teens. Including the impact of the SVB Leerink acquisition, it is now projected to increase at the rate of mid-30s.
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 likely be 0.30-0.50%.
The effective tax rate is expected to be in the range of 26-28%.
Our Viewpoint
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 higher debt obligation are the major near-term concerns.
SVB Financial Group Price, Consensus and EPS Surprise
SVB Financial Group Price, Consensus and EPS Surprise | 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
Washington Federal’s (WAFD - Free Report) second-quarter fiscal 2019 (ended Mar 31) earnings were 63 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflected year-over-year growth of 10.5%.
Hancock Whitney Corporation’s (HWC - Free Report) first-quarter 2019 operating earnings per share of $1 surpassed the Zacks Consensus Estimate of 98 cents. Further, the reported figure was 11.1% higher than the year-ago figure.
Ally Financial Inc.’s (ALLY - Free Report) first-quarter 2019 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 68 cents.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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