SVB Financial (SIVB) Tops Q2 Earnings & Revenue Estimates

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SVB Financial Group 's SIVB second-quarter 2018 earnings of $4.42 per share significantly outpaced the Zacks Consensus Estimate of $3.86. Also, the figure compared favorably with the prior-year quarter's earnings of $2.32 per share.

Results were primarily driven by higher net interest income (NII) and non-interest income. Moreover, loan and deposit balances reflected strength. However, higher non-interest expenses and a drastic surge in provision for credit losses acted as headwinds.

Net income available to common shareholders was $237.8 million, up from $123.2 million registered in the prior-year quarter.

Increased Revenues Offset Rise in Expenses

Net revenues for the quarter were $659.1 million, surging 39.9% year over year. Further, it beat the Zacks Consensus Estimate of $613.5 million.

NII for the quarter was $466.4 million, increasing 36.1% year over year. Also, net interest margin (NIM), on a fully-taxable equivalent basis, expanded 59 basis points (bps) to 3.59%.

Non-interest income of $192.7 million jumped 50% year over year.

Non-interest expenses increased 21.7% year over year to $305.7 million. Rise in all expense components, except other expenses, led to this increase.

Non-GAAP operating efficiency ratio was 46.88%, decreasing from 54.32% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Loans and Deposits Improve

As of Jun 30, 2018, SVB Financial's net loans amounted to $26 billion, increasing 5.7% from the prior quarter, while total deposits grew 6.4% sequentially to $48.9 billion.

Credit Quality: A Mixed Bag

The ratio of allowance for loan losses to total gross loans was 1.10%, down 2 bps year over year. Also, the ratio of net charge-offs to average gross loans was 0.22%, down from 0.44% registered in the year-ago quarter.

However, provision for credit losses surged 84.2% year over year to $29.1 million.

Capital Ratios Deteriorate, Profitability Ratios Improve

As of Jun 30, 2018, CET 1 risk-based capital ratio was 12.92% compared with 13.05% as of Jun 30, 2017. Total risk-based capital ratio was 14.03% compared with 14.39% a year ago.

Non-GAAP return on average assets on an annualized basis improved to 1.75% from 1.04% in the year-ago quarter. Also, non-GAAP return on average equity was 20.82%, increasing from 12.75% in the prior-year quarter.

Upbeat 2018 Outlook

SVB Financial provided the updated 2018 guidance, based on the assumption of no further change in the interest rate during the year. Average loan balance is expected to increase at a percentage rate in the high-teens. Further, average deposit balance is now projected to rise in the low-teens, up from the prior guidance of low-double-digits rate.

Further, NII is expected to rise at a percentage rate in the mid-thirties (up from low thirties) while NIM now is anticipated to be 3.55-3.65% (increasing from 3.50-3.60% range).

Moreover, the company now anticipates core fee income, including foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees and letters of credit fees to increase at a percentage rate in the low thirties (up from high twenties guidance previously provided).

Further, non-interest expense, net of non-controlling interests, is projected to increase at a percentage rate in the low teens (increasing from the low double digits rate).

On the credit quality front, net loan charge-offs are expected to be 0.20-0.40%(improving from 0.30-0.50%) of average total gross loans. Allowance for loan losses for total gross performing loans, as a percentage of total gross performing loans, is expected to remain flat year over year.

Non-performing loans, as a percentage of total gross loans, are anticipated to be 0.40-0.60% (improving from 0.50-0.70%).

Effective tax rate is anticipated to be 26.0-28.0%, downfrom 27.0-30.0%.

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 deteriorating asset quality 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 #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other Banks

Commerce Bancshares, Inc.'s CBSH second-quarter 2018 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 89 cents. Results primarily benefited from improvement in NII as well as non-interest income. Also, a decrease in provisions was a tailwind. However, elevated operating expenses acted as a headwind.

First Republic Bank's FRC second-quarter 2018 earnings per share came in at $1.20, outpacing the Zacks Consensus Estimate of $1.15. Revenues improved from the prior-year quarter. In addition, a considerable rise in loans and deposit balances was recorded. Further, higher expenses and non-performing assets were undermining factors.

Zions Bancorporation' ZION second-quarter 2018 earnings of 89 cents per share lagged the Zacks Consensus Estimate of 92 cents. Results, to a great extent, benefited from improvement in both net interest income and non-interest income. However, higher adjusted non-interest expenses and a rise in provisions were the headwinds.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: CBSH , ZION , SIVB , FRC

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