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SVB Financial (SIVB) Up 1.4% on Q3 Earnings & Revenue Beat

Shares of SVB Financial Group SIVB have rallied 1.4% following the release of its third-quarter 2020 results after market close. Earnings per share of $8.47 comfortably surpassed the Zacks Consensus Estimate of $5.45. Also, the bottom line soared 64.5% year over year.

Results largely benefited from higher revenues, and improving loan and deposit balances. Also, provision benefit acted as a tailwind. However, increase in operating expenses and contracting net interest margin (NIM) were the undermining factors.

Net income available to common shareholders was $441.7 million, jumping 65.3% from the prior-year quarter.

Revenues & Expenses Rise

Net revenues were $1.08 billion, increasing 32% year over year. Also, the top line beat the Zacks Consensus Estimate of $928.5 million.  

Net interest income (NII) was $527.7 million, which grew 1.4% year over year. Further, NIM (on a fully-taxable equivalent basis) contracted 81 basis points (bps) to 2.53%.

Non-interest income was $547.6 million, which jumped 92.8%. The upswing primarily resulted from a drastic improvement in investment banking revenues and net gains on investment securities.

Non-interest expenses increased 25.5% from the prior-year quarter to $491 million. Increase in all expense components, except for business development and travel costs, resulted in the rise.

Non-GAAP core operating efficiency ratio was 56.86%, up from 48.04% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Loans and Deposit Balances Increase

As of Sep 30, 2020, SVB Financial’s net loans amounted to $38.4 billion, increasing 4.6% from the prior quarter, while total deposits jumped 13.8% to $84.8 billion.

Credit Quality: Mixed Bag

Provision for credit losses was a benefit of $52 million compared with provision of $36.5 million in the year-ago quarter. Also, the ratio of net charge-offs to average loans was 0.26%, down 18 bps.

However, the ratio of allowance for loan losses to total loans was 1.34%, up 37 bps year over year.

Capital Ratios Mixed, Profitability Ratios Improve

At third quarter-end, CET 1 risk-based capital ratio was 12.31% compared with 12.71% at the end of the prior-year quarter. Total risk-based capital ratio was 14.19% as of Sep 30, 2020, up from 13.70%.

Return on average assets on an annualized basis was 1.99%, up from 1.62% recorded in the year-ago quarter. Also, return on average equity was 24.19%, which increased from 18.27%.

Fourth-Quarter 2020 Outlook

Average loans are expected to be in the range of $39-$40 billion. Further, average deposit balances are expected between $83 billion and $85 billion.

NII is anticipated between $555 million and $570 million. NIM is projected to be 2.45-2.55%.

Core fee income is projected in the range of $130-$140 million.

Non-GAAP non-interest expenses (excluding costs related to non-controlling interests) are estimated between $525 million and $535 million.

The effective tax rate is expected to be 27-28%.

Preliminary 2021 Outlook

Average loans are expected to grow in the high single to low double digits rate. Moreover, average deposit balances growth is projected in the high teens to low twenties range.

NII is anticipated grow in the high single digits. NIM is projected to be 2.45-2.55%.

Non-GAAP non-interest expenses (excluding costs related to non-controlling interests) are projected to increase in the low to mid-single digits.

The effective tax rate is expected to be 27-28%.

Our Take

SVB Financial remains well poised to continue benefiting from growth in loans and deposits, along with global diversification. However, continuously increasing expenses and declining NIM due to lower interest rates are major near-term concerns.

SVB Financial Group Price, Consensus and EPS Surprise

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

KeyCorp’s KEY third-quarter 2020 earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 35 cents. However, the figure compares unfavorably with adjusted earnings of 48 cents in the prior-year quarter.

Fifth Third Bancorp FITB reported third-quarter 2020 adjusted earnings of 85 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. Also, results compared favorably with the prior-year quarter’s earnings of 75 cents per share.

Zions Bancorporation’s ZION third-quarter 2020 net earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 86 cents. However, the bottom line compares unfavorably with the year-ago quarter’s $1.17.

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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.

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