It has been about a month since the last earnings report for SVB Financial GroupSIVB . Shares have added about 10.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
SVB Financial Beats on Q3 Earnings, Revenues Grow
SVB Financial reported third-quarter 2017 earnings per share of $2.79, outpacing the Zacks Consensus Estimate of $2.29. Further, the bottom line jumped 31.6% from the year-ago quarter figure.
Results were primarily driven by higher net interest income (NII) and non-interest income. Moreover, loan and deposit balances showed strength. However, higher non-interest expenses acted as a headwind. Also, a rise in provision for credit losses was a negative for the company.
Net income available to stockholders was $148.6 million, increasing 33.8% year over year.
Increased Revenues Offset Rise in Expenses
SVB Financial's net revenue for the quarter was $532.8 million, increasing nearly 23% year over year. Further, it surpassed the Zacks Consensus Estimate of $490.7 million.
NII grew 29.3% year over year to $374 million. Also, net interest margin (NIM), on a fully taxable equivalent basis, increased 35 basis points (bps) year over year to 3.10%.
Non-interest income of $158.8 million increased 10.2% year over year.
Non-interest expense increased 16.8% year over year to $257.8 million. A rise in all expense components led to this increase.
Non-GAAP operating efficiency ratio was 48.82%, decreasing from 51.45% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.
Strong Balance Sheet
As of Sep 30, 2017, SVB Financial's net loans amounted to $21.9 billion, increasing 5.8% from the prior quarter, while total deposits rose 5.5% sequentially to $44.8 billion.
Credit Quality: A Mixed Bag
The ratio of allowance for loan losses to total gross loans came in at 1.12%, down 13 bps year over year. Also, the ratio of net charge-offs to average gross loans came in at 0.19%, down from 0.48% registered in the year-ago quarter.
However, provision for credit losses increased 17.6% year over year to $23.5 million.
Profitability and Capital Ratios Enhanced
As of Sep 30, 2017, CET 1 risk-based capital ratio came in at 12.96% compared with 12.75% as of Sep 30, 2016. Total risk-based capital ratio came in at 14.29% compared with 14.22% as of Sep 30, 2016.
Further, non-GAAP return on average assets on an annualized basis improved to 1.18% from 1.02% in the year-ago quarter. Also, non-GAAP return on average equity was 14.59%, increasing from 12.32% in the prior-year quarter.
SVB Financial provided the updated 2017 guidance based on the assumption of no further change in interest rate during the year. Further, NII is expected to rise at a percentage rate in the low twenties (down from the previous outlook of high teens to low twenties), while NIM is anticipated in the range of 3.00-3.10%.
Moreover, the company anticipates core fee income, including foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees as well as letters of credit fees, to increase at a percentage rate in the high teens (up from prior guidance of mid-teens).
Further, non-interest expense, net of non-controlling interests, is projected to increase at a percentage rate in the mid-teens (up from prior guidance of low teens).
Average loan balance is expected to grow at a percentage rate in the mid-teens assuming clients' M&A activities remain near the third quarter level. Further, average deposit balance is projected to come in at the high end of range of the high single digits assuming current deposit growth trends continue.
On the credit quality front, net loan charge-offs rates are expected in low end of 0.30-0.50% range. 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 in the range of 0.60-0.80%.
Preliminary 2018 Outlook
Management based its preliminary 2018 outlook assumptions of no further rise in interest rates and no material deterioration in the overall economy.
Net interest income is projected to grow in the high teens to low twenties and core fee income to be in the mid-teens to high teens. Further, non-interest expenses (excluding expenses related to non-controlling interests) are expected to rise in the high single digits.
Average loan balance is expected to grow at a percentage rate in the mid-teens. Further, average deposit balance is projected to rise in the low double-digits rate.
Net loan charge-offs are anticipated to be between 0.30% and 0.50% of average total gross loans.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been nine moves higher in the last two months. In the past month, the consensus estimate has shifted by 6.3% due to these changes.
At this time, SVB Financial's stock has an average Growth Score of C. However, its Momentum is doing a bit better with a B. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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