A month has gone by since the last earnings report for SVB Financial . Shares have added about 25.2% 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 catalysts.
SVB Financial Q3 Earnings & Revenue Beat, Expenses Rise
SVB Financial’s third-quarter 2020 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 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.
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. Total cost of deposits and share of interest-bearing deposits are expected to remain steady due to repricing of interest-bearing products in the third quarter.
NII is anticipated between $555 million and $570 million. This includes approximately $10-$12 million of estimated paycheque protection program (PPP) loan interest and fees, net of deferred loan origination costs.
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. This includes roughly $16-$18 million of estimated PPP loan interest and fees, net of deferred loan origination costs.
NIM is projected to be 2.45-2.55%.
Core fee income is projected to be on par with the 2020 level.
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%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
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. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Image: Bigstock
Why Is SVB (SIVB) Up 25.2% Since Last Earnings Report?
A month has gone by since the last earnings report for SVB Financial . Shares have added about 25.2% 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 catalysts.
SVB Financial Q3 Earnings & Revenue Beat, Expenses Rise
SVB Financial’s third-quarter 2020 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 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.
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. Total cost of deposits and share of interest-bearing deposits are expected to remain steady due to repricing of interest-bearing products in the third quarter.
NII is anticipated between $555 million and $570 million. This includes approximately $10-$12 million of estimated paycheque protection program (PPP) loan interest and fees, net of deferred loan origination costs.
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. This includes roughly $16-$18 million of estimated PPP loan interest and fees, net of deferred loan origination costs.
NIM is projected to be 2.45-2.55%.
Core fee income is projected to be on par with the 2020 level.
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%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
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. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.