The shares of SVB Financial Group SIVB gained 1.4% after the publication of the results for the third quarter of 2020 after the market closed. Earnings per share of $ 8.47 significantly exceeded Zacks’ consensus estimate of $ 5.45. The bottom line was also up 64.5% year over year.
Results benefited largely from higher revenues and improvements in loan and deposit balances. The provision advantage also acted as a tailwind. However, the rise in operating costs and the shrinking net interest margin (NIM) were the undermining factors.
Net income available to common stockholders was $ 441.7 million, up 65.3% from the prior year quarter.
Net sales were $ 1.08 billion, up 32% year over year. In addition, the return on sales surpassed the Zacks consensus estimate of $ 928.5 million.
Net interest income (NII) was $ 527.7 million, up 1.4% year over year. In addition, NIM (based on a fully taxable equivalent) shrank 81 basis points (basis points) to 2.53%.
Noninterest income was $ 547.6 million, an increase of 92.8%. The rebound was mainly driven by a sharp improvement in investment banking income and net income from securities.
Noninterest expenses increased 25.5% from the prior year quarter to $ 491 million. The increase in all cost components with the exception of business development and travel expenses led to an increase.
The non-GAAP core operational efficiency rate was 56.86% compared to 48.04% in the year-ago quarter. An increase in the efficiency rate indicates a lower profitability.
As of September 30, 2020, SVB Financial net borrowing was $ 38.4 billion, up 4.6% from the previous quarter, while total deposits increased 13.8% to $ 84.8 billion .
The provision for credit losses was $ 52 million compared to $ 36.5 million for the prior year quarter. The ratio of net write-offs to average loans was also 0.26%, down 18 basis points.
However, the ratio of loan loss allowances to total loans was 1.34%, 37 basis points higher than the previous year.
At the end of the third quarter, the CET 1 risk-based capital ratio was 12.31% compared to 12.71% at the end of the same quarter of the previous year. The total risk-based capital ratio as of September 30, 2020 was 14.19% after 13.70%.
The average return on investment on an annual basis was 1.99% after 1.62% in the same quarter of the previous year. The average return on equity was 24.19%, increasing from 18.27%.
Average loans are expected to be between $ 39 billion and $ 40 billion. Average deposit balances are also expected to be between $ 83 billion and $ 85 billion.
NII is expected to be between $ 555 million and $ 570 million. The NIM is projected to be 2.45 to 2.55%.
Core fee revenue is projected to be in the range of $ 130 million to $ 140 million.
Non-GAAP non-interest expense (excluding costs related to non-controlling interests) is estimated at $ 525 million to $ 535 million.
The effective tax rate is expected to be 27-28%.
Average credit is expected to grow in the high single digits to low double digits. In addition, average deposit balance growth is projected to range from high teens to low twenties.
NII is expected to grow in the high single digits. The NIM is projected to be 2.45 to 2.55%.
Non-GAAP non-interest expenses (excluding costs related to non-controlling interests) are expected to increase in the low to mid single digits.
The effective tax rate is expected to be 27-28%.
SVB Financial remains well positioned to continue to benefit from loan and deposit growth and global diversification. However, steadily rising spending and falling NIM due to lower interest rates are major short-term concerns.
SVB Financial currently has a Zacks rank 3 (Hold). The full list of today’s Zacks # 1 Rank (Strong Buy) stocks can be found here.
KeyCorp’s (NYSE: KEY) KEY earnings of 41 cents per share for the third quarter of 2020 beat Zacks’ consensus estimate of 35 cents. However, the number is unfavorable compared to the adjusted result of 48 cents in the same quarter of the previous year.
Fifth Third Bancorp (NASDAQ: FITB) FITB reported adjusted earnings of 85 cents per share in the third quarter of 2020, beating Zacks’ consensus estimate of 59 cents. The result was also favorable compared to the same quarter of the previous year of 75 cents per share.
ZION Bancorporation (NASDAQ: ZION) net earnings per share of $ 1.01 for the third quarter of 2020 beat Zacks’ consensus estimate of 86 cents. The bottom line, however, is unfavorable compared to $ 1.17 in the prior year quarter.
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