SVB Financial Up 1.5% On Q1 Earnings Beat, Raised View

However, the ratio of net charge-offs to average loans was 0.79%, up 44 bps year over year.

Capital Ratios Mixed, Profitability Ratios Improve

At the first quarter end, common equity tier 1 risk-based capital ratio was 12.19% compared with 12.35% at the end of the prior-year quarter. Total risk-based capital ratio was 14.63% as of Mar 31, 2021, up from 14.45%.

Return on average assets on an annualized basis was 1.73%, up from 0.73% recorded in the year-ago quarter. However, return on average equity was 27.04%, which increased from 8.17%.

Upbeat 2021 Outlook

The company raised 2021 outlook as business activity and the economic environment improved with vaccine distributions and re-openings, and its overall credit trends remained stable.

Average loans are expected to grow in the mid-30s range, up from prior expectation of rise in mid-20s range. Moreover, average deposit balances are projected to grow in the mid-60s range, higher than previous guidance of growing in the mid-40s range.

NII is anticipated to grow in the low-30s range, up from earlier expectation of growth in low-20s range. NIM is projected to be 2.10-2.20%, a change from 2.20-2.30%.

Core fee income (including client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending-related fees and letters of credit fees) is expected to increase at a percentage rate in the mid-single digits, an improvement from prior projection of remaining stable year over year.

SVB Leerink revenues are projected to be in the $420-$450 million range, up from prior guidance of $320-$360 million.

Non-interest expenses (excluding costs related to non-controlling interests) are projected to increase in high-teens compared with the previous expectation of increase in low-single digits.

Net loan charge-offs are expected to be 0.20-0.40% of average total loans.

The effective tax rate is expected to be 26-28%.

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.

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