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Why is Q3 Earnings Beat Less Likely for SVB Financial (SIVB)?

SVB Financial Group SIVB is scheduled to report third-quarter 2021 results on Oct 21, after market close. The company largely caters to the start-up, venture capital and private equity community. The overall demand for loans from such niche sectors continued to improve in the quarter.

Unlike the prior few quarters, the overall lending scenario was decent in the to-be-reported quarter. Hence, the company is expected to have witnessed sizeable growth in total loan balance. The Zacks Consensus Estimate for average total interest-earning assets is pegged at $169.6 billion, suggesting a rise of 18.5% from the prior quarter’s reported number.

Thus, despite the continued low interest-rate environment, SVB Financial’s net interest income (NII) is likely to have increased in the to-be-reported quarter, supported by the increasing loan demand from niche sectors along with the steepening of the yield curve. The consensus estimate for NII (on a tax-equivalent basis) is pegged at $856 million, which implies growth of 16.5% sequentially.

Other Key Factors and Estimates for Q3

Non-Interest Income: Deposit balances continued to rise in the third quarter, thereby, positively impacting deposit service charges. The consensus estimate for the same is pegged at $28.75 million, indicating a 2.7% rise on a sequential basis.

Moreover, as consumer confidence continued to improve, there was an improvement in credit card loans. Thus, the Zacks Consensus Estimate for credit card fees of $32.25 million indicates a rise of 4% from the previous quarter’s reported number.

The Zacks Consensus Estimate for client investment fees of $28.95 million suggests a 93% improvement from the previous quarter’s reported figure.

However, the consensus estimate for lending-related fees of $18 million indicates no change from the prior quarter’s reported number. The Zacks Consensus Estimate for foreign exchange fees is pegged at $68 million, suggesting a rise of 1.5% from the prior-quarter reported level.

Thus, the consensus estimate for core fee income (including client investment fees, foreign exchange fees, credit card fees, deposit service charges, lending-related fees, and letters of credit fees) of $230 million reflects a rise of 33.7% sequentially.

The Zacks Consensus Estimate for investment banking fees of $84 million suggests a decline of 18.4% sequentially. The consensus estimate for commissions of $17 million indicates no change from the prior quarter.

Therefore, the consensus estimate for total non-interest income of $452 million reflects a 40.6% decrease sequentially.

Expenses: SVB Financial has been witnessing a continued rise in overall expenses over the past several quarters because of investments in technology upgrades and hiring. As the company is expanding inorganically, expenses related to these will be incurred. Thus, overall costs are likely to have risen in the to-be-reported quarter.

Credit Quality: The Zacks Consensus Estimate for total non-performing assets of $114 million suggests a jump of 37.3% sequentially. The consensus estimate for total non-performing loans of $124 million suggests a rise of 51.2%.

What the Zacks Model Unveils

According to our proven model, the chances of SVB Financial beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for SVB Financial is -18.98%.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $5.06 per share, which has moved marginally lower over the past seven days. The figure indicates a year-over-year decline of 40.3%. The consensus estimate for sales of $1.31 billion suggests growth of 21.5% from the prior-year quarter’s reported number.

SVB Financial Group Price and EPS Surprise

 

SVB Financial Group price-eps-surprise | SVB Financial Group Quote

Notably, in June-end, SVB Financial completed the acquisition of Boston Private Financial Holdings for $1.2 billion. Management anticipated the deal to be immediately accretive to earnings (excluding restructuring charges) in the low-single digits. Also, the transaction was estimated to help SVB Financial diversify its revenues.

Stocks to Consider

Here are a few finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases.

The Earnings ESP for KeyCorp KEY is +0.56%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Oct 21.

BankUnited, Inc. BKU is slated to report quarterly results on Oct 21. The company currently has an Earnings ESP of +1.90% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Capital One Financial Corporation COF is slated to report quarterly earnings on Oct 26. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +5.18%.


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Capital One Financial Corporation (COF): Free Stock Analysis Report
 
KeyCorp (KEY): Free Stock Analysis Report
 
BankUnited, Inc. (BKU): Free Stock Analysis Report
 
SVB Financial Group (SIVB): Free Stock Analysis Report
 
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