SVB Financial Beats Earnings on Higher Revs

Zacks

SVB Financial Group (SIVB) reported fourth-quarter 2013 earnings per share of $1.27, beating the Zacks Consensus Estimate by 14.4%. Results also compared favorably with $1.12 earned in the year-ago quarter. With this, the company has delivered positive earnings surprises in all four quarters of 2013.

For full-year 2013, SVB Financial’s earnings per share of $4.70 outpaced the Zacks Consensus Estimate by 4.54%. Further, it beat the prior-year figure by 20.2%.

SVB Financial’s results benefited from increased revenues, partially offset by higher operating expenses. Steady capital ratios, growth in loans and deposits were among the positives. Further, profitability ratios improved, while asset quality deteriorated.

Non-GAAP net income available to shareholders stood at $58.8 million in the reported quarter, reflecting a year-over-year increase of 16.5%. For 2013, it climbed 27.3% to $215.9 million.

Performance Details

SVB Financial’s total revenue came in at $437.1 million, reflecting a significant increase of 48.2% from the prior-year quarter. Further, it substantially outpaced the Zacks Consensus Estimate of $252.0 million

For 2013, total revenue came in at $1.4 billion, up 42.5% year over year.  Revenues also surpassed the Zacks Consensus Estimate of $964.0 million.

Net interest income (:NII) rose 16.4% year over year to $187.0 million. Further, net interest margin (NIM) increased 7 basis points (bps) from the prior-year quarter to 3.20%.

Non-GAAP non-interest income, net of noncontrolling interests and excluding gains on sales of certain assets stood at $100.9 million, reflecting a significant increase of 33.4% year over year.

Non-GAAP non-interest expense, net of noncontrolling interests increased 17% year over year to $165.2 million. The rise was primarily driven by higher compensation and benefits costs, professional service charges and premises and equipment expenses.

Non-GAAP operating efficiency ratio decreased to 57.29% from 59.67% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.

As of Dec 31, 2013, SVB Financial’s average net loans stood at $10.1 billion, up 22.5% year over year, while average total deposits rose 13.1% to $21.5 billion.

Asset Quality

Asset quality deteriorated in the reported quarter. The ratio of allowance for loan losses to total gross loans was 1.30%, up 7 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans came in at 0.41%, up 13 bps year over year.

Provision for loan losses increased from $15.0 million in the prior-year quarter to $28.7 million.

Profitability and Capital Ratios

SVB Financial’s capital ratios were strong, while profitability ratios improved. As of Dec 31, 2013, Tier 1 risk-based capital ratio was 11.94% compared with 12.79% as of Dec 31, 2012.

Total risk-based capital ratio came in at 13.13% versus 14.05% as of Dec 31, 2012. Tangible equity to tangible assets ratio was 7.44% compared with 8.04% as of Dec 31, 2012.

Non-GAAP return on average assets on annualized basis was up 2 bps year over year to 0.92%. Non-GAAP return on average equity came in at 11.60%, up 61 bps from the prior-year quarter.

Guidance for 2014

For 2014, management anticipates NII growth in low double digits and NIM in the range of 3.20–3.30%, mainly due to prepayment rates on mortgage-backed securities. Moreover, the core fee income (non-GAAP) growth rate is expected in the low double digits.

Further, operating expenses (non-GAAP) are likely to increase in the mid single digits. Additionally, average loan growth is expected to rise in the mid-to-high double digit, while average deposit balances will rise in the mid double digits.

Net loan charge-offs are also anticipated in the range of 0.30–0.50% of average total gross loans. Both nonperforming loans as a percentage of total gross loans and allowance for loan losses as a percentage of total gross performing loans will be consistent with 2013 levels.

Our Viewpoint

SVB Financial’s results reflect an impressive year for the company. We observe that SVB Financial has a strong growth history, with consistent improvement on the organic front.

However, increased expenses, a still low interest rate environment, sluggish economic growth and stringent regulations are expected to dent its profitability in the near term.

SVB Financial currently carries a Zacks Rank #2 (Buy).

Performance of Other West Banks

Among other West banks, Westamerica Bancorp’s (WABC) fourth-quarter 2013 earnings of 60 cents per share missed the Zacks Consensus Estimate of 63 cents primarily due to persistent pressure on the top line.

Both Bank of Hawaii Corp. (BOH) and Zions Bancorp. (ZION) are scheduled to report on Jan 27.
 

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Read the Full Research Report on BOH
Read the Full Research Report on SIVB


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