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SVB Financial Beats Q2 Earnings & Rev

Zacks Equity Research

SVB Financial Group (SIVB) reported second-quarter operating earnings of $1.06 per share. This outpaced both the Zacks Consensus Estimate and the prior-year quarter’s earnings of 94 cents.

The better-than-expected results were aided by growth in revenues, partially offset by a rise in operating expenses. An improvement in capital ratios as well as loan and deposit were among the positives. Further, asset quality was a mixed bag, while profitability ratios declined.

In the reported quarter, GAAP net income available to common stockholders was $48.6 million, up 2.1% from the year-ago quarter.

Performance Details

SVB Financial’s total revenue came in at $276.2 million, growing 15.0% from $240.2 million in the prior-year quarter. This easily beat the Zacks Consensus Estimate of $228.0 million.

Net interest income (:NII) surged 11.9% year over year to $170.1 million. Further, net interest margin (NIM) increased 18 basis points (bps) from the prior-year quarter to 3.40%.

Non-interest income jumped 22.1% from the prior-year quarter to $98.2 million. All fee income components, except other income, rose in the reported quarter.

Non-interest expense was $143.3 million, up 27.6% from $135.8 million in the prior-year quarter. The expense crept up mainly due to increases in compensation and benefit costs, professional service expenses and FDIC assessment fees.

The efficiency ratio decreased to 59.01% from 62.70% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.

SVB Financial’s total loans as of Jun 30, 2013 were $9.6 billion, up 23.5% from $7.8 billion as of Jun 30, 2012. Total deposits rose 3.4% year over year to $18.7 billion.

Asset Quality

Asset quality witnessed mixed results in the reported quarter. The ratio of allowance for credit losses to total gross loans was 1.23%, down 2 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans came in at 0.49%, down 10 bps year over year.

However, provision for loan losses increased from $8.0 million in the prior-year quarter to $18.6 million.

Profitability and Capital Ratios

SVB Financial’s capital ratios improved, while profitability ratios deteriorated. As of Jun 30, 2013, Tier 1 risk-based capital ratio was 12.84%, up from 12.62% as of Jun 30, 2012.

Total risk-based capital ratio came in at 14.03%, up from 13.85% in the year-ago quarter. Tangible equity to tangible assets ratio was 8.34%, up from 8.06% as of Jun 30, 2012.

Annualized return on average assets was 0.88%, down from 0.92% as of Jun 30, 2012. Annualized return on common equity came in at 10.12%, decreasing from 11.21% as of Jun 30, 2012.


For 2013, management anticipates NII growth in high single digits and NIM in the range of 3.25–3.35%, mainly due to prepayment rates on mortgage-backed securities. Moreover, the core fee income growth rate is expected in low double digits.

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

Net loan charge-offs are also anticipated in the range of 0.30–0.50% of average total gross loans. Nonperforming loans as a percentage of total gross loans and allowance for loan losses as a percentage of total gross performing loans will be comparable to the 2012 levels.

Performance of Other West Banks

Among other West banks, the earnings for First Republic Bank (FRC), City National Corp. (CYN) and Zions Bancorp. (ZION) beat the Zacks Consensus Estimate. The better-than-expected results for all 3 were mainly driven by top-line growth, partially offset by a rise in operating expenses.

Our Viewpoint

SVB Financial boasts an impressive growth story with steady progress on the organic front. Furthermore, the accelerating growth in loans and low-cost deposits, along with a decrease in long-term debt, are remarkable.

Improving credit quality and stabilizing capital ratios add strength to SVB Financial’s financials. However, increased expenses, a low interest rate environment, slow economic growth and stringent regulations are expected to dent its profitability in the near term.

SVB Financial currently carries a Zacks Rank #3 (Hold).

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