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SVB Financial Group (SIVB - Free Report) reported third-quarter earnings per share of $1.46, beating the Zacks Consensus Estimate by a penny. Results also compares favorably with 94 cents earned in the year-ago quarter.

Better-than-expected results were aided by rise in 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.

In the reported quarter, net income available to common stockholders was $67.6 million, up 60.0% from the year-ago quarter. The figures for the reported quarter include a one-time pre-tax gain of $31.9 million.

Performance Details

SVB Financial’s total revenue came in at $443.0 million, growing 91.7% from $231.1 million in the prior-year quarter. This easily beat the Zacks Consensus Estimate of $264.0 million.

Net interest income (NII) rose 14.7% year over year to $177.1 million. Further, net interest margin (NIM) increased 20 basis points (bps) from the prior-year quarter to 3.32%.

Non-interest income increased substantially from the prior-year quarter to $257.7 million. This was driven by increase in all the fee income components, except for client investment fees.

Non-interest expense was $160.5 million, up 18.8% from $135.2 million in the prior-year quarter. The expense rose mainly due to increase in compensation and benefits costs, professional service charges, premises and equipment expenses, business development and travel expenditure, net occupancy charges, Federal Deposit Insurance Corporation assessments, provision for unfunded credit commitments and other non-interest costs. These were partially offset by a fall in correspondent bank fees.

The efficiency ratio decreased to 55.50% from 62.93% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.

SVB Financial’s total loans as of Sep 30, 2013 were $9.8 billion, up 17.1% from $8.2 billion as of Sep 30, 2012. Total deposits rose 13.0% year over year to $20.0 billion.

Asset Quality

Asset quality deteriorated in the reported quarter. The ratio of allowance for loan losses to total gross loans was 1.26%, up 3 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans came in at 0.23%, up 6 bps year over year.

Provision for loan losses increased from $6.8 million in the prior-year quarter to $10.6 million.

Profitability and Capital Ratios

SVB Financial’s capital ratios were strong, while profitability ratios improved. As of Sep 30, 2013, Tier 1 risk-based capital ratio was 12.96% compared with 13.07% as of Sep 30, 2012.

Total risk-based capital ratio came in at 14.16% versus 14.34% as of Sep 30, 2012. Tangible equity to tangible assets ratio was 8.19% compared with 8.27% as of Sep 30, 2012.

Annualized return on average assets was 1.16%, up from 0.77% as of Sep 30, 2012. Annualized return on common equity came in at 14.05%, increasing from 9.44% as of Sep 30, 2012.


For 2013, management anticipates NII growth in low double 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 high single digits.

Further, operating expenses (non-GAAP) will likely increase in low double digits. 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. 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 comparable to the 2012 levels.

For 2014, management provided a preliminary outlook. NII is expected to grow in high single digits. The core fee income growth rate is expected to be in the range of high single digits to low double digit.

Operating expenses (non-GAAP) will likely increase in the mid single digits. Further, average loan growth is expected in the mid-teen range.

Net loan charge-offs are anticipated to be 0.30–0.50% of average total gross loans.

Performance of Other West Banks

Among other West banks, First Republic Bank’s (FRC - Free Report) and Westamerica Bancorp’s earnings missed the Zacks Consensus Estimate. Results of First Republic Bank was adversely affected by a rise in operating expense, partially offset by top-line growth. Westamerica Bancorp’s lower-than-expected results resulted from a fall in the top-line, partially offset by decrease in operating expense.

Zions Bancorp (ZION - Free Report) , on the other hand, reported better-than-expected results driven by lower operating expenses, partially offset by decline in the top line.

Our Viewpoint

We observe that SVB Financial has an impressive growth history, with consistent improvement on the organic front. Moreover, consistent growth in loans and deposits are other positives for the bank. 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).

In-Depth Zacks Research for the Tickers Above

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