SVB Financial Group
) 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
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 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
City National Corp.
) 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.
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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