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SVB Financial Tops Earnings; Ups Loan & Fee Income View

SVB Financial Group 's SIVB third-quarter 2015 earnings per share of $1.57 surpassed the Zacks Consensus Estimate of $1.53, driven by top-line growth. Further, the bottom line came 27% above the year-ago quarter tally.

SVB Financial Group - Earnings Surprise | FindTheBest

Better-than-expected results were aided by higher revenues. Moreover, considerable improvement in loans and deposits continued to be impressive. However, elevated costs and provisions remained on the downside. Further, asset quality represented weakness.

Net income available to stockholders amounted to $81.7 million, up 28% year over year.

Details

Net revenue totaled $363.1 million, up 21% year over year. Also, it surpassed the Zacks Consensus Estimate of $346.9 million.

Net interest income ("NII") increased 15% year over year to $254.7 million. However, net interest margin ("NIM"), on a fully taxable equivalent basis, fell 23 basis points (bps) year over year to 2.50%.

Non-interest income summed $108.5 million, reflecting a 35% year-over-year rise from the prior-year quarter. The increase was attributable to a rise in all the components of income except net gains on derivative instruments.

Non-interest expense climbed 3% year over year to $184.8 million. The increase was mainly led by a rise in compensation and benefits costs, net occupancy costs, FDIC and state assessments expense as well as provision for unfunded credit commitments. These were, however, partly offset by a reduction in professional services costs, premises and equipment expenses and business development and travel costs.

Non-GAAP operating efficiency ratio fell to 51.69% from 59.08% in the prior-year quarter. A decrease in efficiency ratio indicates higher profitability.

As of Sep 30, 2015, SVB Financial's net loans amounted to $15.1 billion, up 27% year over year; while total deposits grew 19% to $37.0 billion.

Asset Quality

Asset quality displayed weakness during the quarter. The ratio of net charge-offs to average gross loans stood at 0.75%, up 47 bps year over year.

Moreover, provision for loan losses increased substantially to $33.4 million from $16.6 million in the year-ago quarter. Further, the ratio of allowance for loan losses to total gross loans came in at 1.28%, up 21 bps from the prior-year quarter.

Profitability and Capital Ratios

As of Sep 30, 2015, common equity Tier 1 ("CET1") risk-based capital ratio (under the new Basel III rules effective Jan 1, 2015) stood at 12.48%. Further, total risk-based capital ratio as of Sep 30, 2015, came in at 14.05% versus 14.97% as Sep 30, 2014.

Non-GAAP return on average assets on an annualized basis improved to 0.77% from 0.73% in the prior-year quarter. Further, non-GAAP return on average equity came in at 10.35%, up from 9.30% in the year-ago quarter.

2015 Guidance

SVB Financial reiterated its previous guidance for 2015 (mostly on a GAAP basis) except for a few line items.

Average loan balances are now projected to grow at a percentage rate in the high twenties instead of the previously stated growth rate of mid-twenties. Moreover, core fee income is now estimated to increase at a percentage rate in the mid-twenties from the prior revised guidance of low twenties.

The rest of the outlook remained unchanged. Non-interest expense, net of non-controlling interests, is projected to increase at low-double digits percentage rate. NII is expected to rise at a percentage rate in the high teens, while NIM is anticipated in the range of 2.40-2.60%.

Additionally, average deposit balances are expected to rise at a percentage rate in the high twenties.

On the credit quality front, nonperforming loans will lie in the range of 0.60-1.00% of total gross loans. Further, allowance for loan losses for total gross performing loans, as a percentage of total gross performing loans, is expected to remain at par with the 2014 level. Net loan charge-offs are expected to lie within 0.30% and 0.50% of average total gross loans.

Our Viewpoint

Robust capital position, continuous change in deposit mix and efforts to lower long-term debt keep SVB Financial well positioned for future growth. Also, the company's enhanced investments will likely boost top-line growth, going forward.

However, mounting expenses, higher provisions and persistent margin compression are expected to dent the company's performance in the near term.

SVB Financial currently sports a Zacks Rank #5 (Strong Sell).

Performance of Other Western Banks

Zions Bancorporation ZION reported third-quarter 2015 earnings of 41 cents, which lagged the Zacks Consensus Estimate by a penny. Results suffered on the back of elevated provisions for loan losses, partly offset by growth in revenues and a decline in expenses.

Westamerica Bancorp.'s WABC third-quarter 2015 earnings of 58 cents per share came a penny below the Zacks Consensus Estimate. Pressurized revenues and a declining loan balance contributed to the lower-than-expected results. However, a reduction in expenses and no provision for loan losses remained the tailwinds.

Driven by top-line growth, First Republic Bank's FRC third-quarter 2015 earnings per share of 82 cents beat the Zacks Consensus Estimate of 81 cents. Results were aided by higher revenues, reflecting increased net interest income. However, the quarter experienced increase in provision for loan losses as well as higher non-interest expenses.

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WESTAMER BANCP (WABC): Free Stock Analysis Report

ZIONS BANCORP (ZION): Free Stock Analysis Report

SVB FINL GP (SIVB): Free Stock Analysis Report

FIRST REP BK SF (FRC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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