SVB Financial Beats Ests, Revs Up - Analyst Blog
January 25 2013 - 3:30AM
Zacks
SVB Financial
Group (SIVB) reported its fourth quarter 2012 adjusted
earnings of $1.12 per share, significantly surpassing the Zacks
Consensus Estimate of 88 cents. This also compared favorably with
the prior-year quarter’s earnings of 91 cents.
Better-than-expected quarterly results came on the back of improved
top line, partially offset by an increase in operating expenses.
Moreover, stable capital and profitability ratios as well as decent
loan and deposit growth were the other highlights. However, credit
quality slightly deteriorated during the quarter.
In the reported quarter, net income came in at $50.4 million
compared with $35.6 million in the year-ago period.
In 2012, adjusted earnings per share stood at $3.79 per share,
outpacing the Zacks Consensus Estimate of $3.66 by 3.6% and last
year’s earnings of $3.38 by 12.1%. After considering certain
non-recurring items, net income was $175.1 million or $3.91 per
share compared with $171.9 million or $3.94 per share in 2011.
Behind the Headlines
SVB Financial’s total revenue in the fourth quarter came in at
$294.9 million, growing 33.5% from $220.9 million in the prior-year
quarter. Also, this is higher than the Zacks Consensus Estimate of
$215.0 million.
In 2012, total revenue was $984.3 million, up 3.6% year over year.
This came significantly higher than the Zacks Consensus Estimate of
$837.0 million.
Net interest income (NII) climbed 14.6% year over year to $160.6
million. Also, net interest margin (NIM) increased 3 basis points
(bps) from the prior-year quarter to 3.13%.
Non-interest income soared 73.4% from the prior-year quarter to
$126.7 million. The rise was primarily driven by higher gains on
investment securities, credit card fees and client investment fees.
These positives were partially offset by lower gains on derivative
securities.
Non-interest expense was $143.0 million, up 6.2% from $134.7
million in the prior-year quarter. The rise was mainly a result of
higher compensation and benefits costs and increase in FDIC
assessment fees.
The efficiency ratio declined to 59.67% from 65.15% in the prior
quarter. A fall in efficiency ratio indicates improvement in
profitability.
SVB Financial’s total loans as of Dec 31, 2012 were $8.9 billion,
rising 28.4% from $7.0 billion as of Dec 31, 2011. Total deposits
jumped 14.8% year over year to $19.2 billion.
Asset Quality
Asset quality marginally deteriorated in the reported quarter. The
ratio of allowance for credit losses to total gross loans was
1.23%, in line with the prior quarter but dipping 5 bps from the
prior-year quarter.
Further, the ratio of net charge offs to average gross loans came
in at 0.28%, up 11 bps sequentially and 6 bps year over year.
Moreover, provision for loan losses increased significantly from
the previous quarter and 82.1% from the year-ago quarter to $15.0
million.
Further, total nonperforming assets stood at $38.3 million, down
2.8% from last quarter but up 4.5% from the prior-year quarter.
Profitability and Capital Ratios
SVB Financial’s capital ratios exhibited a modestly cautious
approach. As of Dec 31, 2012, tier 1 risk-based capital ratio was
12.79% compared with 13.07% as of Sep 30, 2012 and 12.62% as of Dec
31, 2011.
Total risk-based capital ratio came in at 14.05% as against 14.34%
in the prior quarter and 13.95% in the year-ago quarter. Tangible
equity to tangible assets ratio stood at 8.04%, down from 8.27% as
of Sep 30, 2012 but up from 7.86% as of Dec 31, 2011.
SVB Financial’s profitability ratios witnessed improvement. The
annualized return on average assets was 0.90%, up from 0.77% as of
Sep 30, 2012 and 0.72% as of Dec 31, 2011. Annualized return on
common equity came in at 10.99%, up from 9.44% as of Sep 30, 2012
and 8.99% as of Dec 31, 2011.
Guidance
For 2013, management anticipates NII growth in the mid-single
digits and NIM in the range of 3.10%–3.20%, mainly due to
prepayment rates on mortgage-backed securities. Moreover, core fee
income growth rate is expected to be in the mid teens.
Further, operating expenses (non-GAAP) would grow in the mid-single
digits range. Additionally, average loan growth is expected in the
low twenties, while average deposit balances would grow in the
mid-single digits.
Moreover, net loan charge-offs is 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.
Our Viewpoint
SVB Financial boasts an impressive growth story with a steady
progress on the organic front. Moreover, accelerating growth in
loans and low-cost deposits, along with significant decline in
long-term debt, are remarkable. Improving credit quality and
stabilizing capital ratios further strength its financials. Yet,
elevated expenses, low interest rate environment, slow economic
growth rate and stringent regulations are expected to marginally
dent its profitability in the near term.
SVB Financial currently retains a Zacks Rank #3 (Hold). However,
other west banks that are worth considering include Central
Valley Community Bancorp (CVCY) and Western
Alliance Bancorporation (WAL), both carrying a Zacks Rank
#1 (Strong Buy). Another stock in the same sector, BofI
Holding, Inc. (BOFI) carries a Zacks Rank #2 (Buy).
BOFI HLDG INC (BOFI): Free Stock Analysis Report
CENTRAL VLY COM (CVCY): Free Stock Analysis Report
SVB FINL GP (SIVB): Free Stock Analysis Report
WESTERN ALLIANC (WAL): Free Stock Analysis Report
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