On Jan 2, 2014, we issued an updated research report on SVB Financial Group (SIVB). Robust top-line improvement along with steady growth in loans and deposits continued to be the growth drivers, while weak cost control remained the dampener.
SVB Financial is a diversified financial services company, which offers non-banking products and services in the technology, life science, venture capital/private equity and premium wine industries besides a wide range of banking and financial products and services.
The company’s focus on organic growth can be witnessed in the 10.4% rise in net loans and 38.5% increase in total deposits in the first nine months of 2014. Consistent loan and deposit growth continue to boost the revenue generation of the company. Net revenues reflected a rise of 8.6% in the first nine months of 2014. However, the 6.9% decline in non-interest income subdued top-line growth during the same time period.
On the flip side, SVB Financial continued to struggle with constantly rising expenses. The heightened pressure on profitability could be seen in the 16.6% increase in non-interest expenses in the first nine months of 2014. Moreover, the company’s weak performance in the third-quarter of 2014 was driven by elevated expenses, which are expected to further mount owing to the augmented regulatory compliance costs, expenditure on technology and continuous hiring of personnel.
SVB Financial’s enhanced investments and sturdy capital position indicate better days ahead. The company’s success in gaining market confidence was evident from the 11.6% rise in share price in 2014. However, escalating expenses, persistent margin compression and stringent regulations will likely keep the financials under strain.
This can also be observed in the Zacks Consensus Estimate for 2014 and 2015, which remained flat over the last 30 days.
Currently, SVB Financial carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked Western banks include Columbia Banking System Inc. (COLB), Western Alliance Bancorporation (WAL) and Cathay General Bancorp (CATY). While Columbia Banking System and Western Alliance hold a Zacks Rank #1 (Strong Buy), Cathay General sports a Zacks Rank #2 (Buy).
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