SVB Financial Group (SIVB) reported second-quarter 2014 earnings per share of $1.04, comfortably beating the Zacks Consensus Estimate of 84 cents. This marks the fourteenth consecutive quarter of delivering positive earnings surprise. Results, however, came in lower than $1.06 earned in the year-ago quarter.
SVB Financial’s results benefited from an increased interest income and lower provision for loan losses, partially offset by higher operating expenses and a fall in non-interest income. Improved credit quality and growth in loans and deposits were among the positives. However, capital ratios were a mixed bag and profitability ratios deteriorated during the quarter.
Non-GAAP net income available to shareholders was $50.8 million, reflecting a year-over-year increase of 4.5%.
Performance Details
SVB Financial’s total revenue came in at $219.20 million, reflecting a decline of 18.3% from the prior-year quarter. Further, it missed the Zacks Consensus Estimate of $252.0 million.
Net interest income (NII) rose 20.5% year over year to $205.0 million. However, net interest margin (NIM) decreased 61 basis points (bps) from the prior-year quarter to 2.79%.
Non-GAAP non-interest income, net of noncontrolling interests, was $49.5 million, reflecting a decline of 26.7% year over year.
Non-GAAP non-interest expense, net of noncontrolling interests, rose 19.8% year over year to $168.2 million, driven by an increase in all items.
Non-GAAP operating efficiency ratio increased to 65.97% from 59.01% in the prior-year quarter. A fall in efficiency ratio indicates improvement in profitability.
As of Jun 30, 2014, SVB Financial’s net loans stood at $11.2 billion, up 18.2% year over year, while total deposits rose 51.7% to $28.4 billion.
Asset Quality
Asset quality was strong. The ratio of allowance for loan losses to total gross loans was 1.06%, down 17 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans came in at 0.17%, down 32 bps year over year.
Provision for loan losses declined from $18.6 million in the prior-year quarter to $1.9 million.
Profitability and Capital Ratios
SVB Financial’s capital ratios were a mixed bag, while profitability ratios deteriorated. As of Jun 30, 2014, Tier 1 risk-based capital ratio was 14.42% compared with 12.84% as of Jun 30, 2013.
Total risk-based capital ratio came in at 15.36% versus 14.03% as of Jun 30, 2013. Tangible equity to tangible assets ratio was 8.03% compared with 8.34% as of Jun 30, 2013.
Non-GAAP return on average assets on an annualized basis was down 24 bps year over year to 0.64%. Non-GAAP return on average equity came in at 8.50%, down 162 bps from the prior-year quarter.
Our Viewpoint
SVB Financial boasts a history of sound growth, with consistent improvement on the organic front.
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 #3 (Hold).
Among other West banks, Westamerica Bancorp’s (WABC) second-quarter earnings of 58 cents per share came in line with the Zacks Consensus Estimate. Zions Bancorporation’s (ZION) second-quarter adjusted earnings of 57 cents comfortably beat the Zacks Consensus Estimate of 46 cents. Bank of Commerce Holdings (BOCH) is slated to report on Jul 30.
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