SVB Financial Group (SIVB) reported third-quarter 2014 earnings per share of $1.22, which missed the Zacks Consensus Estimate of $1.24. Notably, this marks a break after fourteen consecutive quarters of earnings beat. Further, the bottom line came in 16.4%, lower than the year-ago quarter figure.
Results were primarily affected by lower non-interest income. A rise in operating expenses and provision for loan losses were also among the dampeners. These were partly offset by increased interest income. The quarter witnessed strong growth in loans and deposits. However, while asset quality and capital ratios were a mixed bag, profitability ratios deteriorated.
Non-GAAP net income available to shareholders was $63.0 million, reflecting a year-over-year decline of 6.8%.
Performance Details
SVB Financial’s total revenue came in at $300.8 million, down 30.8% year over year. However, it beat the Zacks Consensus Estimate of $287.0 million.
Net interest income (NII) rose 24.6% year over year to $220.6 million. However, net interest margin (NIM) decreased 59 basis points (bps) from the prior-year quarter to 2.73%.
Non-GAAP non-interest income, net of noncontrolling interests, was $75.3 million, reflecting a year-over-year decline of 28.8%.
Non-GAAP non-interest expense, net of noncontrolling interests, rose 12.7% year over year to $177.2 million, driven by an increase in all items, except provision for unfunded credit commitments.
Non-GAAP operating efficiency ratio increased to 59.83% from 55.50% in the prior-year quarter. An increase in efficiency ratio indicates deterioration in profitability.
As of Sep 30, 2014, SVB Financial’s net loans were $11.9 billion, up 22.6% year over year, while total deposits rose 55.6% to $31.1 billion.
Asset Quality
Asset quality was a mixed bag during the reported quarter. The ratio of allowance for loan losses to total gross loans was 1.07%, down 19 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans came in at 0.28%, up 5 bps year over year.
Provision for loan losses increased to $16.6 million from $10.6 million in the prior-year quarter.
Profitability and Capital Ratios
SVB Financial’s capital ratios were a mixed bag, while profitability ratios deteriorated. As of Sep 30, 2014, Tier 1 risk-based capital ratio was 14.03% compared with 12.95% as of Sep 30, 2013.
Total risk-based capital ratio came in at 14.97% versus 14.16% as of Sep 30, 2013. Tangible equity to tangible assets ratio was 7.55% compared with 8.19% as of Sep 30, 2013.
Non-GAAP return on average assets on an annualized basis was down 44 bps year over year to 0.72%. Non-GAAP return on average equity came in at 9.16%, down 489 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).
Other Western Banks
Among other Western banks, Zions Bancorporation (ZION) reported third-quarter adjusted earnings of 38 cents, which missed the Zacks Consensus Estimate of 45 cents.
Central Pacific Financial Corp. (CPF) is scheduled to release third-quarter results on Oct 29, while Bank of Commerce Holdings (BOCH) is slated to report on Oct 30.
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