SVB Financial Group (SIVB) reported fourth-quarter 2014 adjusted earnings per share of $1.37, beating the Zacks Consensus Estimate of $1.29. Further, the bottom line compared favorably with the year-ago figure of $1.27 per share.
For 2014, adjusted earnings per share came in at $5.54, up 18% year over year. This also outpaced the Zacks Consensus Estimate of $5.48.
Strong top-line improvement supported by appreciable growth in loans and deposits contributed to the better-than-expected results. However, elevated non-interest expense as well as provisions continued to be the weak factors. Further, while asset quality and capital ratios represented a mixed bag, profitability ratios deteriorated.
After including a post-tax net loss related to the pending sale transaction of SVB Financial’s Indian subsidiary incurred in the reported quarter, net income available to stockholders amounted to $58.8 million, almost at par with the prior-year quarter figure.
For 2014, net income available to stockholders (after considering the abovementioned post-tax net loss) rose 22% year over year to $263.9 million.
Performance Details
SVB Financial’s Non-GAAP revenue totaled $339.0 million, up 18% year over year. Moreover, it surpassed the Zacks Consensus Estimate of $302.0 million.
For 2014, Non-GAAP revenue climbed 18% year over year to $1.21 billion. Also, it beat the Zacks Consensus Estimate of $1.16 billion.
Net interest income (NII) increased 26% year over year to $234.7 million. However, net interest margin (NIM), on a fully taxable equivalent basis, fell 54 basis points (bps) year over year to 2.66%.
Non-GAAP non-interest income, net of noncontrolling interests, summed $104.3 million, reflecting a year-over-year increase of 3%.
Non-GAAP non-interest expense, net of noncontrolling interests, rose 11% year over year to $183.5 million, driven by an increase in all items, except provision for unfunded credit commitments.
Non-GAAP operating efficiency ratio descended to 54.06% from 57.29% in the prior-year quarter. A decrease in efficiency ratio indicates higher profitability.
As of Dec 31, 2014, SVB Financial’s net loans amounted to $14.2 billion, up 32% year over year, while total deposits grew 53% to $34.3 billion.
Asset Quality
Asset quality displayed a mixed bag during the quarter. The ratio of allowance for loan losses to total gross loans came in at 1.14%, down 16 bps from the prior-year quarter. Further, the ratio of net charge-offs to average gross loans stood at 0.13%, down 28 bps year over year.
However, provision for loan losses increased 41% year over year to $40.4 million.
Profitability and Capital Ratios
SVB Financial’s capital ratios reflected a mixed picture, while profitability ratios continued to weaken. As of Dec 31, 2014, Tier 1 risk-based capital ratio stood at 12.86% compared with 11.94% as of Dec 31, 2013. Total risk-based capital ratio came in at 13.87% versus 13.13% as of Dec 31, 2013.
However, tangible equity to tangible assets ratio stood at 7.16% compared with 7.44% as of Dec 31, 2013.
Further, non-GAAP return on average assets on an annualized basis inched down 18 bps year over year to 0.74%. Non-GAAP return on average equity declined 174 bps year over year to 9.86%.
Outlook for 2015
SVB Financial provided guidance for the year 2015 on a GAAP basis. According to the company, 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%. Further, non-interest expense, net of noncontrolling interests, is projected to increase at a percentage rate in the mid-single digits.
Moreover, core fee income including foreign exchange fees, deposit service charges, credit card fees, lending related fees, client investment fees as well as letters of credit fees, is estimated to increase at a percentage rate in the mid-teens.
Further, average loan balances are expected to augment at a percentage rate in the mid-twenties, while average deposit balances are forecasted to increase at a percentage rate in the low thirties.
On the credit quality front, Net loan charge-offs are expected to lie within 0.30% and 0.50% of average total gross loans. Nonperforming loans as a percentage of total gross loans along with allowance for loan losses for total gross performing loans as a percentage of total gross performing loans are expected to remain at the 2014 level.
Our Viewpoint
Robust capital position, continuous change in deposit mix and efforts to reduce long-term debt makes SVB Financial well positioned for future growth. In addition, the company’s enhanced investments will likely boost top-line growth going forward.
Nonetheless, escalating expenses, persistent margin compression and stringent regulations are expected to dent the company’s performance in the near term. Also, slow economic recovery and intensifying competition will likely keep the financials under pressure.
SVB Financial currently carries a Zacks Rank #2 (Buy).
Among other Western banks, Zions Bancorporation (ZION) and Bank of Hawaii Corporation (BOH) are scheduled to report their fourth-quarter 2014 earnings results on Jan 26, while Northrim Bancorp Inc. (NRIM) is slated to report on Jan 27.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment