SVB Financial Group SIVB reported first-quarter 2015 earnings per share of $1.71, significantly outpacing the Zacks Consensus Estimate of $1.34. However, the bottom line compared unfavorably with the year-ago figure of $1.95 per share.
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Higher net interest income supported by appreciable growth in loans and deposits contributed to the better-than-expected results. However, elevated costs as well as provisions along with lower non-interest income weighed on the results. Further, asset quality represented a mixed bag while profitability ratios deteriorated.
Net income available to stockholders amounted to $88.5 million, down 3% year over year.
Performance Details
SVB Financial’s net revenue totaled $410.9 million, down 19% year over year. However, it surpassed the Zacks Consensus Estimate of $319.0 million.
Net interest income increased 22% year over year to $238.9 million. However, net interest margin (NIM), on a fully taxable equivalent basis, fell 49 basis points (bps) year over year to 2.64%.
Non-interest income summed $172.0 million, reflecting a year-over-year decrease of 45%. The slip was driven by a considerable reduction in net gains on investment securities and other income, partly offset by higher net gains on derivative instruments, deposit service charges as well as lending related fees.
Non-interest expense climbed 15% year over year to $196.1 million. The increase was mainly attributable to a rise in all the expenses components except net occupancy costs.
Non-GAAP operating efficiency ratio ascended to 54.61% from 52.17% in the prior-year quarter. An increase in efficiency ratio indicates lower profitability.
As of Mar 31, 20154, SVB Financial’s net loans amounted to $14.3 billion, up 33% year over year, while total deposits grew 33% to $33.9 billion.
Asset Quality
Asset quality displayed a mixed bag during the quarter. The ratio of net charge-offs to average gross loans stood at 0.11%, down 63 bps year over year.
However, provision for loan losses increased substantially year over year to $6.5 million. Further, the ratio of allowance for loan losses to total gross loans came in at 1.15%, up 2 bps from the prior-year quarter.
Profitability and Capital Ratios
As of Mar 31, 2015, Common Equity Tier 1 ("CET1") risk-based capital ratio (under the new Basel III rules effective Jan 1, 2015) stood at 12.21%. Further, total risk-based capital ratio as of Mar 31, 2015, came in at 13.38% versus 13.41% as of Mar 31, 2014. Also, tangible equity to tangible assets ratio stood at 7.49% compared with 7.03% as of Mar 31, 2014.
Profitability ratios weakened during the quarter. Non-GAAP return on average assets on an annualized basis inched down 42 bps year over year to 0.91%. Further, non-GAAP return on average equity came in at 12.38% against 17.57% in the year-ago quarter.
Outlook for 2015
SVB Financial reiterated its previous guidance for the year 2015 (mostly on a GAAP basis) except a change in the outlook for non-interest expenses. Non-interest expense, net of noncontrolling interests, is now projected to increase at a percentage rate in the high single digits instead of the previously stated increase at the mid-single digits.
Outlook provided for the remaining items was the same. 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%.
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, higher provisions and persistent margin compression are expected to dent the company’s performance in the near term. Also, intensifying competition and stringent regulations will likely keep the financials under pressure.
SVB Financial currently carries a Zacks Rank #1 (Strong Buy).
Other Western Banks
Zions Bancorporation ZION reported first-quarter 2015 earnings of 37 cents, which beat the Zacks Consensus Estimate by a penny. Results gained from a marginal rise in net interest income (NII) as well as provisions credited to earnings.
Westamerica Bancorp. WABC posted first-quarter earnings of 57 cents per share, which came a penny ahead of the Zacks Consensus Estimate. Almost stable expense base and nil provision for loan losses primarily drove the better-than-expected results.
Further, Pacific Continental Corp. PCBK is scheduled to report first-quarter 2015 earnings results on Apr 29.
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