Updated with market close information. NEW YORK ( TheStreet) -- Investors shut out of the Facebook IPO might consider SVB Financial Group ( SIVB), which is a Silicon Valley growth story that will directly benefit from the mega wealth created by the social network. SVB Financial main subsidiary is Silicon Valley Bank. The stock has been on fire, with shares rising 22% year-to-date, through Thursday's close at $59.96. With billions flowing to Facebook investors -- including DST Global Limited and Elevation Partners -- following the IPO, it's not unreasonable to expect a flurry of new funding to expand Silicon Valley companies or to fund tech startups, which can only help SVB Financial, which has seen major expansion of its lending activity over the past year, along with revenue improvement.
SVB Financial is headquartered in Santa Clara, Calif., with 26 offices in the U.S., as well as a presence in China, India, Israel and the Hong Kong. The company had $20 billion in total assets as of Dec. 31. SVB reported fourth-quarter earnings to common shareholders of $35.6 million, or 81 cents a share, increasing from $17.5 million, or 41 cents a share, a year earlier. While the bottom line improvement reflected lower credit costs, with the quarterly provision for loan losses declining to $8.2 million from $15.5 million a year earlier, the big story was loan growth. Total loans grew 26% year-over-year, to $7.0 billion, and net interest income increased 34%, to $140.1 million in the fourth quarter. The company's net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- expanded to 3.10% in the fourth quarter, from 2.74% a year earlier. CEO Greg Becker said during SVB Financial's fourth-quarter conference call that the company had "received approval to move forward with setting up our joint venture bank in China, and are in the process of preparing for a launch in 2012," and that he was hoping to open a UK branch in 2012, after being "disappointed we didn't get the branch up and running in 2011." CFO Mike Descheneaux gave some aggressive guidance for loan growth during the conference call, saying that "in light of our clients' continued strength and our strategy for keeping them longer and supporting them globally, we expect average loans in 2012 to grow at a percentage rate in the mid-20's."
|SVB Financial Group CEO Gregory W. Becker|
SVB has plenty of liquidity to fund further expansion of its lending. Total deposits grew 17% year-over-year, to $16.7 billion as of Dec. 31, and coveted noninterest-bearing demand deposits were up a whopping 32%, to $11.9 billion. Underscoring the liquidity situation, the company's ratio of net loans to deposits was just 41%, according to HighlineFI. Even though the company could expect some deposit outflow as the economy improves, since some of the deposit growth was attributed to "a continued lack of attractive market investment opportunities for our deposit clients," the balance sheet is primed for growth. SVB Financial's shares trade for 1.2 times tangible book value, according to HighlineFI, and for 18 times the consensus 2012 earnings estimate of $3.24 a share. While the shares are more expensive by these measures than many of the best-known banking names -- Bank of America ( BAC), trades for 0.6 times tangible book and 10 times forward earnings, while Citigroup ( C) also trades for 0.6 times tangible book but only eight times forward earnings -- the forward P/E reflects the premium you pay for solid growth, in an otherwise tepid environment. Sterne Agee analyst Brett Rabatin in early January upgraded SVB Financial to a "Buy" rating, saying he expected the company to "post stronger loan/revenue growth than the industry by a wide margin, and for the shares to outperform, with "continued contribution from the VC markets as well as the growing international efforts." Following the Jan. 27 earnings announcement, Rabatin raised his 2012 earnings estimate by 17 cents to $3.36 a share, and his 2013 EPS estimate by a dime to $3.85, saying that "our estimates could prove conservative given 4Q trends and momentum in technology and expected performance in foreign markets."
Rabatin's price target for the shares is $58.00, based on a multiple of 15 times his 2013 EPS estimate. When the analyst upgraded the shares earlier in January, he said that some investors might "pause at high P/Es names in the environment," but that SIVB would "be an EPS upside momentum story in 2012," and "should become more viewed as one of the best positioned institutions in the industry," to show "above-peer average revenue growth." Interested in more on SVB Financial Group? See TheStreet Ratings' report card for this stock. -- Written by Philip van Doorn in Jupiter, Fla. To contact the writer, click here: Philip van Doorn. To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.