Shares of SVB Financial Group ( SIVB) of Santa Clara, Calif., closed at $57.63 Tuesday, returning 21% year-to-date, following a 10% decline during 2011. SVB's main subsidiary is Silicon Valley Bank, which has been greatly expanding its overseas operations, with offices in the United Kingdom, Israel, China and India, in addition to 27 offices throughout the United States. Despite the international growth, the company focuses on lending to technology companies, providing multiple services to venture capital and private equity firms that invest in tech and biotech, and also on private banking services for high net worth individuals, in its home market in the Silicon Valley area. SVB Financial Group reported second-quarter net income available to common shareholders of $47.6 million, or $1.06 a share, increasing from $34.8 million, or 78 cents a share in the first quarter, but declining from $65.8 million, or $1.53 a share, in the second quarter of 2011, when the company booked $71.7 million in gains on investment securities. Investment securities gains totaled $25.8 million in the most recent quarter. Second-quarter net interest income totaled $151.9 million, increasing from $150.9 million the previous quarter, and $130.5 million a year earlier. The increase in net interest income reflected very strong loan growth of 9% quarter-over-quarter, and 30% year-over-year, to $7.8 billion, as of June 30. In a tough environment for banks' margins, as long-term rates have continued to decline, while the benefit of declining short-term rates has mostly been realized, SVB's net interest margin has held up reasonably well, at 3.22% during the second quarter, declining from 3.30% in the first quarter, but increasing from 3.13% in the second quarter of 2011. SVB Financial Group's second-quarter return on average assets (ROA) was 0.92%, improving from 0.69% in the first quarter. The return on average common equity was 11.21%, increasing from 8.61% the previous quarter. Coffey says that "the reason you don't see great returns right now is that they have a bloated balance sheet," since "they kept a lot of deposits off balance sheet in money market funds, and when the money market industry collapsed, those deposits came back on the balance sheet." Excess liquidity was invested in securities, which the company has been slowly selling. "Right now, average securities are 57% of earning assets," Coffey says, increasing from just 27% in 2007, and now that money market funds are healthy again, "they are moving more deposits every quarter off the balance sheet back to the money market funds." The company's outlook for all of 2012 results an increase in average loan balances "at a percentage rate in the high twenties," and increase in net interest income "at a percentage rate in the high teens," a net interest margin ranging between 3.20% and 3.30%, and continued strong asset quality, with a level of nonperforming loans to total loans "lower than 2011 levels of 0.52%." Coffey also sees continued strong credit quality for the company. "Because the IPO market is functioning again, a lot of venture capital firms have cash now, and they are able to backstop other companies, which lowers the risk profile of Silicon Valley Bancorp's loans to small companies," he says. SVB's shares trade for 1.5 times their reported June 30 book value of $38.63, and for 15.5 times the consensus 2013 earnings estimate of $3.70 a share. The consensus 2012 EPS estimate is $3.59. Coffey rates SVB Financial Group "Outperform," with a price target of $68, and said in July after the company reported its second-quarter results that "the stock is currently priced well below its two-year median based on forward earnings (16x vs. 19x) and tangible book (149% vs. 158%)," and that stock is "priced on forward expectations of limited economic growth and systemic risk as opposed to fundamentals." At that time, the analyst said "the company's balance sheet growth should continue albeit at a pace slower than the 12% annualized rate through 1H-2012. Improvement in the mix of earning assets, specifically increasing loans and declining cash and equivalents, should result in steadily rising spread income." SIVB data by YCharts
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Shares of Western Alliance Bancorporation ( WAL) of Phoenix closed at $9.08 Tuesday, returning 46% year-to-date, after declining 15% last year. The company on Aug. 17 announced an agreement to acquire Western Liberty Bancorp ( WLBC) of Las Vegas, for roughly $55 million, or $4.02 a share, which was a premium of 49% over the target company's closing share price of $2.85 before the announcement, but only 75% of Western Liberty's total stockholder's equity of $73.7 million, as of June 30. Western Alliance will take on $199 million in assets, along with three offices in the Las Vegas area. The deal is subject to the approval of Western Liberty's shareholders, and is expected to be completed during the fourth quarter. Western Alliance reported second-quarter net income of $14.0 million, or 15 cents a share, increasing from $11.3 million, or 12 cents a share, during the first quarter, and $7.1 million, or seven cents a share, during the second quarter of 2011. Net interest income increased to $70.8 million during the second quarter, from $70.1 million the previous quarter, and $68.7 million, a year earlier. The net interest margin was a strong 4.46% in the second quarter, declining from 4.53% tin the first quarter, but increasing from 4.34% in the second quarter of last year. The main factor in the bottom line earnings improvement has been a decline in expenses on the sale and valuation of repossessed assets, to $901 thousand during the second quarter, from $2.7 million the previous quarter, and $7.7 million, a year earlier. Despite the declining expenses, Western Alliance's relatively high level of nonperforming assets continues to place a drag on earnings, with a second-quarter provision for loan losses of $13.3 million, which is slightly higher than in the previous quarter and a year earlier. Nonperforming assets made up 2.5% of total assets as of June 30, improving from 2.7% in March, and 3.1% in June 2011. Total loans increased 5% sequentially and 17% year-over-year, to $5.2 billion, as of June 30, with strong increases in commercial real estate and non-real estate lending. Western Alliance Bancorporation's second-quarter ROA was 0.80%, improving from 0.67% the previous quarter, and 0.39% a year earlier. The return on average equity (ROE) was 8.48%, improving from 6.97% in the first quarter, and 3.98% in the second quarter of 2011. With such a strong net interest margin, solid loan growth, and improving asset quality, Western Alliance looks like a golden late-cycle opportunity for investors. Coffey says that growing loans is "what they do best," which "hurt them when they were growing loans in Nevada," after which Western Alliance "retooled and focused on Arizona and California." "Loans have grown nine consecutive quarters and are on pace to grow 15% this year," he said. The shares trade for 1.5 times their reported June 30 tangible book value of $6.01, and 12 times the consensus 2013 EPS estimate of 77 cents. The consensus 2012 EPS estimate is 59 cents. Coffey rates Western Alliance "Outperform," with an $11 price target, and after raising his 2012 EPS estimate for the company by six cents to 75 cents on Aug. 20, the analyst on Wednesday raised the estimate by another two cents to 77 cents. After lowering his 2013 EPS estimate by a nickel to 88 cents on Aug. 20, Coffee on Wednesday raised his 2013 EPS estimate to 92 cents, after Western Alliance late on Tuesday filed merger documents that included estimates of "nearly $16 million in credit marks (14.3% on loans and 16.7% on OREO), a net bargain purchase gain of $11.7 million and acquisition consideration of 50% cash/50% stock." The analyst now estimates that Western Alliance will issue 2.9 million new shares to partially fund the Western Liberty deal, and since Western Liberty is so strongly capitalized, with a total ratio of Tier 1 capital to average assets of 34.77% as of June 30, and cash making up with cash making up 43% of total assets, "we are also estimating tangible book values of $6.18 for 3Q-12 and 2012 and $7.05 for 2013." WAL data by YCharts
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Shares of Wilshire Bancorp ( WIBC) of Los Angeles closed at $6.28 Tuesday, returning 73% year-to-date, following a drop of 53% during 2011. Wilshire specializes in lending to Korean businesses in the U.S. "There are two other comparable banks in the L.A. market," according to Coffey, the largest of which is BBCN Bancorp ( BBCN), "which has more of retail focus," and Hanmi Financial ( HAFC), "which is trying to get out of a severe regulatory order, so Wilshire really doesn't have much competition for what it does very well." BBCN was created through a merger-of-equals between Nara Bancorp and Center Financial in November 2011. "Nara was more retail, and they are about 55% of the company's assets, while Center was more business focused," according to Coffey. Jae Whan Yoo -- formerly the CEO of Center Financial -- is now the CEO of Wilshire Bancorp, and "has taken his model and strategies to Wilshire and is now a direct competitor with his former company," Coffey says. The company reported second-quarter earnings available to common shareholders of $22.1 million, or 31 cents a share, increasing from $17.9 million, or 25 cents a share, in the first quarter, and $2.1 million, or 4 cents a share, in the second quarter of 2011. Credit quality improvement was the driving factor in the sequential and year-over-year earnings improvement. During the most recent quarter, the company transferred $10 million out of loan loss reserves, while making no provision for reserves the previous quarter, and setting aside $10.3 million for reserves a year earlier. Factoring in net loan charge-offs. The company released $10.7 million in loan loss reserves during the second quarter and $3.2 million in the first quarter. Excluding government-guaranteed assets, Wilshire's nonperforming assets totaled $46.8 million as of June 30, or 1.80% of total assets, improving from 2.04% in March, and 3.22% in June 2011. With a second-quarter annualized net charge-off rate of just 0.09% and reserves covering 4.54% of gross loans as of June 30, "Wilshire is over-reserved," according to Coffey, who expects "a negative provision of $3 million in the third quarter," providing another boost to earnings. Wilshire's shares trade for 1.6 times their reported June 30 tangible book value of $3.94, and for 11 times the consensus 2013 EPS estimate of 57 cents. The consensus 2012 EPS estimate is $1.10. Coffey rates Wilshire Bancorp "Outperform," with a price target of $8.00. WIBC data by YCharts
Interested in more on Wilshire Bancorp? See TheStreet Ratings' report card for this stock. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn