SVB Financial (SIVB.Q), formerly known as Silicon Valley Bank, posted strong results in its fourth-quarter earnings report, beating estimates and raising guidance.
However, the stock still fell on the report. In this episode of "Beat and Raise" recorded Jan. 21, Fool contributors Toby Bordelon and Brian Withers discuss how broader fears about the economy as well as the pullback in tech stocks are weighing on SVB Financial.
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Brian Withers: Let's move on to your other stock you're covering today, SVB Financial.
Toby Bordelon: We got SVB Financial. It used to be called Silicon Valley Investment Bank, as I recall, I think that was the old name. They reported yesterday. You see that dip there at the right side there. The report actually wasn't that bad. It was a good report. I think there's just a lot weighing on banks right now, the whole economy, so you're seeing some of that.
SVB, for those who may not be familiar, they are focused on Silicon Valley, focused on entrepreneurs, focused on start-ups. That's their niche. It's where they focus their efforts, hence the name, Silicon Valley. That's where that comes from. For the full year again, it's the fourth-quarter report. They did well. They beat and they raised. The revenue up 48% to $6 billion for the year. Net interest income. Most of their income is from interest. $3.2 billion, that's up 48%, very solid. For the fourth quarter, we're talking $1.5 billion in revenue, which is up 25% year over year. Their net income, $1.77 billion. That's a 49% increase, Brian. It's right in line with that revenue. We're not seeing huge costs hitting them through their net income yet. But in the fourth quarter, here's where you see what the issue is. Fourth quarter, net income was actually down 4% to $71 million. Overall, the year was great, year-over-year comparisons. Things looked like it might be slowing a little bit in Q4.
Brian Withers: I think they're following up. I think I covered this one last quarter, and they had their best quarter ever last quarter. It follows the chart that things have been up, and then after their earnings report the last time, the price was at a 52-week high. It's hard to follow up after you knocked it out of the park.
Toby Bordelon: It is. When we look at the fourth quarter, fourth-quarter revenue up 25% year over year. Fourth quarter net income down 4%. You see what's going on. You're seeing some cost issues happening. You're seeing increased costs, translating that really phenomenal revenue growth into less net income. Because they're bearing a lot of costs. We're seeing that across financial sectors. Some of that's coming from compensation. If you look at their income statement, you'll see the compensation going up. That's impacting banks like it is everybody else, with salaries going up, wages going up. That's an issue for them. Their earnings per share [EPS], same story, you see that earnings per share, they are up 37% for the year. But EPS was actually down 16%, down to $0.42 for the fourth quarter. Similar issues with that.
Quarter over quarter, their loan growth was 6%. They are still growing their book from that great quarter they had when you looked at them. 1,700 new commercial clients, that's good. The NII by the way is net interest income. They're saying for 2022 fiscal year, they see net interest income growing in the high 30%, which they were telling us that would probably be in the mid-30%, so it's looking better. They're looking like it might be better for 2022. Began 1,700 new commercial clients in the fourth quarter. They've got about a 10% compound annual growth rate in terms of number of clients going back to 2016. The average client funds are growing at about a 37% compounded growth rate back to 2017, really solid history of growth there. 17% return on equity, which is up from 2021. That's up from 2022, which was 16.8%, so it's good there. But it's still lower than 20% they had in 2019. It's not quite back to where it were pre-pandemic in terms of their revenue. Look for that to get a little bit higher. I think to me, the performance looks pretty good. The story looks pretty good. I think what we're seeing in terms of how the market reacted to this is just look at today in the market, look at this week in the market.
Brian Withers: Yeah.
Toby Bordelon: I think that might be weighing more on them than you think.
Brian Withers: They are a bit of a tech play, too.
Toby Bordelon: They are.
Brian Withers: Most of their customers are in the tech industry, and tech is getting pounded. They're getting dragged down a little bit by their customers.
Toby Bordelon: You got double things right there. We're concerned about the economy, which is going to hit on banks to some degree. We're concerned about tech stocks, which is going to hit on them because that's their client base. They're getting hit from both of those aspects. But I don't see anything about the business, when I look at this, that says, "We got problems."
Brian Withers: Yeah. Five years from now, I think you'll see a nice steady growth over that period of time.
Toby Bordelon: Yeah. If you're bold and you've got cash, maybe you're looking at this dip and you're saying: "Let me take a closer look. Let me look into this company a little bit more and see if something might be there for me."
